The Independent Community Bankers of America issued a statement calling on the Trump administration “to rein in the overzealous application of fair lending laws.”  ICBA stated that community banks are threatened by a recent trend of “unwarranted enforcement actions” that “harm community banks and the customers they serve by undermining the availability of credit in local communities and throughout the economy.”

Noting the commitment of community banks to fair lending, the ICBA’s president indicated that “community banks are experiencing enforcement overreach that diverts an abundance of resources from serving their local communities to complying with and responding to unwarranted fair lending allegations.”

The ICBA’s statement noted the DOJ’s recently-filed fair lending action against KleinBank, which it called “a misguided and baseless claim against [the] family-owned [bank], a 110-year-old institution that has never been cited for fair lending violations by its primary regulator, the Federal Deposit Insurance Corp.”  The DOJ’s complaint, which relates to the bank’s residential mortgage lending business, alleges that KleinBank violated the Fair Housing Act and the Equal Credit Opportunity Act by engaging in a pattern or practice of unlawful redlining of the majority-minority neighborhoods in the Minneapolis-St. Paul metropolitan area.  From 2010 to at least 2015, the bank is alleged to have avoided serving the credit needs of individuals seeking residential mortgage loans in majority-minority census tracts in the Metropolitan Statistical Area encompassing Minneapolis and St. Paul.  For a more detailed discussion of the DOJ’s redlining claim, see our legal alert.

According to the ICBA, the KleinBank action “and similar actions directly attack the community banking model, in which hometown financial institutions serve their local communities and economies.  Requiring community banks to expand their market presence into neighboring counties would force them to alter their model and sound business practices.”

The DOJ’s focus on redlining is consistent with the fair lending focus of the CFPB, which recently identified redlining as one of its fair lending priorities for 2017.  The CFPB, in the Fall 2016 edition of Supervisory Highlights, lists factors it considers when assessing redlining risk and explains how it performs an analysis of redlining risk, such as its use of Home Mortgage Disclosure Act and census data to assess an institution’s lending patterns and its comparison of an institution to peer institutions.  These factors, which are described in detail in the Interagency Fair Lending Examination Procedures, include the CRA assessment area and the market area more generally.