By Jason Schmucker
Chaska-based KleinBank has been targeted by the U.S. Justice Department for discriminatory lending practices, according to charges filed Friday in U.S. District Court. KleinBank officials are disputing the allegations.
Locally, KleinBank has branches in Waconia, St. Bonifacius, Norwood Young America, Cologne, Victoria, Chaska and Chanhassen.
According to the charges, KleinBank engaged in the practice of “redlining” by structuring its residential mortgage lending practices to avoid serving credit needs of minority neighborhoods. Redlining is the practice by which lenders deny or avoid providing credit to predominately minority neighborhoods, according to the justice department.
Redlining violates both the Equal Credit Opportunity Act and the Fair Housing Act.
“The government’s claim of ‘redlining’ has absolutely no basis in fact,” said KleinBank’s president and CEO Doug Hile in a press release. “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.”
The charges focus on residential and real estate-related lending practices between 2010 and 2015. During that span, analysts found that KleinBank served credit needs of majority-white neighborhoods to a “significantly greater extent” than it did in majority-minority neighborhoods. The justice department notes that during the same period, comparable lenders generated credit applications in minority neighborhoods at more than 5 times the rate of KleinBank, and originated loans in those same neighborhoods at more than 4 times KleinBank’s rate.
According to the U.S. Attorney’s Office, KleinBank excluded majority-minority neighborhoods in Twin Cities metro by locating offices and mortgage loan officers in majority-white neighborhoods and targeted marketing efforts toward majority-white neighborhoods.
The justice department contends that these discriminatory practices are evident from the assessment areas the bank established and maintained under the Community Reinvestment Act of 1977. The Community Reinvestment Act was designed to encourage institutions to meet the credit needs of communities in which they operate, including low- and moderate-income areas.
Court documents state that KleinBank drew its main assessment area to be horseshoe-shaped – it includes the majority white suburbs and carves out the urban areas of Minneapolis and St. Paul that have higher proportions of minority populations. Since about 2007, KleinBank’s main assessment area has consisted of Anoka, Carver, Dakota, McLeod, Scott, Sherburne, Sibley and Wright counties. In Hennepin County, the assessment excludes what roughly amounts to the city limits of Minneapolis.
Hile said the reason the bank has never done business in Minneapolis or St. Paul is due to the competitive market.
“Minneapolis and St. Paul are not part of KleinBank’s market, and we have virtually no business there. These are highly competitive markets and they are comprehensively served by well-established financial institutions with numerous branches and many years of history.
Of KleinBank’s 19 full-service branches in the metro, none are located in a majority-minority neighborhood, according to the justice department.
Hile said in the press release he expects the suit will be dismissed.
“A full and fair review of our practices will validate KleinBank’s exceptional history of community lending and community responsiveness,” 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.”
Contact Jason Schmucker at [email protected]