What do I do with this guy?

I’m best friends with my fiancé’s sister, and see her quite often. Almost a year ago she started dating a guy, let’s call him Joe. We really liked Joe, go on a lot of outings with them and all genuinely have good energy together. We invited him to our wedding which is soon, he got the day off, got a suit for it (couple months away). Here’s the thing - I am an Asian American. Growing up, I was bullied to the point I used to cry & hated my heritage and wished I looked like all the other white kids. I’m not going to sit and list a long list of examples, but basically it lasted til mid high school, and gave me a ton of insecurities about my race. I’ve grown a lot since then & keep company with those who aren’t offensive. Last week, I’m on the phone with future SIL, and I hear her Joe joking in the background saying the N word, she’s laughing. I freeze and hang up on them. She gets the gist something is up a few days later and I tell her what he said wasn’t okay and she knows my background and feelings about racist comments. she said he was joking. I said it wasn’t a joke & I don’t tolerate that for anyone. She tells me she’ll speak with him and that was that. We go out to lunch with FSIL, she brings him. I’m talking to FSIL and I hear him say something else offensive jokingly, don’t remember exactly what, and she mutters something to him like “please stop it”. I don’t really know what to do right now as we really like the guy but this is tainting my perspective on him and her, & making me think he’s just one of the bullies I grew up with. Fiancé is in agreement nothing he’s saying is right & we don’t know where to go from here. Advice? Am I overreacting? What do I do?