Missouri bank pays $50,000 to end unfair lending dispute

The largest home mortgage lender in Kansas City, Missouri has agreed to settle a lending discrimination case filed by Legal Aid of Western Missouri on behalf of testers. Under the April settlement agreement, Capitol Federal Savings agreed to pay $50,000 in damages and make many changes in both its lending and personnel policies. The settlement also calls for the lender to submit quarterly monitoring reports to Legal Aid for the next two years. Capitol Federal Savings also agreed to pay Legal Aid an extra $10,000 if they are found to be noncompliant with fair lending laws during that two-year period.

White testers received better treatment than African-American testers
Legal Aid had sent five pairs of testers to Capitol Federal Savings over a period of several months. Each test paired similarly qualified African-American and white homebuyers. The testers presented loan officers with similar qualifications including debt-to-income ratios, employment background, assets, and debts. After comparing the tests, Legal Aid determined that white testers were being offered better terms, loan products, and qualification assistance than African-American testers.

Legal Aid had decided to send testers to Capitol Federal Savings after reviewing Home Mortgage Disclosure Act (HMDA) data that showed African-American loan applicants were being turned away at a rate five times greater than white applicants. No other lender in the Kansas City metropolitan area matched the pattern of minority applications being rejected displayed by Capitol Federal Savings.

Legal Aid filed a complaint with the HUD Office of Fair Housing and Equal Opportunity in Kansas City. That office facilitated the settlement.

Bank agrees to many changes in policies
In addition to the monetary portion of the settlement, Capitol Federal Savings agreed to very significant changes in its lending and personnel policies. In reforming its lending policies, Capitol Federal Savings agreed to the following changes:

  • changes its marketing and advertising programs;
  • a loan file review to find and provide restitution to African-American customers who may have been overcharged;
  • full descriptions of all loan products to all applicants;
  • no longer allow loan officers to charge closing cost overages;
  • market its loan products in African- American publications and media; and
  • begin conducting home buyer education seminars in conjunction with ten community organizations.

In reforming its personnel policies, the Capitol Federal Savings agreed to several important changes:

  • the expansion of fair lending training to its staff involved in loan origination;
  • double the number of African-American loan officers at Capitol Federal Savings branches in the metropolitan area;
  • the hiring of African-American loan officers to market products in minority areas; and
  • a 50% increase in commissions to loan officers who originate loans in minority neighborhoods.

Michael Duffy, Legal Aid's lead attorney in this case, suggested that objective sources like HMDA data can lead fair lending advocates to a bank that may be discriminating, but cases require more proof. He said, "Statistics suggest pervasive racial discrimination in lending, but it is often subtle and complex. Detecting it and proving it have been the challenges of this case."

Duffy went on to say that Legal Aid was very pleased with the settlement and that it should send a message to the entire Kansas City lending community.