On September 28, 2016, the Department of Justice (DOJ) announced a settlement with Charter Bank of Corpus Christi, Texas related to allegations of discriminatory lending practices on the basis of national origin. The complaint alleges that, from the beginning of 2009 through the second quarter of 2014, Charter Bank “charged hundreds of Hispanic borrowers higher interest rates on consumer loans secured by motor vehicles already owned by the borrower than the rates charged to similarly-situated non-Hispanic borrowers.”
The allegations arose from an examination conducted by the Federal Deposit Insurance Corporation (FDIC) based on an analysis of the average interest rate among prohibited and non-prohibited basis groups of borrowers. Examiners determined that Charter Bank permitted employee pricing discretion within a range of three percentage points. The result of this policy led higher average interest rate among Hispanic borrowers that were not based on their underlying credit risk.
Under the settlement, Charter Bank will pay $165,820 to Hispanic borrowers that were identified as victims of discrimination. In addition, the bank must maintain its revised non-discretionary consumer loan pricing policies, maintain its monitoring program to detect statistically significant patterns of pricing disparities, and provide appropriate training to employees.
This new settlement provides another data point showing how agencies are leveraging data to identify prohibited-basis customers and patterns of disparities within the consumer lending market. While the Consumer Financial Protection Bureau (CFPB) made headlines in its settlements with Honda and Toyota by using the BISG proxy methodology, the Charter Bank settlement highlights that even community banks need to analyze their lending patterns using appropriate proxy and statistical methodologies to identify and mitigate potential Fair Lending risk.