Attorney General Janet Reno announced that the Justice Department had entered into settlements in January with two banks that discriminated against minorities in lending. Under the agreements, a Mississippi bank will pay $800,000 in fines and damages for charging Blacks higher interest rates than whites on home improvement loans. A South Dakota bank will pay $125,000 in damages for discriminating against Native Americans.
General Janet Reno said at her January news conference, "It is the soundness of the loan and not the color of the applicant's skin that should dictate a bank's lending policies."
First National Bank of Vicksburg
In the first case, the First National Bank of Vicksburg, Mississippi, agreed to pay $50,000 in civil penalties and create a $750,000 fund to compensate blacks who were overcharged on interest rates.
Vicksburg first came under scrutiny by the office of the Comptroller of the Currency (OCC) when data from the Home Mortgage Disclosure Act revealed discrepancies in the bank's lending practices. In reviewing the bank's records for 1992, OCC discovered that the bank charged Blacks higher interest rates than whites on unsecured home improvement loans. The bank charged nearly all of its Black borrowers interest rates from 14 to 21%, while it charged most of its white borrowers rates of only about 10% - a difference ranging from 4 to 11%.
In October 1993, the OCC referred the matter to the Justice Department, which determined that the bank's pattern or practice of racial discrimination violated the Fair Housing Act and the Equal Credit Opportunity Act.
Under the agreement, the bank will pay about $4,400 to 170 blacks customers. Between January 1990 and July 30, 1993, these customers were charged the higher interest rates on loans averaging about $2,000. The consent decree, filed together with a complaint in U.S. District Court in Jackson, Mississippi, also requires the bank to:
- Lower interest rates of all blacks who currently hold discriminatory loans
- Establish a goal of funding at least $1 million in loans to low and moderate income borrowers
- Conduct random testing to ensure that employees are not treating minorities differently than nonminorities.
Blackpipe State Bank
In another January agreement, Blackpipe State Bank in Martin, South Dakota, will create a $125,000 fund to compensate for discriminating against Native Americans.
In November 1993, the Justice Department sued Blackpipe for allegedly refusing to make secured loans where the collateral was located on a reservation, and for placing credit requirements on Native Americans that it did not require of whites. Based on information provided by the FDIC, the Justice Department amended its complaint to also allege that Blackpipe charged Native Americans greater interest rates and finance charges than those it charged whites.
According to the agreement, filed in January in U.S. District Court in Rapid City, South Dakota, Blackpipe must advertise the existence of the fund to help locate past rejected applicants who may be eligible for compensation. The consent decree also requires the bank to do the following:
- Reduce interest rates and finance charges on existing loans to Native Americans that are higher than for similar loans made to whites
- Market its products to Native Americans on the reservations through local media, instructional seminars on lending, and regular meetings with tribal representatives
- Offer Bureau of Indian Affairs and Federal Housing Administration guaranteed loans, which are of particular interest to Native American borrowers.
Currently, the Justice Department is investigating several banks throughout the nation for discriminatory lending practices, and in the last 15 months has reached agreements with four financial institutions for alleged discriminatory lending.
These two settlements involve far smaller banks than previous Justice Department actions. Blackpipe has assets of $18 million, while Vicksburg has assets of $277 million.