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Cadence (CADE) to Settle Redlining Probes by the DOJ & OCC

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In order to address and settle previously-slapped allegations of lending discrimination by redlining the Black and Hispanic neighborhoods in Houston, TX, Cadence Bancorporation CADE entered into separate arrangements with the U.S. Department of Justice (DOJ) and the Office of the Comptroller of the Currency (OCC) to pay more than $8.5 million.

In its enforcement action, the OCC purported that based on a probe on Cadence’s mortgage application and origination activity, branching history, mortgage loan officer structure and operations as well as marketing and advertising, the investigators found that the bank did not impart equal access to credit to the first-lien mortgage seekers in majority-minority census tracts (MMCTs) between 2013 and 2017.

Specifically, only one of the bank’s 11 Houston branches at that time was located in a majority-nonwhite vicinity but unlike other Houston-area branches, it did not have any mortgage loan officer in the branch. The bank’s mortgage-lending activity in those sites was persistently lower than that of its compeers.

Michael Hsu, the acting comptroller of the currency, said in a statement, “There is no place for discrimination in the federal banking system. The OCC will use the full force of our authority to correct fair lending violations with our supervisory and enforcement tools.”

Remedial Efforts

Per the DOJ’s consent order, Cadence will infuse $4.17 million in a loan subsidy fund to boost credit opportunities for the residents of the majority Black and Hispanic regions and invest another $1.38 million in advertising, community outreach, education and credit repair. The bank will also establish one full-service branch to meet the banking and credit requirements of residents in such a neighborhood in Houston. This apart, in a bid to nurture its endeavors and work closely with the leadership, the company will employ a director of community lending and development to bridge the gaps in communication, if any.

Cadence established the Fair and Responsible Banking Working Group to evaluate and establish an action plan to amplify mortgage lending in Houston MMCTs and Hispanic neighborhoods after conducting a thorough self-appraisal of the Houston mortgage-lending proportionality issues. The bank’s adroit approaches included the creation of a competitive mortgage loan product for low- and modest-income borrowers (the Affordable Home Loan Program), the launch of a new full-service retail branch in a Houston MMCT, increased hiring of Spanish-speaking mortgage loan officers and an enhanced scale of marketing. All these approaches will likely aid and accelerate its initiatives.

To continue ensuring that the minority communities are well served, the bank also entered into a five-year $2.5-billion  Community Benefits Plan  in 2019. Inaugurated with inputs from the National Community Reinvestment Coalition, the plan comprised provisions for mortgage lending, small business lending, and community development lending and investments across its six-state footprint. Additionally, Cadence put up a  CRA Advisory Board  to foster community awareness and its reinvestment initiatives that it had delineated in its 2019-2023 Community Benefits Plan.

Chairman and CEO Paul B. Murphy Jr., said: “At Cadence, diversity, equity and inclusion are values that are deeply ingrained in our culture and intentionally fused into our strategic priorities. We are fully committed to supporting historically marginalized communities in ways that bring meaningful and sustainable progress and help the communities we serve thrive.”

Shares of Cadence have inched up 0.9% over the past six months, underperforming its industry’s growth of 2.2%.

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Currently, the stock carries a Zacks Rank #3 (Hold). You can see  the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Several banks continue to encounter legal enquiries and are charged with huge sums of money for business malpractice. This month, troubles mounted for Citigroup Inc. C as the U.S. Court of Appeals in New York reinstated the $343.1-million claw-back lawsuit against the bank, filed by Irving Picard, the trustee responsible for recouping the estimated $17.5-billion amount for Madoff’s victims, which they had lost in his Ponzi scheme.

In August, Deutsche Bank AG’s DB asset-management arm DWS Group came under scrutiny by the Securities and Exchange Commissions (SEC) and federal prosecutors over potential overstated efforts on environmental, social and governance (ESG) claims.

This May,  Bank of America  BAC agreed to pay a penalty of $75 million to resolve an excessive fees issue.

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