CFPB “mystery shoppers,” along with secret recordings, were part of the CFPB’s factual allegations in a recent mortgage discrimination settlement. The DOJ and CFPB announced a settlement with BancorpSouth Bank to resolve alleged violations of the Fair Housing Act and Equal Credit Opportunity Act (ECOA). The complaint alleges that from at least 2011 to 2013, BancorpSouth illegally redlined mortgage loan applicants, denied African Americans loans more often than white applicants, charged African American customers more for loans, and implemented an explicitly discriminatory loan denial policy. The alleged victims lived in predominately minority neighborhoods in Memphis, Tennessee, Arkansas, and Mississippi.

The settlement marks the first time the CFPB has publicly disclosed using “mystery shoppers,” among other novel methods of investigation. The Bureau began investigating BancorpSouth in 2013 after receiving complaints that the bank was violating the Fair Housing Act and ECOA. The CFPB sent African American and white “testers” (sometimes called “mystery shoppers”) to six different BancorpSouth branches to inquire about mortgages. The CFPB conducted matched-pair testing to determine whether BancorpSouth treated African American loan applicants differently than white applicants. According to the CFPB allegations, the results indicated that loan officers treated African American testers less favorably than white testers with similar credit qualifications. Specifically, the CFPB claimed that BancorpSouth officers provided African American testers with information that restricted them to smaller loans.

The BancorpSouth investigation marks the first time that the CFPB has used testers to support a discrimination allegation. The DOJ, U.S. Department of Housing and Urban Development, and various fair housing organizations have used testers to identify discrimination for many years. Courts recognize testing as a reliable investigative tool.

Additionally, the CFPB cited audio recordings of a September 2012 internal meeting at BancorpSouth to support the CFPB’s allegations. According to the complaint, a bank manager instructed loan officers present at the meeting to turn down minority applicants’ mortgage applications quickly.

If the Northern District of Mississippi approves the settlement agreement, BancorpSouth will pay $4 million in direct loan subsidies, $2.78 million to African Americans unlawfully denied or overcharged for loans, $800,000 for community programs and credit repair efforts, and a $3 million penalty.