Justice Department’s probe of Cardinal Bank sparks debate on lending

A Justice Department investigation of McLean-based Cardinal Bank is bringing into question the department’s handling of lending discrimination claims.

Critics say the Justice Department is ensnaring institutions with strong track records in minority communities and forcing them to lend to unqualified borrowers. Proponents of the department’s actions, however, say the increased scrutiny is needed to prevent the biased practices used by lenders in the run-up to the housing meltdown.

Cardinal, a $2 billion-asset bank with 27 branches primarily in Northern Virginia, is being accused of failing to serve minority communities equally following its 2004 acquisition of George Mason Mortgage, according to the bank’s attorney, Paul Hancock of K&L Gates.

Neither he nor officials at the DOJ’s Fair Lending unit, which launched the inquiry earlier this summer, would discuss details of the case. They are scheduled to meet within the coming week.

Bernard Clineburg, chairman and chief executive of Cardinal, said he finds the investigation puzzling because the Federal Deposit Insurance Corp. made a similar inquiry four years ago, and then last year gave the bank a satisfactory Community Reinvestment Act rating — a judge of whether banks are lending to minorities.

“We’ve worked extremely hard to lend to minority borrowers,” he said. “Publicly available data will show that we’ve made more loans in minority neighborhoods than virtually all other lenders in the Washington area.”

According to the Independent Community Bankers of America, Cardinal is one of several community banks being unfairly accused of racial discrimination for not serving predominantly minority areas, a form of redlining. The trade group’s chief executive Camden Fine, having received complaints from member banks, said the Justice Department is essentially “forcing banks to extend credit to areas where credit may not be able to be extended.”

He raised the concern in a letter sent to Attorney General Eric Holder at the end of August, calling the department’s actions “harmful” and “counterproductive toward ... facilitating an economic recovery.”

John Taylor, president and chief executive of the National Community Reinvestment Coalition, said he finds that argument baseless and downright “racist.”

“Because you expand into a community of color does not mean that you run a higher risk of default. It’s when you make loans to people who are not credit worthy,” he said. “Nobody is arguing for making loans to people of any color that isn’t a sustainable, responsible loan.”

Unit created after crisis

Launched in January 2010, the fair lending unit operates within the civil rights division of the Justice Department, charged with enforcing such laws as the Equal Credit Opportunity Act and Fair Housing Act. The department has long investigated lending discrimination, but created the unit after claims shot up in the wake of the housing crisis.

The department received 49 referrals from federal regulators indicating patterns or practices of discrimination last year, more claims than in the past 20 years, according to the department. It has initiated 40 investigations since starting the unit, eight have resulted in settlements. One is still being litigated.

American Insurance Group, for instance, paid $6.1 million to resolve claims that its subsidiaries charged African Americans higher lending fees. Meanwhile, Citizens Republic Bancorp. of Flint, Mich., agreed to invest about $3.6 million in an area it was accused of redlining.

In a letter responding to the Independent Community Bankers, assistant attorney general Thomas E. Perez stressed that the Justice Department’s actions are not unprecedented. Since the former Chevy Chase bank was accused of the practice in 1994, most of the department’s redlining cases have looked at lenders’ exclusion of areas where minorities are a majority, he said.

It’s not certain that the department will file a lawsuit against Cardinal at this point. Perez said in the Independent Community Bankers letter that lenders can provide evidence contrary to the allegation before a decision is made. In many instances, he said, “we ... close fair lending investigations without bringing an enforcement action and have regularly referred matters back to the lender’s regulator for administrative action.”

 
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