Minnesota’s KleinBank accused of discriminatory lending

Lending

[Update: This article is updated with a full statement of denial from KleinBank.]

Minnesota-based KleinBank excluded minority neighborhoods from its service area for all banking servicers and engaged in discriminatory lending, the Department of Justice claimed in a lawsuit filed late last week.

According to the Department of Justice, none of KleinBank’s branch locations in the Minneapolis-St. Paul metro area is located in a minority neighborhood, a practice known as “redlining.”

The DOJ defines redlining as a “discriminatory practice by banks or other financial institutions of denying or avoiding providing credit services to consumers because of the racial demographics of the neighborhood in which the consumer lives.”

According to the DOJ, from 2010 through 2015, KleinBank “structured its residential mortgage lending business in such a way as to avoid serving the credit needs of neighborhoods where a majority of residents are racial and ethnic minorities.”

KleinBank, on the other hand, “vigorously disputes” the DOJ’s allegations.

“The government’s claim of ‘redlining’ has absolutely no basis in fact,” said Doug Hile, president and CEO. “To the contrary, KleinBank has an established history of responding to all credit requests with a commitment to fairness and equal opportunity. This history is undisputed.” 

In its lawsuit, which was filed in the U.S. District Court for the District of Minnesota, the DOJ said that KleinBank’s alleged redlining practices also included targeting marketing and advertising exclusively toward residents of majority-white neighborhoods.

As a result of these efforts, from 2010 to 2015, similar mortgage lenders pulled in more than five times the amount of mortgage applications from minority neighborhoods, and lent to minority neighborhoods at more than four times the rate that KleinBank, the DOJ said.

According to the lawsuit, the bank’s actions constitute a violation of the Fair Housing Act and Equal Credit Opportunity Act, which prohibit financial institutions from discriminating on the basis of race and color in their mortgage lending practices.

“Redlining produces an unequal and unlevel playing field for borrowers in minority neighborhoods,” said Principal Deputy Assistant Attorney General Vanita Gupta, head of the Civil Rights Division. “Cases like this one demonstrate the Justice Department’s strong commitment to hold banks accountable for continuing and perpetuating historic trends of inequality in residential mortgage lending.” 

KleinBank said that it has worked with the DOJ for more than a year on the DOJ’s inquiry into its banking practices and feels the DOJ’s allegations are without merit.

“We have provided significant amounts of information in response to the DOJ’s inquiry and we have cooperated with their requests in all respects,” Hile said.

“Minneapolis and St. Paul are not part of KleinBank’s market, and we have virtually no business there,” Hile continued. “These are highly competitive markets and they are comprehensively served by well-established financial institutions with numerous branches and many years of history.”

According to Hile, the DOJ alleges that KleinBank has a “proactive duty” to expand its service area beyond the bank’s “century-old roots” in Western Minnesota. Hile called this a “baseless and unprecedented reach by the government.”

Hile said that he is confident that a full review of its practices will find that the bank is fully compliant with all laws.

“Year after year, the results of these examinations have found that KleinBank has well served all of its constituents’ needs,” Hile said.

“The markets that we serve and the regulations that we follow are continuously changing, often in complex ways,” Hile continued.

“We have stayed true to our values and we have been meticulous and proactive in adapting to the changes,” Hile said. “We seek to be part of the solution to the challenges facing our communities and we will continue to work cooperatively with others who share this objective.”

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