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BancorpSouth Agrees to Settle Suit on Unfair Lending Actions

On Wednesday, BancorpSouth, Inc. BXS agreed to settle the lawsuit for $10.6 million under which the bank was being sued for encouraging discriminatory mortgage lending practices. The settlement agreement was entered with the U.S. Department of Justice ("DOJ") and the Consumer Financial Protection Bureau ("CFPB").


The bank was accused for violating the Fair Housing Act and Equal Credit Opportunity Act. Both DOJ and CFPB investigated BancorpSouth's lending practices initiating in 2014 in the Memphis area as well as in parts of neighboring Mississippi and Arkansas and concluded that the bank used racial criteria to direct potential borrowers towards certain neighborhoods and determined their eligibility for loans. We note that, as per the DOJ, such discriminatory practice is referred as ‘redlining’.

Moreover, regulators revealed BancorpSouth evaded areas with large African-American and Hispanic populations by refraining from opening branches or allocating those areas to loan officers. It has been notified that BancorpSouth was involved in predatory lending practices providing overcharged (higher fees and interest rates) loans to minority borrowers.

Awaiting the U.S. District Court’s approval in Northern District of Mississippi, the bank will be paying around $10.6 million, including about $4 million as loan subsidy with a penalty amount of $3 million. Further, the settlement includes payment of $2.78 million to black consumers who were illegally denied or overcharged for their loans and $800,000 for community programs and credit repairs.

"BancorpSouth's discrimination throughout the mortgage lending process harmed the people who were overcharged or denied their dream of homeownership based on their race, and it harmed the Memphis minority neighborhoods that were redlined and denied equal access to affordable credit," CFPB Director Richard Cordray said in a statement.

BancorpSouth neither accepted nor denied the wrongdoings and disagreed with the accusations saying “the decision to settle was to avoid prolonged and distracting litigation."

"We believe this settlement is a positive development for the bank, and is in the best long-term interest of our customers, employees, and shareholders," James D. Rollins III, chairman and chief executive of BancorpSouth, said in a statement. "BancorpSouth is fully committed to fair and responsible lending practices in all communities throughout our footprint. Our settlement is a testament to that commitment."

Notably, the bank has already reserved $13.8 million during the first quarter of 2016 to meet such settlements, and therefore further financial impact is not anticipated.


Among other mortgage lenders – Citigroup Inc. C, JPMorgan Chase & Co. JPM and Bank of America Corp. BAC were also sued for discrimination in lending practices. Deutsche Bank AG had also been previously accused by Los Angeles of letting the foreclosed homes in low-income regions deteriorate to poor conditions. The case was settled in Jun 2013.

For banks, legal headwinds are on the rise. They continue to face several cases and probes regarding their business conduct preceding the financial crisis. Though the banks have resolved many such issues in the past years, increasing legal hassles keep dragging their financials downward.

Currently, BancorpSouth carries a Zacks Rank #3 (Hold).

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