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DEPOSIT GUARANTY NATIONAL BANK TO SETTLE ALLEGATIONS OF LENDING

WASHINGTON, D.C. - One of the largest banks in Mississippi will pay $3 million to settle allegations that it discriminated against minorities when providing home improvement loans, under an agreement reached today with the Justice Department.

This is the first case brought by the Department alleging discrimination in a loan underwriting decision process based in part on a credit scoring system that is used for evaluating loan applications. Credit scoring systems typically take information, such as an applicant's income, other debts, size of loan requested, and/or credit history and convert it into a score designed to provide a lender with an objective numerical calculation of the likelihood that an applicant will repay a loan.

The agreement, filed along with a complaint in U.S. District Court in Jackson, Mississippi, resolves allegations that the Deposit Guaranty National Bank violated the Fair Housing Act and the Equal Credit Opportunity Act when it illegally rejected qualified African American applicants through the use of subjective underwriting practices when deciding the approvals and denials of credit scored home improvement loans. The agreement requires Deposit Guaranty to pay $3 million to an estimated 250 African American applicants and to maintain an underwriting process designed to ensure that such discrimination will not occur in the future.

"Homeowners should not be denied the opportunity to borrow money to improve their home simply because of the color of their skin," said Bill Lann Lee, Acting Assistant Attorney General for Civil Rights. "The Justice Department takes allegations of lending discrimination very seriously and will not hesitate to go after lenders who intentionally discriminate against minorities."

"Race discrimination has no legitimate place in the credit process," said Brad Pigott, United States Attorney in Jackson. "We are determined to root out racial discrimination from financial institutions doing business here in Mississippi. For any bank systematically to deny citizens the benefits of their hard work because of their race is not only deeply wrong; it is also against the law."

The Justice Department began investigating Deposit Guaranty earlier this year after receiving a referral from the Office of the Comptroller of the Currency, which has regulatory authority over national banks. During its investigation, the Justice Department found that Deposit Guaranty administered its credit scoring system in a discriminatory manner, with loan officers making discriminatory judgmental overrides of the credit decision indicated by applicants' credit scores.

The complaint alleges that this discriminatory pattern was able to occur over a period of years because each individual loan officer, rather than a central office, had the discretionary authority to make underwriting decisions, specifically judgmental overrides. The criteria for making such decisions was also inconsistently applied and poorly documented and there was inadequate monitoring of these underwriting decisions. The complaint further alleges that qualified African American applicants were rejected three times more often than similarly qualified white applicants.

The Justice Department's allegations were directed solely at lending decisions made by Deposit Guaranty personnel during the time period between January 1, 1995 and April 30, 1998, prior to its merger with First American National Bank in 1998. First American is not accused of any unlawful conduct, but signed the agreement as the successor to Deposit Guaranty.

Under the First American underwriting system now in effect at Deposit Guaranty branches, all home improvement loan applications from all branches are evaluated by one centralized office. All applications initially recommended for rejection receive a second level of review by senior underwriting officials, and decisions to override the result indicated by a credit score can only be made by a small number of bank officials. Additionally, there are limits on the allowable percentage of such override decisions, and there are frequent reviews and analysis of all underwriting decisions in order to ensure their consistency with fair lending requirements.

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