Magazine article American Banker

Community Bankers Worried over Justice Dept. Bias Push

Magazine article American Banker

Community Bankers Worried over Justice Dept. Bias Push

Article excerpt

Community bankers fear they will end up paying a high price to comply with the Justice Department's new fair-lending push.

The agency's recent moves have sent community bankers into a panic over whether Justice will dictate whether they must open branches in low-income neighborhoods.

They are also concerned that their costs of compliance, legal advice, and retraining employees will constitute a greater percentage of the bottom line than that of larger banks, bankers and industry experts say.

"The industry as a whole feels they [Justice] have overstepped their authority," said John Shivers, president of the Independent Bankers Association of America. "How can someone do something wrong when they don't even know about it?"

Meanwhile, community bankers fear they would be crushed by the legal costs of challenging the agency in the Courtroom.

The concerns stem from Justice's actions against Chevy Chase Federal Savings Bank. Two months ago the $5-billion-asset Maryland thrift signed a consent decree with the government concerning fair lending laws. In the eyes of community bankers, Chevy Chase buckled under in part because of the astronomical legal costs it would have incurred in contesting the allegations.

If a $5 billion-asset institution is afraid to fight, what chance do $50 million-asset community institutions have, bankers asked.

Trade group officials and bankers believe that if Justice targets a community bank, the industry will throw its full weight behind supporting the institution.

"We're waiting for the next one to get hit, because you'll see us fight like hell," said Joseph Williams, president of the Community Bankers of Florida. "It's not fear we're feeling. It's anger. It's gone too far."

In the consent decree, it agreed to spend $11 million in serving minority and low-income neighborhoods in Washington, D.C., and $7 million in subsidized loans to customers in these areas.

"Every seminar I've gone to in the last several months, it's all everybody talks about," said George Freibert, president of Professional Bank Services Inc., a Louisville, Ky., consulting firm.

What many bankers find most disturbing about the Chevy Chase case is that Justice equated the thrift's decision not to open branches in low-income neighborhoods with lending discrimination. The thrift did not treat minority customers any differently than nonminority customers; it simply did not serve enough minority customers.

"This is a gross misuse of the banking system," said Mr. Williams.

"When banks are being used to drive the Clinton social agenda, what a travesty, what a gross abuse of power."

Mr. Williams said he and other bankers have done nothing differently in their lending procedures since the Chevy Chase case because they have no idea how to comply with such a decision. …

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