Officials for SouthEast Bank in Tennessee agreed to pay a $1.5 million settlement after the Department of Justice on Saturday filed a federal complaint accusing the bank of disproportionately denying student loan financing requests from blacks and indigenous Americans. Image by the Department of Justice
Jan. 20 (UPI) -- Officials for Tennessee's SouthEast Bank agreed to pay $1.5 million to settle federal claims accusing the bank of discriminating against black and aboriginal graduates seeking to refinance their student loans.
The settlement resolves claims made by the Department of Justice accusing the bank of engaging in lending discrimination by allegedly disproportionately discouraging or denying student loan refinancing requests made by black and aboriginal college graduates.
"Everyone in our country should have a fair chance and equal opportunity to refinance a school loan," Assistant Attorney General Kristen Clarke said Sunday in a news release.
"By rejecting graduates based on where they obtained the 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 of ability to repay their loans," Clarke said.
Clarke said the case is an example of "historic inequities in lending and refinance opportunities" for minorities and why it's important for the DOJ to continue opposing such transgressions.
SouthEast Bank officials disagree and said the DOJ's accusation contradicts federal policy and no one was harmed by the bank's decisions.
"The Department of Justice's allegations are unfounded and address an underwriting methodology, the consideration of the school Cohort Default Rate, determined by the United States Department of Education annually as the percentage of students at a particular college or university who default on their federal student loans," SouthEast Bank Chief Marketing Officer Brenda Arndt said in a statement to UPI.
"Despite discontinuing the use of the CDR in SouthEast Bank's student loan underwriting criteria almost 4-years ago, the Department of Education has relied on the use of CDR since 1990 and continues to use CDR as a key metric to determine eligibility of a school's students to receive Title IV federal financial aid, including federal student loans," Arndt said.
"We maintain that our actions in underwriting student loans using the CDR criteria complied with existing laws, regulations and best practices of the industry. The DOJ's position on this matter is contradictory with existing federal policy and guidelines, given the fact that federal government continues to utilize the same metric, that they calculate and publish, in determining eligibility of federal student loans," Arndt said.
"No factual findings or adjudications have occurred in this case," she added. "SouthEast Bank asserts that there is no proof of any harm suffered or any basis for grievance by the alleged victims in the refinancing of their existing student loans."
Arndt said bank officials chose to settle the matter for $1.5 million because it would cost less than the legal costs of contesting it in federal court.
The DOJ filed a complaint against SouthEast Bank Saturday in the U.S. District Court for Eastern Tennessee in Knoxville.
The complaint alleged SouthEast Bank officials from December 2015 to April 2021 automatically denied graduates of colleges and universities that had default rates above a predetermined threshold as determined by the bank.
The policy meant black college graduates were up to 4.3 times more likely to be declined refinancing compared to non-minority graduates, the DOJ said.
Indigenous students and Alaskan Natives were up to three times more likely to be denied compared to non-minority graduates.
The DOJ also accused SouthEast Bank officials of declining refinancing requests made by graduates of more than 84% of colleges and universities with majority-black student bodies, including historically black colleges and universities.
By comparison, refinancing requests were declined by graduates of 21% of colleges and universities whose respective student bodies were not majority-black, according to the DOJ.
The federal court must approve the settlement for it to take effect.
If approved, the settlement would compensate qualifying applicants who were denied refinancing and increase access to refinancing for qualified applicants who were graduated from colleges and universities whose alumni previously were excluded.
The settlement also would help pay for consumer financial education for students and graduates of those schools.
The DOJ initiated its investigation and court filing after receiving a referral from the Federal Deposit Insurance Corporation.
SouthEast Bank officials cooperated with the DOJ investigation into the matter and helped to resolve the allegations.
SouthEast Bank has 14 banking locations in eastern and central Tennessee and could not be reached for comment on Monday due to the Martin Luther King Jr. Day holiday.
This story has been updated to include a statement from SouthEast Bank.