Nixon State Bank fined $100k for overcharging on loans

Special to the Inquirer

WASHINGTON – The Justice Department announced Friday that Nixon State Bank will establish uniform pricing policies, conduct employee training, and pay nearly $100,000 as part of a settlement to resolve allegations that it engaged in a pattern or practice of discrimination on the basis of national origin.

The settlement, which is subject to court approval, was filed in conjunction with the Justice Department’s complaint in the U.S. District Court for the Western District of Texas.   The complaint alleges that Nixon charged higher prices on unsecured consumer loans made to Hispanic borrowers through the bank’s branch offices in violation of the Equal Credit Opportunity Act (ECOA).

“This matter arose from an examination by the FDIC in December 2008. The FDIC’s analysis of our loan portfolio identified some statistical disparities that required them to open an investigation and ultimately refer the matter to the Department of Justice,” said Nixon State Bank CEO Brad Akin. “Fair and equal access to credit is critical and lenders have a responsibility to have protocols in place that ensure all of their lending programs comply with the law and don’t discriminate,” said Thomas E. Perez, Assistant Attorney General in charge of the Justice Department’s Civil Rights Division.  “The Civil Rights Division is committed to fair lending enforcement that stops abuses across the entire spectrum of credit markets.   We are pleased that this settlement will compensate the victims of this discriminatory conduct and we commend Nixon for working cooperatively with the Justice Department in reaching an appropriate resolution of this case.”

“Any form of discrimination is intolerable, including in the lending of money,” stated U.S. Attorney John E. Murphy.  “The rates consumers pay for credit should be based solely upon factors directly related to their creditworthiness without any reference to their race or ethnicity.”

“The FDIC is committed to ensuring its supervised banks comply with fair lending laws, including the Equal Credit Opportunity Act,” said Mark Pearce, Director of the Federal Deposit Insurance Corporation’s (FDIC) Division of Depositor and Consumer Protection.  “This particular matter highlights the dangers of discretionary pricing in loan products.  We appreciate the collaboration with the Department of Justice to address this matter.”     

Prior to mid-2009, Nixon did not have a written loan pricing guideline for its unsecured consumer loans.   Instead, the bank’s loan officers were granted broad discretion in handling all aspects of the unsecured consumer loan transaction.   The Justice Department’s complaint alleges that this policy had a disparate impact on Hispanic borrowers. 

In 2008, the Federal Deposit Insurance Corporation (FDIC) examined the bank’s lending processes, particularly against Hispanics requesting unsecured consumer loans.

The bank’s unsecured loan interest rates from 2007-2010 were analyzed, as well as their loan policies and procedures from 2006-2010.

According to the complaint, from 2007-2008, Nixon State Bank charged interest rates that were an average of 198 basis points higher, or 1.98 percent higher interest rate, than rates charged to non-Hispanics who have similar financial situations.

According to the report, prior to 2009, the bank did not have a written loan pricing guideline for unsecured loans, nor did it require a written application or credit report.

The complaint said Nixon State Bank was aware of the improper procedures since April 2006, when an independent auditor recommended changes to the bank’s loan policy, including requiring applications and credit reports for each borrower.

“We believed that the officer was best able to assess the credit factors and price the loan accordingly and we were operating in three fairly different competitive markets, which affected rates as well,” Akin said. “Obviously the government disagrees with that policy.”

Nixon began to develop uniform pricing policies in late 2009, which included implementation of a uniform rate matrix to price unsecured consumer loans.   As part of the settlement, Nixon will further revise these and other pricing policies to ensure that the price charged for its loans is set in a non-discriminatory manner consistent with the requirements of ECOA.  

“Shortly after the 2008 exam we made major changes in our lending practices by hiring new people, changing procedures and particularly by switching to a uniform pricing policy.  In fact, substantially all of the lending changes required by our agreement with the (Department of Justice) have already been in place for almost two years,” Akin said.

The settlement also requires the bank to pay nearly $100,000 to Hispanic victims of discrimination, monitor its loans for potential disparities based on national origin, and provide equal credit opportunity training to its employees.   The agreement also prohibits the bank from discriminating on the basis of national origin in any aspect of a credit transaction. 

Akin said that while the bank has made the changes to its loan policies since 2009, settling the case about the disputed loans from previous years was the best thing for all involved.

“It came down to continuing to argue about the 2006 and 2007 loans or settle the matter and we just felt that it was in the best interest of the bank, our customers and employees to put an end to it,” Akin said. “We have been here for over 100 years and want to continue to serve these communities for many more to come and to accomplish that we needed to be focused on the future.”

The bank has 90 days to place a monitoring program to ensure it complies with the settlement agreement. It requires a quarterly review of interest rate disparities based on ethnicity.

The lawsuit originated from a 2010 referral by the FDIC to the Justice Department’s Civil Rights Division.   Nixon is a member of the FDIC. 

The Civil Rights Division, the U.S. Attorney’s Office for the Western District of Texas, and the FDIC are members of the Financial Fraud Enforcement Task Force, established by President Barack Obama.

A copy of the complaint, as well as additional information about fair lending enforcement by the Justice Department, can be obtained from the Justice Department’s website at www.justice.gov/fairhousing .

Chartered in 1906, Nixon State Bank is the seventh oldest state-chartered financial institution in Texas. There are branches in Nixon, La Vernia and China Grove.