Magazine article American Banker

Fair-Lending Suit Will Cost Tenn. Banking Company $3M

Magazine article American Banker

Fair-Lending Suit Will Cost Tenn. Banking Company $3M

Article excerpt

WASHINGTON -

First American Corp. of Nashville announced Wednesday with the Department of Justice that it has agreed to pay $3 million in damages to African-American loan applicants who were turned down by a subsidiary bank.

The government charged that loan officers at Deposit Guaranty National Bank of Jackson, Miss., overrode credit scores in favor of white applicants for home improvement loans and applied stricter standards to black applicants with comparable financial histories.

Blacks were three times more likely to be rejected than whites, according to the settlement agreement. The alleged bias occurred at Deposit Guaranty from Jan. 1, 1995, until last year. The Deposit Guaranty name is still on branches in Arkansas, Louisiana, and Mississippi, though they became part of the First American system in May 1998 when Deposit Guaranty Corp. was acquired.

The First American unit denied wrongdoing and said it settled to avoid the cost of litigation. The settlement expense is covered by a reserve in place at the time of the acquisition, according to a First American press release.

First American itself agreed in June to be bought for $6.3 billion by Birmingham, Ala.-based Amsouth Bancorp. That deal is expected to close in the fourth quarter.

The bias case stems from a routine fair-lending examination in 1997 by the Office of the Comptroller of the Currency, which referred the matter in January to the Justice Department.

The OCC determined that Deposit Guaranty lenders "exercised subjective judgments" and "freely overrode the decisions indicated by applicants' credit scores," according to the settlement. …

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