Bank Penalized for Not Serving Poor Area

A Federal Reserve Board decision that for the first time penalizes a bank for failing to serve poor neighborhoods appears to signal a new willingness by regulators to enforce a 12-year-old law against such practices, community activists said Thursday.

The Fed rejected a request by the Chicago-based Continental Bank Corp. to purchase a small Arizona bank because, it said, Continental had not fulfilled its duties under the Community Reinvestment Act, which requires banks to meet local credit needs, including those in poor neighborhoods.

The law, on the books since 1977, is aimed at preventing “red-lining,” the practice of denying loans to an entire neighborhood based on the predominant race or economic class of its residents.

“We hope this is the beginning of a trend,” said Allen Fishbein, general counsel of the Center for Community Change, a Washington-based group concerned with housing and community development.

Continental’s 14-month-old petition to acquire Grand Canyon State Bank in Scottsdale, Ariz., was rejected on a 4-2 vote Wednesday, with board members H. Robert Heller and John LaWare opposed. Edward W. Kelley Jr. did not vote.