BancorpSouth Bank in Tupelo, Miss., agreed Wednesday to a $10.6 million settlement with the Consumer Financial Protection Bureau and the Justice Department for allegedly discriminatory mortgage lending practices that harmed minorities.

The CPFB claimed in a press release that it has an audio recording from a 2012 internal meeting during which BancorpSouth officials clearly articulated a policy that discriminated against African-Americans and other minorities in Memphis and in parts of Mississippi and Arkansas.

The regulators allege that the $13.9 billion-asset bank denied African-Americans for home loans and charged them more compared to similarly situated white applicants. The complaint further claims that the bank had implemented an explicit denial policy by rejecting loan applications from minorities "more quickly" than those of other applicants. The bank engaged in "redlining" in predominantly minority neighborhoods in violation of the Fair Housing Act and Equal Credit Opportunity Act, the CFPB said.

The bank appeared to blame the recording on a former employee.

"BancorpSouth has a zero tolerance for this type of behavior by any employee and takes prompt and appropriate action," the bank said in an emailed response. "We are embarrassed and apologize for these offensive remarks."

BancorpSouth agreed to pay nearly $7 million in relief to individuals and neighborhoods, including $4 million in direct loan subsidies to minority neighborhoods in Memphis, and $2.7 million to African-American consumers who were unlawfully denied or overcharged for loans, if the settlement is approved by the court. The bank also will pay a $3 million penalty and amend its policies to ensure compliance with fair-lending obligations.

"BancorpSouth's discrimination throughout the mortgage lending process harmed the people who were overcharged or denied their dream of homeownership based on their race, and it harmed the Memphis minority neighborhoods that were redlined and denied equal access to affordable credit," CFPB Director Richard Cordray said in a press release. "Today's action is a reminder that redlining and overt discrimination are not yet remnants of the past, and that federal enforcement is needed to bring real relief to communities and individuals."

The bank did not admit to any allegations or to any liability, a company spokesman said. The decision to settle was made to avoid prolonged litigation. The bank has two pending merger agreements and said in a statement that it will "resume its efforts to obtain the approvals necessary" to complete the mergers with Ouachita Bancshares Corp. and Central Community Corp.

"The company can provide no assurance that the mergers will close timely or at all," the bank said.

BancorpSouth took a pretax charge of $13.8 million in the first quarter to resolve what it called "matters associated with the settlement." The bank described the settlement as "a positive development."

As part of its investigation into discrimination, the CFPB sent testers to several BancorpSouth branches to ask about getting a home mortgage. The complaint alleges that BancorpSouth employees treated African-American testers who sought information about getting a home mortgage worse than white testers with similar credit qualifications.

The CFPB said it was the first time it used a tester to support an allegation of discrimination. The Justice Department and Department of Housing and Urban Development have used testers for decades to identify discrimination.

"When banks discriminate on the basis of race, they violate our civil rights laws and threaten the foundation of a fair economy," Principal Deputy Assistant Attorney General Vanita Gupta, who heads the Justice Department's Civil Rights Division, said in a press release.

The agencies said that BancorpSouth's lending units discriminated against African-American applicants by denying them mortgage loans, including loans with consumer as well as business purposes. Bank employees were given wide discretion to make credit decisions on home loans, which resulted in African-American applicants' being denied certain mortgages at rates more than two times higher than white applicants.

African-American borrowers also paid significantly higher annual percentage rates on loans than similarly situated white borrowers.

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