KleinBank, DOJ Reach Settlement in “Redlining” Discrimination Case

The company still denies allegations of lending practices designed to avoid minority-heavy communities, yet must make structural changes anyway, per terms of agreement.

KleinBank, DOJ Reach Settlement in “Redlining” Discrimination Case
A settlement has been reached in a lawsuit between the U.S. Department of Justice and KleinBank, the largest family-owned state bank in Minnesota. The suit, filed by the DOJ in early 2017, accused Chaska-based KleinBank of lending practices that discriminated against minorities.
Per the settlement, announced Tuesday, the DOJ has dismissed the claim on conditions of actions KleinBank must take to rectify perceived misconduct.
The suit alleged that from 2010 to at least 2015, KleinBank had structured its residential mortgage business – drawing a “horseshoe-shaped” assessment area around different census tracts, as TCB reported last year – that allowed it to avoid serving neighborhoods with a predominantly minority population. Allegedly targeted for exclusion were all 37 majority-minority sections in Ramsey County and 39 of the 58 majority-minority areas in Hennepin County.
This practice, called “redlining,” is a violation of the Fair Housing Act and Equal Credit Opportunity Act, which prohibits financial institutions from considering race in their lending habits.
With a settlement reached, KleinBank CEO Doug Hile steadfastly denies any discrimination intent by the company. When the allegations were initially issued, he said KleinBank’s operations were based solely on where business performance was strongest.
He said the excluded areas, which lay in Minneapolis and St. Paul, simply weren’t in KleinBank’s market and he insisted the redlining claims were unfounded. Hile maintained this stance in the settlement announcement.
"While we continue to disagree with the DOJ's claim and believe that it has no basis in fact,” said Hine, “we have decided this compromise allows us to channel our resources into serving the community, specifically where the needs are great and where our special approach to engagement and commitment will have a profound impact.”
Still, in accordance with the settlement stipulations, KleinBank – which runs 21 bank branches throughout Minnesota – must revise its main Community Reinvestment Act assessment area. The new area must include all of Hennepin County, and the company will open a new branch office within the county, as well as continue to expand community initiatives.
Among other goals, those initiatives will focus on enhancing KleinBank’s ability to understand and serve the credit needs of all borrowers, investing into loan programs and subsidies serving low-moderate income and majority-minority census tracts, and expanding brand and product awareness and consumer fashion and fair lending educational programs.
The DOJ’s suit against KlienBank – a 111-year-old institution with more than $1.9 billion in assets and upwards of 400 employees – was opened by the Obama administration, and dismissed by the Trump administration.
"We are very pleased that the DOJ has dismissed this lawsuit,” said Hile, “and we look forward to continuing to work with and serve the needs of all of our communities."
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