$585,000 settlement in New Mexico lending complaint

The First National Bank of Dona Ana County in Las Cruces, New Mexico entered a settlement agreement worth $585,000 with the United States Department of Justice earlier this year.  The Justice Department had alleged that the bank had violated fair lending laws by giving less favorable treatment to Hispanic mortgage applicants than it gave to white applicants.

 According to the settlement agreement which was approved by US District Judge Howard Bratton, First National Bank will establish a $485,000 fund to compensate Hispanic applicants whom they wrongfully denied loans.  First National will also create a $750,000 fund to allow applicants purchasing mobile homes to do so at reduced interest rates.  The bank’s estimated cost to establish the fund will be $100,000, a figure agreed to in the settlement.

 The bank will also target Dona Ana County’s Hispanic community for home ownership seminars and specialized marketing programs which will advertise all of the bank’s products and services.  Finally, First National will hire customer service representatives who speak Spanish to provide information to non-English speaking applicants.

Bank approved loans for white applicants while rejecting Hispanics with similar credit histories  
According to the Department of Justice complaint, First National Bank had been approving white applicants for home loans while rejecting similarly qualified Hispanic applicants from January 1992 through March 1995.  According to Justice Department officials, white applicants were given opportunities to explain past credit problems and outside sources of other income while Hispanic applicants with credit problems were simply rejected.  In some cases, the Justice Department alleged, First National Bank did not even attempt to verify the credit references on loan applications from Hispanic customers.

 Paul Hancock, chief of the Justice Department’s civil rights division, said in the Summer 1997 issue of Reinvestment Works, the newsletter published by the National Community Reinvestment Coalition,  that Hispanic applicants were being denied because they had not lived in the bank’s service area long enough or had no history of established credit.  Hancock said that whites were approved with “lousy” credit histories.  “The bank’s argument to us was that poor credit history was better than no credit history,” he said.

 After the settlement was reached, the Justice Department released a statement that the bank had been cooperative during an investigation and had already taken steps to improve its fair lending record.  The bank denied the charges of discrimination.

Bank had “Outstanding” CRA rating despite disparities evident between white and Hispanic applicants
Despite the high rate of Hispanic applicants being turned away, First National Bank received an “Outstanding” Community Reinvestment Act (CRA) rating in 1995.  According to Reinvestment Works, the Office of the Comptroller of the Currency (OCC), which issues CRA ratings, later admitted that its review of First National’s practices did not include a review of mobile home loans.

 The OCC had reportedly been under the impression that the mobile home loans had been reviewed in 1993 and did not need to be reexamined.  In its investigation, the Justice Department found discriminatory treatment in mobile home loans going back to 1990.  It’s not clear whether the OCC or the bank was at fault for issuing the inappropriate rating.