MINNEAPOLIS _ The U.S. Justice Department has accused Minnesota-based KleinBank of "redlining," the practice of unlawfully structuring its mortgage lending business to avoid serving minority neighborhoods around the Twin Cities.
In a federal lawsuit filed late Friday, lawyers from the department's civil rights division said Chaska-based KleinBank, one of Minnesota's largest community banks, denied residents in predominantly minority neighborhoods the chance to apply for or obtain residential real estate loans from 2010 to at least 2015.
"KleinBank's discriminatory practices ... have been intentional and willful, and implemented with reckless disregard for the rights of individuals on the basis of their race and/or national origin," the complaint said.
Officials from KleinBank could not immediately be reached for comment on Monday.
According to the lawsuit, a statistical analysis of KleinBank's loan applications revealed that the bank served residents of majority-white census tracts "to a significantly greater extent" than those from majority-minority census tracts. Comparable lenders generated applications in majority-minority tracts at more than five times the rate of KleinBank and originated loans in those same tracts at more than four times the bank's rate, the complaint said.
KleinBank's website describes itself as the state's largest family-run bank, with its business dating to 1907. The bank has 21 branches, mostly in third-ring Twin Cities, and listed assets of $1.8 billion as of March 2016.
Attorneys from the department's civil rights division and housing and civil enforcement section have asked for an order prohibiting further discrimination and are seeking unspecified monetary damages for victims and a civil penalty against the bank "in order to vindicate the public interest."
"Redlining produces an unequal and unlevel playing field for borrowers in minority neighborhoods," said Deputy Assistant Attorney General Vanita Gupta in a statement announcing the lawsuit. "Cases like this one demonstrate the Justice Department's strong commitment to hold banks accountable for continuing and perpetuating historic trends of inequality in residential mortgage lending."
The lawsuit alleges that KleinBank violated the federal Fair Housing and Equal Credit Opportunity Acts, which prohibit financial institutions from discriminating on the basis of race or color in mortgage lending. The department said it notified KleinBank in May 2015 of an investigation into potential lending discrimination.
According to the complaint, KleinBank drew its main assessment area to be "horseshoe-shaped," including majority-white suburbs but carving out urban areas of Minneapolis and St. Paul with higher minority populations. The area excludes 78 of the 97 majority-minority tracts in the metropolitan area.
The bank runs 19 full-service branches and one business loan processing office in the Twin Cities, all of which are located in majority-white areas. According to the lawsuit, KleinBank's residential mortgage loan officers conduct the bulk of their work at the branches, and the bank targeted a portion of its marketing efforts to a limited radius of those same locations. Such practices, the complaint said, have discouraged prospective applicants in majority-minority neighborhoods.
"These figures show a statistically significant failure by KleinBank to provide loan services for dwellings located in majority-minority tracts," the complaint said.
