The U.S. Department of Justice has sued a Twin Cities-area bank for allegedly engaging in mortgage lending practices that discriminate against minorities.
In a lawsuit filed Friday, the department said KleinBank engaged in “redlining,” a practice in which banks deny or avoid providing credit services to consumers because of racial demographics or because of the neighborhood where they live.
Chaska-based KleinBank was closed Monday for the Martin Luther King Jr. Day holiday. In a statement Monday, President Doug Hile said the bank “vigorously disputes” the findings in the DOJ complaint.
“The government’s claim of ‘redlining’ has absolutely no basis in fact,” Hile’s statement says. “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.”
Hile’s statement also noted that KleinBank has been working with the Department of Justice for more than a year on the inquiry about its lending practices. In an interview, Hile said the timing of the lawsuit was a surprise.
In the lawsuit, the federal government alleges that KleinBank violated the Fair Housing Act and Equal Credit Opportunity Act. The lawsuit says that from 2010 to at least 2015, KleinBank structured its home mortgage lending business to avoid serving neighborhoods where a majority of residents are racial and ethnic minorities.
KleinBank’s website says it has 21 branches in suburbs west of Minneapolis and St. Paul and in western Minnesota. Census data shows those areas are predominantly white.
The lawsuit says the bank’s service area is in a horseshoe shape that carves out the urban areas of Minneapolis and St. Paul, which have higher minority populations, and targeted its marketing and advertising solely toward white neighborhoods.
Hile addresses this point specifically: “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.”
Hile’s statement says the complaint alleges that KleinBank had a proactive duty to expand beyond Carver County and western Minnesota to build branches in Minneapolis and St. Paul — “a baseless and unprecedented reach by the government.”
The lawsuit claims that from 2010 to 2015 comparable lenders generated loan applications in minority neighborhoods at over five times the rate of KleinBank. The other lenders made loans in those neighborhoods at over four times KleinBank’s rate.
On its website, the bank says it has been honored for business ethics and voted by readers of Twin Cities Business as best in class for mortgage lending.
Vanita Gupta, principal deputy assistant attorney general and head of the federal agency’s Civil Rights Division, said in a statement that redlining produces an unequal playing field for borrowers in minority neighborhoods.
Going forward, Hile said he hopes the bank would continue to communicate with the Justice Department.
“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,” Hile said.
Staff reports were used in this story.