The Los Angeles City Council has ordered an investigation of a community development bank that a Los Angeles Times article said was not living up to its mission.

On Feb. 10 the council demanded that Los Angeles Community Development Bank give a detailed report of its lending and job creation efforts in poor areas. The bank, created by the city three years ago to help rebuild neighborhoods decimated during 1992 rioting, must also disclose its underwriting policies and any litigation involving past loans.

"I want to make sure that the service the bank offers provides for the job development and employment needs of our communities," said Councilman Rudy Svorinich Jr., "especially those underserved communities who were intended to be the largest beneficiaries." Mr. Svorinich's district includes Watts and other neighborhoods hit hard in 1992.

The City Council and the County Board of Supervisors both oversee the bank.

The development bank was established with $340 million of funds from the Department of Housing and Urban Development. The bank is responsible to lend to businesses operating in federal empowerment zones. The loans are made contingent upon businesses' hiring most of their employees from within the zones.

But the bank's performance has fallen short, and its business methods have been criticized by borrowers, according to a Feb. 3 article in The Los Angeles Times. More than one-third of its largest loans are nonperforming, the article said, and just 19% of the more than 600 jobs created are held by residents of empowerment zones-far below the 51% threshold required.

One borrower has even sued the bank, alleging fraud and negligence, the newspaper reported.

Robert Kemp, the bank's chief executive officer, was not available to comment. He was on vacation, the bank said. But spokesman Robert Alaniz defended the bank's record, saying the loan troubles reported in the newspaper are not indicative of the bank's overall record.

"We think the bank is still on its mission," said Mr. Alaniz. "We're proud of our record."

The bank has approved $73.1 million of loans, he said, of which 16% are delinquent. Mr. Alaniz added that the bank has created or retained 2,088 jobs. Responding to the charge that few of the new jobs went to residents of poor neighborhoods, he noted that borrowers have up to three years from the time a loan is approved to satisfy that condition.

The bank's report is due to the City Council March 10.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.