The U.S. Justice Department has sued KleinBank, claiming the Chaska-based financial institution engaged in “redlining,” a discriminatory practice performed by banks to effectively avoid or deny credit services to areas heavily populated by minority groups.
In a lawsuit filed Friday in the U.S. District Court for the District of Minnesota, the DOJ accused KleinBank of violating the Fair Housing Act and Equal Credit Opportunity Act. The Civil Rights division of the Department of Justice (DOJ) claims the bank structured its residential mortgage lending business in such a way that it resulted in “a statistically significant failure … to provide loan services for dwellings located in majority-minority tracts.”
KleinBank is the largest family-owned state bank in Minnesota. The 110-year old financial institution manages $1.8 billion in assets and has 21 branch offices.
From 2010 to at least 2015, the DOJ allege KleinBank drew a “horseshoe-shaped” assessment area that excluded all 37 majority-minority census tracts in Ramsey County, and 39 of the 58 majority-minority census tracts in Hennepin County. The accusation goes on to include claims of targeted advertising exclusively toward residents of majority-white neighborhoods, and the avoidance of opening branch offices and locating mortgage loan officers in majority-minority neighborhoods.
KleinBank CEO Doug Hile was quick to respond saying the claims of redlining had “absolutely no basis in fact.”
“To the contrary,” he said in a statement, “KleinBank has an established history of responding to all credit requests with a commitment to fairness and equal opportunity. This history is undisputed.”
Hile continued on to call the DOJ’s claim that KleinBank avoided building branches in minority-majority neighborhoods “a baseless and unprecedented reach by the government.”
Over a year ago, KleinBank had been contacted by the DOJ in regards to questions about its lending practices. From the 2010 to 2015 period, the DOJ said comparable lenders were generating applications in majority-minority neighborhoods in the Twin Cities at over five times the rate of KleinBank. Moreover, the number of loans approved by comparable lenders also allegedly topped KleinBank’s figures by more than four times.
The reason for this, Hile said, is KleinBank’s preference to focus on areas where its business performance is strongest. “Minneapolis and St. Paul are not part of KleinBank’s market, and we have virtually no business there,” he said.
The KleinBank CEO added Minnesota’s two largest cities “are highly competitive markets and they are comprehensively served by well-established financial institutions with numerous branches in many years of history.”
In a statement, Principal Deputy Assistant Attorney General Vanita Gupta said, “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.”
Hile said he is confident that a fair and full review of KleinBank’s practices will validate it and clear the charges against it.