Fed Fines F & M Bank Over Credit Card Policy : Banking: Officers admit no wrongdoing but agree to pay $100,000 levy rather than incur greater expenses to fight it.

The Federal Reserve Board has slapped Farmers & Merchants Bank with a $100,000 fine for allegedly discriminating against elderly and young people applying for credit cards.

Bank officers agreed to pay the fine, which was imposed for alleged violations through June 29, but admitted no wrongdoing.

“It’s just being financially responsible to pay it,” said Daniel K. Walker, Farmers & Merchants senior vice president. “If you fight this particular battle, I suspect our expense would be greater than the $100,000.”

The Fed first took action against the bank last March, ordering Farmers & Merchants, among other things, to stop applying stricter requirements to credit card applicants who were elderly or younger than 25.

Since then, Farmers & Merchants Bank has taken steps to comply with the order, including switching to a less flexible system that relies on set criteria to determine whether an applicant is qualified to receive a credit card, Walker said.

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Under the old system, a loan officer had plenty of latitude to accept or reject an applicant. Now, points are assigned based on set criteria and only those applicants who do not make the grade are rejected, Walker said.

“We’ve put together a scoring system that takes the human element out of the process,” Walker said.

The bank also has hired a consumer compliance officer, as required by the Fed, to oversee compliance with state and federal law, Walker said.

Farmers & Merchants Bank was founded in 1907 and has 16 branches--10 in Long Beach and six in Orange County. The bank has $1.55 billion in assets and advertises itself as the most sound in the nation.

Public attention was first focused on the bank’s loan practices in 1990, when the Fed found that Farmers & Merchants failed to make enough loans available to low-income people in Long Beach. The agency said the bank was in “substantial noncompliance” with the Community Reinvestment Act of 1977, which requires financial institutions to meet the credit needs of its community, including the poor. It was enacted to help low-income people secure housing and to prevent lenders from discriminating against the poor.

Bank officials said the rating was inaccurate and that Farmers & Merchants had made loans for low-income housing and senior citizens’ homes.

As a result of that poor rating, the Fed in 1990 denied the bank’s request to open a 17th branch. Walker said Farmers & Merchants Bank has an application pending in a renewed attempt to open its 17th branch in Costa Mesa.

But approval is uncertain.

The Fed re-evaluated Farmers & Merchants Bank last June for compliance with the Community Reinvestment Act. It found some progress but said the bank still “needs to improve.”

“If this were your driver’s record, it would not look congratulatory,” Fed spokesman Ronald Supinski said.