BancorpSouth Bank will pay more than $10 million to settle a redlining suit in Mississippi federal court alleging it used mortgage lending policies that unlawfully discriminated against blacks and other residents of predominantly minority communities, federal authorities said Wednesday. The U.S. Department of Justice (DOJ) and the Consumer Financial Protection Bureau (CFPB) issued a statement saying BancorpSouth has agreed to a consent order requiring it to pay almost $7 million in loan subsidies and compensation to alleged victims, along with a $3 million civil penalty to the CFPB.

Federal officials alleged BancorpSouth violated federal housing and equal credit opportunity acts by:

  • Illegally redlining in Memphis, the market from which it receives the most applications, by structuring business to avoid and discourage mortgage applications from consumers in minority areas from at least 2011 to 2013.
  • Improperly having one of the bank’s lending units deny mortgage and other loan applications from African Americans at higher rates than whites.
  • Discriminating against African American borrowers by charging them higher annual percentage rates than whites with similar loan qualifications.

The complaint also described how the CFPB found support for te allegations by sending testers – a white tester and an African-American tester – to inquire about mortgage loans in various BancorpSouth branches. The CFPB relied on the results of that investigation and the testers’ interactions with bank employees in its action against the bank. The CFPB’s press release stated, “This is the CFPB’s first use of testing, sometimes referred to as “mystery shopping,” to support an allegation of discrimination. Other government agencies, including the DOJ and the Department of Housing and Urban Development, as well as fair housing organizations, have used testers for decades as a method of identifying discrimination. Courts have long recognized testing as a reliable investigative tool.”

BancorpSouth operates branches in eight states and had total assets of $13.9 billion as of March 31. In a written statement, the bank called the proposed consent order, which requires federal court approval, “a positive development” that “is in the best long-term interest of our customers, employees, and shareholders.”

BancorpSouth also said it has acted since 2012 to enhance its compliance management systems, reduce its fair lending risk, and increase lending in minority areas.