KleinBank is set to challenge a federal lawsuit that accuses the Chaska, Minn., institution of redlining minority neighborhoods around Minneapolis.

The litigation, filed by the Justice Department, has "absolutely no basis in fact," said Doug Hile, the $1.9 billion-asset bank's CEO.

The Justice Department filed its lawsuit Friday in the U.S. District Court for the District of Minnesota, claiming that the $1.9 billion-asset bank purposefully structured its mortgage business to avoid serving neighborhoods where most residents were racial and ethnic minorities.

The lawsuit alleges that KleinBank created a "horseshoe-shaped" service area that included mostly white suburbs and excluded urban areas with higher percentages of minority residents. The Justice Department also claims that KleinBank purposely restricted marketing to the neighborhoods it serves, further limiting opportunities for minority homebuyers.

Only 1% of the more than 5,800 mortgage applications Justice Department officials studied were originated in census tracts where the majority of residents were part of a minority group.

"Cases like this one demonstrate the Justice Department's strong commitment to hold banks accountable for continuing and perpetuating historic trends of inequality in residential mortgage lending," Vanita Gupta, head of the Justice Department's civil rights division, said in a press release.

A Justice Department spokesman did not immediately respond to a request for additional comment.

KleinBank has "virtually no business" in Minneapolis or neighboring St. Paul, Hile said. The 110-year-old bank has historically operated in communities west of the Twin Cities such as Carver and Scott counties, where it has 14 of its 22 branches and three-fourths of its $1.7 billion in deposits, according to data from the Federal Deposit Insurance Corp.

Hile said the lawsuit's claim that KleinBank is a duty to build branches in Minneapolis and St. Paul would represent "a baseless and unprecedented reach" by government.

"We have a small presence on the western fringes of a very large county [Hennepin] with an extensive banking community," Hile added. "We have less than one-tenth of a percent in market share. In Ramsay County, we have no presence at all."

KleinBank, meanwhile, received "satisfactory ratings" on its last four Community Reinvestment Act examinations, including one conducted in July 1, according to records kept by the Federal Financial Institutions Examination Council.

Hile added that no one has ever filed a complaint against the bank tied to the Fair Housing Act. "There are zero facts" behind the Justice Department's lawsuit, he said.

Two Cincinnati-area banks, Guardian Savings Bank and Union Savings Bank, agreed last month to consent orders with the Justice Department to settle claims they had redlined minority neighborhoods in Cincinnati, Dayton and Indianapolis. The banks denied the allegations, but they agreed to provide a total of $9 million on loans, grants and marketing in minority markets.

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