Federal Agencies File Redlining Charges Against Hudson City Savings Bank
Late last week a federal regulator filed a complaint against Hudson City Savings Bank for allegedly using discriminatory redlining practices that denied residents in minority neighborhoods fair access to mortgage loans.
The joint complaint filed by the Consumer Financial Protection Bureau (CFPB) and U.S. Department of Justice (USDOJ) alleges that Hudson City illegally provided unequal access to credit to neighborhoods in New York, New Jersey, Connecticut and Pennsylvania. If approved by a judge, the bank would be required to pay a financial settlement that includes funding for affordable housing subsidies, community outreach programs and civil penalties totaling more than $32 million.
Redlining is the practice of refusing or limiting loans, mortgages, insurance or other financial products to residents of certain areas based on their racial or ethnic makeup. The Equal Credit Opportunity Act (ECOA) prohibits creditors from discriminating against applicants in credit transactions on the basis of race, color and national origin. The Fair Housing Act prohibits discrimination in residential mortgage lending. According to the complaint, Hudson City structured its business to avoid, and thereby discourage, residents in majority Black and Hispanic neighborhoods from accessing mortgages.
The complaint says that Hudson City avoiding locating branches and loan officers in minority communities even as the company expanded between 2004 and 2010. The company also avoided using mortgage brokers that were located in minority communities. For example, none of the 47 brokers utilized by the bank in the Philadelphia and Camden, PA areas were in minority communities.
For its strategic marketing initiative, the company chose Suffolk County, NY, which has a lower proportion of minority neighborhoods than its neighboring counties on Long Island and in New York City. In another marketing initiative, Hudson City advertised and offered discounted home improvement loans only to residents of certain counties, excluding the four New York counties with the highest proportion of minority neighborhoods.
Hudson City also allegedly excluded minority neighborhoods from its credit assessment areas.
If the settlement order is approved by a court, Hudson City would be required to:
- Pay $25 million to a loan subsidy program to increase access to affordable credit
- Spend $1 million on targeted advertising and outreach
- Spend $750,000 on local partnerships with organizations that provide assistance to residents in minority communities
- Spend $500,000 on consumer education, including providing financial education events
- Pay a $5.5 million civil penalty
- Open two new branches within minority neighborhoods
- Expand assessment areas to include minatory neighborhoods and assess the credit needs of minority neighborhoods
- Develop a fair lending compliance and training plan
More information about the complaint can be found on the CFPB website.