In a significant move to address allegations of discriminatory lending practices, Southeast Bank has reached a settlement with the Justice Department, agreeing to pay $1.5 million. The settlement resolves a lawsuit accusing the bank of discriminating against Black, American Indian, and Alaskan Native graduates in its student loan refinancing program. This action underscores ongoing scrutiny of lending institutions to ensure equitable access to financial services for all communities.
The Justice Department’s lawsuit, filed in Tennessee’s eastern court district, alleged that between December 2015 and April 2021, SouthEast Bank’s policies unfairly targeted graduates of Historically Black Colleges and Universities (HBCUs) and institutions serving Native American and Alaskan Native students. The core of the discriminatory practice, according to the complaint, was the bank’s reliance on school-based cohort default rates (CDR). This system automatically denied refinancing applications from graduates of schools with default rates exceeding SouthEast Bank’s set thresholds.
The impact of this policy was disproportionately felt by minority graduates. For instance, the Justice Department highlighted that a Black bachelor’s degree holder was up to four times more likely to be denied refinancing compared to a non-Black graduate under the same conditions. The complaint further detailed that SouthEast Bank’s policy effectively excluded graduates from as high as 84.4% of predominantly Black schools, while other institutions faced a denial rate of only 21.1%. This disparity raised serious concerns about systemic bias in lending practices at Southeast Bank.
Assistant Attorney General Kristen Clarke of the Justice Department’s Civil Rights Division emphasized the importance of equal opportunity in financial services. “Everyone in our country should have a fair chance and equal opportunity to refinance a school loan,” Clarke stated. “By rejecting graduates based on where they obtained their degree, SouthEast Bank’s policy denied and discouraged Black, American Indian and Alaska Native graduates seeking to refinance student loans for reasons that were wholly unrelated to their personal merit or ability to repay their loans.” Clarke’s statement underscores the broader issue of historical inequities impacting current financial opportunities for minority communities and the Justice Department’s commitment to addressing these disparities.
The proposed settlement, pending court approval, outlines several key actions for SouthEast Bank. A significant portion of the $1.5 million will be allocated to compensate applicants who were unfairly denied refinancing due to the discriminatory policy. Furthermore, SouthEast Bank is mandated to enhance access to student loan refinancing for graduates from previously excluded institutions. The settlement also includes provisions for consumer financial education initiatives aimed at students and graduates of these schools. These measures are designed to rectify the harm caused by past practices and promote fairer lending access in the future.
In response to the settlement, SouthEast Bank issued a statement maintaining its compliance with existing laws and regulations. The bank asserted that the Department of Justice’s allegations are “unfounded” and challenged the notion that using the Cohort Default Rate as a metric was discriminatory. SouthEast Bank argued that the CDR is a metric used by the Department of Education itself to determine school eligibility for federal aid. The bank’s statement emphasized its long-standing commitment to higher education, citing over $23 million in grants and scholarships provided, and highlighted its belief that the settlement was a pragmatic decision to avoid costly litigation and maintain focus on serving customers and communities.
Despite disputing the allegations, SouthEast Bank’s agreement to settle and implement corrective measures marks a step towards addressing concerns about fairness in lending. The case serves as a reminder of the critical need for financial institutions, like Southeast Bank, to ensure their practices do not perpetuate discriminatory outcomes and to actively promote equitable access to financial products for all individuals, regardless of their background or the institutions they attended. The resolution of this lawsuit highlights the ongoing efforts to combat discriminatory practices in the financial sector and ensure equal opportunities for all student loan borrowers.
