Housing Section Documents
IN THE UNITED STATES DISTRICT COURT FOR
THE EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
UNITED STATES OF AMERICA,
Plaintiff,
CIVIL ACTION NO. 04-71879
v.
OLD KENT FINANCIAL CORPORATION
AND OLD KENT BANK,
through their Successors
in Interest,
Defendants.
______________________________
SETTLEMENT AGREEMENT
I. INTRODUCTION
This Agreement is hereby submitted jointly by the parties to
resolve claims of the United States that defendants, Old Kent
Financial Corporation and Old Kent Bank (collectively "Old Kent" or
"the Bank"), violated Title VIII of the Civil Rights Act of 1968
("Fair Housing Act"), as amended by the Fair Housing Amendments Act
of 1988, 42 U.S.C. §§ 3601-3619, and the Equal Credit Opportunity
Act ("ECOA"), 15 U.S.C. §§ 1691-1691f, by discriminating on the
basis of race in the marketing, solicitation and extension of
credit for business and residential real estate-related loans. The
United States alleges that the Bank denied equal credit opportunity
to persons and businesses in predominately African-American
neighborhoods in the City of Detroit, primarily by avoiding and
declining to provide loan services based upon the racial identity
of the geographic area they were located in, a practice commonly
referred to as redlining.
The United States began this investigation into the
lending practices of the Bank in February 2000. Fifth Third
Bancorp ("Fifth Third") acquired Old Kent Financial Corporation
through an acquisition approved by the Federal Reserve Board on
March 12, 2001. As a result of this acquisition, Fifth Third
merged Old Kent Bank into Fifth Third Bank (Michigan), a merger
approved by the Federal Reserve Board on May 14, 2001. Fifth Third
and Fifth Third Bank (Michigan) are successors in interest to all
assets and liabilities of Old Kent Financial Corporation and Old
Kent Bank.
The Bank denies that it engaged in race discrimination in its
marketing, solicitation or extension of credit, or that any act or
omission on its part as alleged in the United States' Complaint or
this Agreement violated the FHA or the ECOA. Nevertheless, because
the Bank's successors in interest share the United States' interest
in providing for the credit needs of all businesses and individuals
in the City of Detroit, they voluntarily consent to the entry of
this Agreement. Moreover, through the agreements articulated in
this Agreement, Fifth Third affirms its commitment to be an
industry leader in lending in the City of Detroit.
There has been no factual finding or adjudication with respect
to any matter alleged by the United States. Accordingly, the entry
of this Agreement is not, and is not to be considered, an admission
or finding of any violation of the FHA or the ECOA by the Bank.
Rather, the parties have entered into this Agreement to
expeditiously and voluntarily resolve the claims asserted by the
United States in order to avoid the risks and burdens of
litigation.
II. SUMMARY OF THE UNITED STATES' ALLEGATIONS
Prior to its acquisition by Fifth Third, Old Kent Financial
Corporation was a bank holding company, which was incorporated
under the laws of Michigan in 1984, and was headquartered in Grand
Rapids, Michigan. Old Kent Bank, which was established in 1853,
was also incorporated under the laws of Michigan and headquartered
in Grand Rapids. Old Kent Bank was a wholly owned subsidiary and
principal asset of Old Kent Financial Corporation at the time that
Old Kent Financial Corporation was acquired by Fifth Third. As of
December 31, 2000, Old Kent Financial Corporation estimated its
total assets at $23.9 billion, with Old Kent Bank maintaining an
estimated $23.5 billion of those assets.
Prior to 1995, Old Kent Financial Corporation maintained a
corporate structure that included numerous subsidiary banks,
including Old Kent Bank. In 1995, Old Kent Financial Corporation
consolidated its subsidiary banks into a single bank, Old Kent
Bank, which operated out of Grand Rapids, Michigan. Since Old Kent
Bank first began operation in the Detroit MSA, it expanded its
business, including extending credit for small business loans and
residential real estate-related transactions to substantial
portions of the Detroit MSA. The United States alleges that Old
Kent Bank, in the course of this expansion, engaged in a race-based
pattern of locating or acquiring new offices, and that it located
or acquired new branches and other offices to serve the residential
lending and credit needs of predominately white areas, and not
those of predominately African American neighborhoods in the City
of Detroit.
The United States alleges that as of January 1996, Old Kent
Bank operated at least 18 branches in the Detroit MSA and that not
one of these branches was located in the City of Detroit. The
United States contends that as of March 2000, Old Kent Bank had
expanded its business presence in the Detroit MSA to include a
branch network of at least 53 branches, located in every county of
the Detroit MSA. The United States alleges, however, that by March
of 2000, Old Kent Bank still did not have a single branch in the
City of Detroit, where the population is more than 81% African
American.
The Detroit MSA contains the six southeast Michigan counties
of Wayne, Oakland, Macomb, Lapeer, St. Clair and Monroe. In the
most recent U.S. Census Residential Segregation Index, the Detroit
MSA is identified as one of the two most racially segregated MSAs
in the United States. While the African American population of the
City of Detroit is over 81%, the African American population of the
entire Detroit MSA is approximately 23%, with the majority of non-African American residents residing in the suburban areas
surrounding the City of Detroit.
The United States alleges that Old Kent Bank excluded the City
of Detroit from its assessment area under the Community
Reinvestment Act ("CRA"), 12 U.S.C. §§ 2901-2906. Pursuant to the
CRA and its implementing regulation promulgated by the Federal
Reserve Board, 12 C.F.R. § 228.41(e), a bank's assessment area must
consist only of whole geographies, may not reflect illegal
discrimination, and may not arbitrarily exclude low or moderate
income geographies, taking into account the institution's size and
financial condition. The United States alleges that instead of
defining its assessment area in accordance with this regulation,
Old Kent Bank excluded the City of Detroit, located in the heart of
Wayne County, from its lending area and therefore excluded most of
the majority African American neighborhoods in the Detroit MSA.
The United States contends that from at least 1996 through
2000, Old Kent Bank solicited and funded very few small business or
residential real estate related loan applications from residents of
the City of Detroit. The United States alleges that during this
same time period, Old Kent Bank personnel did not solicit
applications from applicants in the City of Detroit to the same
degree as from other census tracts in the Detroit MSA.
The United States undertook an analysis of the geographic
distribution of the loan originations funded by Old Kent Bank. The
United States contends that this analysis showed that Old Kent Bank
served the credit needs of the predominately white neighborhoods of
the Detroit MSA to a significantly greater extent than it served
the credit needs of predominately African American neighborhoods.
Specifically, the United States alleges that between 1996 and 2000,
Old Kent Bank originated 15,423 small business, home improvement,
and home refinance loans in the Detroit MSA and that only 335, or
2.2% of such loans were made in majority African American census
tracts.
The U.S. Census reports that in the City of Detroit, over
11,000 (approximately 43%) of the more than 26,000 business are
owned by African Americans. The 1997 Economic Census also reports
that the African American firms in the Detroit MSA generate over
$3.5 billion in revenue. Yet, the United States alleges, of the
1,496 small business loans generated by Old Kent Bank in 1998, only
20, or 1.3%, were originated in majority African American census
tracts. The United States acknowledges that after the announcement
of this investigation in March 2000, Old Kent Bank engaged in a
concerted effort to improve upon this performance. The United
States alleges, however, that by the end of 2000, of the 1,977
small business loans generated by Old Kent Bank that year, only 87,
or 4.4%, were originated in majority African American census
tracts. The United States contends that during this same time
period many banks and other lenders issued loans to persons or
businesses residing in the City of Detroit.
The United States contends that the totality of the Bank's
policies and practices constitute the unlawful redlining of the
City of Detroit because of its racial composition. The United
States alleges that these policies and practices have denied an
equal opportunity to residents of these predominately African
American neighborhoods, based upon the racial composition of these
areas, to obtain small business and residential real estate-related
financing, in violation of both the FHA and the ECOA.
III. SUMMARY OF OLD KENT'S RESPONSE
Old Kent through its successors in interest denies the United
States' allegations and maintains that at all times it conducted
its lending in compliance with the letter and spirit of the fair
lending laws and in a non-discriminatory manner.
Old Kent acknowledges that it did not have a substantial
banking center presence in the City of Detroit. However, Old Kent
contends that it was a relatively small and new market entrant in
the Eastern Michigan market, having gradually expanded from its
Western Michigan base. Old Kent asserts that the cost of entering
a new market through the construction of new bank branches is very
high, and, therefore that Old Kent grew principally by acquiring a
number of smaller community banks, which had branches outside of
the City of Detroit. Old Kent contends that bank lending in the
City of Detroit is dominated by a few large banks who were not
suitable acquisition targets for Old Kent. (1)
Old Kent asserts that because it did not have a significant
banking center presence in the City of Detroit, it was difficult
for it to generate a significant volume of small business lending,
particularly because small businesses frequently seek to obtain
loans from banks with which they maintain deposit relationships.
Old Kent asserts that, nonetheless, Old Kent's loan officers
aggressively attempted to develop business from small businesses in
the City of Detroit and in majority African American census tracts,
and that the Bank was enjoying growing success in that regard.
Old Kent does not acknowledge that, as an organization, its
record of residential lending in predominately African American
areas within the City of Detroit was in any way deficient. Old
Kent asserts that the lending activity of its wholly-owned mortgage
lending subsidiary, Old Kent Mortgage Company, should have been
taken into account in the United States' analysis. Old Kent
asserts that Old Kent Mortgage Company, which Old Kent contends
accounted for nearly 80 percent of Old Kent Financial Corporation's
lending in the City of Detroit, was a predominately "prime" lender,
making available particularly favorable credit products, including
FHA and VA loans, throughout the City of Detroit. Old Kent
contends that one of Old Kent Mortgage Company's three origination
offices was located in a majority African American census tract in
the City of Detroit. Old Kent contends that this origination
office made a substantial number of loans within the surrounding
community.
In sum, Old Kent asserts that it aggressively sought out
business throughout the Detroit MSA.
IV. PROACTIVE LENDING INITIATIVES BY FIFTH THIRD
The United States recognizes that Old Kent and now Fifth Third
have undertaken initiatives to help meet the credit needs of the
residents in majority African American neighborhoods in the Detroit
MSA. In 2000, after receiving notice of this investigation, Old
Kent opened two branches in majority-African American tracts in the
Cities of Pontiac and Detroit. Fifth Third took additional
initiatives upon acquiring Old Kent, which resulted in an increase
in its proportion of small business lending in the City of Detroit.
For example, in 2001, Fifth Third chose Southfield, Michigan,
for its Eastern Michigan headquarters. Southfield is near the
Detroit MSA population center, and the office is located in a
majority African American census tract. Also, since the Old Kent
acquisition, Fifth Third:
- Has formed a Detroit Business Development Group Team to
focus on the extension of small business credit in the
Detroit area. This team includes one team lead, who was
promoted in November 2002 and three additional business
banking lenders who were hired since December 2002.
Fifth Third will relocate the team from Southfield to the
City of Detroit by no later than December 31, 2004.
- Has advertised in African American targeted media such as
the Michigan Chronicle.
- Has acted as the co-chair of the With Ownership Wealth
minority homeownership program in Michigan's 13th and 14th
congressional districts, which encompass the City of
Detroit.
- Has been one of three lenders in the City of Detroit
partnering with the Detroit Housing Commission to provide
financing to low and moderate-income families.
- Has been a partner with the Booker T. Washington Business
Association in promoting a small business micro-loan
program in the Detroit MSA.
The United States supports Fifth Third's efforts to promote
fair lending in the Detroit MSA and agrees that these initial
efforts represent positive steps to address issues which are the
subject of the United States' complaint. These actions are hereby
incorporated by reference in the marketing and outreach plan
described below.
V. MARKETING, OUTREACH, AND NONDISCRIMINATION
- Nondiscrimination
Fifth Third, as successor in interest to Old Kent Financial
Corporation and Old Kent Bank, including all of its officers,
employees, agents, representatives, assignees and successors in
interest, and all of those in active concert or participation with
any of them, will conduct its lending in the Detroit MSA in
compliance with fair lending laws and will not engage in any act or
practice which discriminates on the basis of race or color in any
aspect of its small business lending or residential real estate-related transactions, in violation of the Fair Housing Act, 42
U.S.C. §§ 3604 and 3605, and in any aspect of a credit transaction,
in violation of the Equal Credit Opportunity Act, 15 U.S.C. §
1691(a)(1).
Fifth Third shall adopt the marketing and outreach plan set
forth below in this Settlement Agreement to ensure that its
marketing and solicitation of, and processing of applications for,
all forms of financing it offers in the City of Detroit provides
all persons with an equal opportunity to apply for and obtain
credit, regardless of race or color.
- Marketing and Outreach Program
>Under this Agreement, Fifth Third shall implement a marketing
and outreach program designed to improve its performance in meeting
the residential and small business lending needs of residents of
the majority-African American City of Detroit. Fifth Third shall
use its sound business judgment and best efforts to ensure that its
residential and small business loan products are marketed and made
available in predominately African American census tracts in the
City of Detroit to the same extent that they are marketed and made
available in the non-majority African American census tracts within
its assessment area.
Nothing in this Agreement requires Fifth Third to make any
loan that is inconsistent with appropriate underwriting standards.
Rather, this Agreement requires these actions as a remedy for
alleged past discrimination by Old Kent and is meant to ensure that
persons throughout the Detroit MSA will have an equal opportunity
to access and obtain credit, without regard to the racial
composition of the area in which they reside or their business or
property is located.
The parties agree to confer annually during the term of this
Agreement to evaluate Fifth Third's progress in accomplishing the
actions set forth below. Fifth Third retains the discretion to
take any other actions which it believes are appropriate to achieve
these goals without the prior approval of the United States or this
Court, except as specifically limited in this Agreement. All
provisions in this Agreement are to be implemented in a manner
consistent with the safety and soundness of Fifth Third.
Fifth Third's initial plan for achieving its goals is set
forth as follows:
- Additional Branch Locations
Fifth Third shall open three new branches in the City of
Detroit during the three year term of this Agreement, subject to
obtaining the necessary permits and approvals from local government
and the Federal Reserve Board. The location for the first of these
branches has been determined and is in the core of the City of
Detroit. Fifth Third shall present its evaluation of and
preliminary proposal for the second and third new branches to the
United States for its review within six months of the entry of this
Agreement. Fifth Third shall inform the United States in advance
of the precise location of any further new branch offices in the
City of Detroit during the term of this Agreement. Fifth Third
shall exercise its best efforts to open the first new branch within
calendar year 2004.
- Staffing and Training
As noted at page 10, Fifth Third has hired three additional
business lending originators whose job responsibilities are to
focus on solicitations and originations of small business lending
in the City of Detroit. Fifth Third shall maintain these positions
throughout the term of this Decree and shall relocate these
positions from Southfield to the City of Detroit by no later than
December 31, 2004.
Fifth Third shall provide periodic training to all of its
employees and agents with significant involvement in small business
and residential real estate-related lending in the Detroit MSA to
ensure that their activities are conducted in a non-discriminatory
manner. This training shall encompass their fair lending
obligations under the FHA, the ECOA, the CRA and this Agreement.
Such training shall take place on at least an annual basis, and may
be accomplished by lectures, staff meetings, video tapes,
regulatory updates, outside speakers or other means. In addition,
within 90 days of the entry of this Agreement, Fifth Third shall
also provide training for all such employees and agents on the
applicable provisions of this Agreement.
- Advertising and Outreach
Fifth Third shall undertake an advertising program
specifically targeted to generate significant additional
applications for residential real estate-related credit from
qualified residents and small business loan applications from
businesses in the City of Detroit. This advertising program shall
include, but is not limited to, print media, radio spots and
promotional materials.
Fifth Third shall remain free to determine the size, content,
frequency and placement of each of these forms of advertisement.
However, all of Fifth Third's print advertising shall continue to
contain an equal housing opportunity logo, or equal opportunity
logo, slogan or statement as described in the United States
Department of Housing and Urban Development's fair housing
advertising guidelines formerly published at 24 C.F.R. Part 109,
attached hereto as Exhibit A. Fifth Third shall follow the
guidelines of Tables I and II of Appendix I in selecting
appropriate type size and other standards for advertising. All of
Fifth Third's radio and television advertisements shall include the
audible statement "Equal Opportunity Lender". Alternatively, if a
Fifth Third television commercial includes a written statement
appearing on the screen, the nondiscrimination statement may also
be so displayed, provided that it appears on the screen as long as
any other written statement appears.
- Consumer Education
The parties acknowledge that financially educated consumers
are an essential component of any sustained increase in Fifth
Third's ability to achieve its goals of increased real estate-related and small business lending in majority African American
areas of the City of Detroit. To help identify and develop
qualified loan applicants from the City of Detroit, Fifth Third
shall fund credit counseling, financial literacy, business
planning, and other related educational programs targeted at the
residents and small businesses of those areas. During the term of
this Agreement, the Bank shall invest a minimum of $100,000 to
implement a comprehensive home-buyer education and counseling
program. The Bank shall also invest a minimum of $100,000 during
the term of this Agreement to implement a small business planning
and education program targeted to residents and small businesses in
the City of Detroit. The consumer education required under this
section may, in the Bank's discretion, be provided directly by the
Bank and/or through a third party.
VI. SATISFACTION OF THE UNITED STATES' CLAIMS FOR MONETARY RELIEF
In addition to the monetary commitments detailed above, Fifth
Third shall invest $3 million over the three year term of this
Agreement in the special financing program described below. This
investment shall involve funding a special financing program in at
least the amounts of $800,000 in the first year of this Agreement,
$1 million in the second year and $1.2 million in the third year.
Fifth Third may elect to accelerate its investment in the special
financing program during the first two years of this Agreement,
provided that it contributes at least $3 million over a three year
period. This investment, when combined with those other financial
commitments discussed above, shall satisfy fully the claims of the
United States for damages and other monetary relief in this case.
Through this special financing program, Fifth Third shall
offer residents and businesses of the City of Detroit loan products
at interest rates and/or terms that are more advantageous to the
applicant than would normally be provided. Fifth Third shall
thereby subsidize each such transaction by one or more of the
following means: an interest rate below that which Fifth Third
would normally charge, down payment or closing cost grants or
assistance, or other financial aid.
Fifth Third retains the discretion whether to subsidize a
particular transaction or to offer any one or more, or all, of
these forms of financial assistance to qualified applicants on an
individual basis as it deems appropriate under the circumstances of
a particular applicant. However, Fifth Third shall exercise its
discretion in a manner which maximizes the likelihood that it will
originate a loan to a qualified applicant, consistent with
applicable underwriting guidelines and safety and soundness
standards. Fifth Third shall direct at least two-thirds of each
year's loan subsidies towards small business loans and the
remaining subsidy amount towards real estate-related lending. With
respect to the small business loan subsidy program, the loan
subsidies shall be capped at 2% of the loan amount, or $5,000 per
loan, whichever is greater. For purposes of the Order the
definition of "small business loan" is defined in accordance with
the CRA regulation, 12 C.F.R. 228.12(u).
If for any reason Fifth Third fails to meet the above-described minimum investments in any year, the remaining funds
shall be applied to the loan subsidy program for the subsequent
year to ensure that a total of $3 million is allocated over the
three-year duration of this Agreement, and that at least two-thirds
of the loan subsidy is directed towards small business loans.
No provision of this Agreement, including the loan subsidy
program, requires Fifth Third to make any unsafe or unsound loan.
During the life of this Agreement, Fifth Third shall assess the
effectiveness of this program in achieving its remedial goal and,
in its discretion, may recommend to the United States changes to
increase its remedial effectiveness.
VIII. EVALUATING AND MONITORING COMPLIANCE
For the duration of this Agreement, Fifth Third shall retain
all records relating to its obligations thereunder, including its
residential real estate-related lending, small business lending,
advertising, outreach, branching, special programs and other
compliance activities as set forth herein. The United States shall
have the right to review and copy such records upon request. This
Agreement shall not be interpreted to require Fifth Third to
deviate from its ordinary document retention procedures with
respect to its business activities in areas other than those
related to its obligations under the Agreement.
Fifth Third shall annually provide to counsel for the United
States the data it submits to the Federal Financial Institutions
Examination Council ("FFIEC") pursuant to the Home Mortgage
Disclosure Act. The data shall be provided in the same format in
which it is presented to the FFIEC within thirty days of its
submission to the FFIEC each year for the duration of this
Agreement.
In addition to the submission of any plans and reports
specified above in this Agreement, Fifth Third shall make three
annual reports to the United States on its progress fulfilling the
goals of this Agreement. Each such report shall provide a complete
account of Fifth Third's efforts to comply with each requirement of
this Agreement during the previous year, an objective assessment of
the extent to which each quantifiable obligation was met, an
explanation of why any particular component fell short of meeting
its goal for that year, and any recommendations for additional
actions to achieve the remedial goals of this Agreement. Fifth
Third shall submit these reports within 90 days of the one-year,
two-year and three-year anniversary dates of the effective date of
this Agreement. In addition, Fifth Third shall attach to the
annual reports representative copies of advertising and marketing
materials distributed in the City of Detroit.
IX. ADMINISTRATION
This Agreement shall be binding on Fifth Third, and any of its
officers, employees, agents, representatives, assignees,
subsidiaries and successors in interest.
This Agreement shall terminate in three months after the
submission of Fifth Third's third annual report to the United
States, with no further motion required by the parties. It shall
only be extended upon written agreement of the parties or, upon
motion of the United States to the Court, for good cause shown.
This Agreement may be modified at any time, upon approval of
the Court, by written agreement of Fifth Third and the United
States. The parties recognize that there may be changes in
relevant and material factual circumstances during the term of this
Agreement which may affect the accomplishment of its goals. The
parties agree to work cooperatively to discuss any proposed
modifications to this Agreement which one or the other reasonably
believes will enhance the achievement of its goals.
In the event that any disputes arise concerning the
interpretation of or compliance with the terms of this Agreement,
the parties shall endeavor in good faith to resolve any such
dispute between themselves before bringing it to this Court for
resolution. The United States agrees that if it reasonably believes
that Fifth Third has violated any provision of this Agreement, it
shall provide Fifth Third with written notice thereof and give it
30 days to resolve the alleged violation before presenting the
matter to the Court.
Fifth Third's compliance with the terms of this Agreement
shall fully and finally resolve all claims of the United States
relating to Old Kent's alleged violation of the fair lending laws
by means of redlining on the basis of race or color, including all
claims for equitable and monetary damages and penalties.
SO ORDERED, this ______ day of ___________, 2004.
_______________________________
UNITED STATES DISTRICT JUDGE
The undersigned hereby apply for and consent to the entry of this
Agreement:
