WASHINGTON—The CFPB and the Department of Justice have announced a joint action against Hudson City Savings Bank for discriminatory redlining practices that denied residents in majority-Black-and-Hispanic neighborhoods fair access to mortgage loans.
The complaint filed by the CFPB and DOJ alleges that Hudson City illegally provided unequal access to credit to neighborhoods in New York, New Jersey, Connecticut, and Pennsylvania. The bank located branches and loan officers, selected mortgage brokers, and marketed products to avoid and thereby discourage prospective borrowers in predominantly Black and Hispanic communities, the CFPB stated.
If the proposed consent order is approved by the court, Hudson City will pay $25 million in direct loan subsidies to qualified borrowers in the affected communities, $2.25 million in community programs and outreach, and a $5.5 million penalty. This represents the largest redlining settlement in history to provide such direct subsidies, according to the CFPB.
“We allege that Hudson City’s redlining practices illegally cut off opportunities for consumers in predominantly Black and Hispanic neighborhoods to get a mortgage and achieve the dream of homeownership,” said CFPB Director Richard Cordray. “Without access to affordable credit, neighborhoods deteriorate in the long shadow cast by unfair lending. Today's action seeks to remove the redline by bringing more than $27 million in mortgage subsidies and outreach programs, along with new bank branches to the communities who should have had access from the beginning.”
“This case should send a message to lenders throughout the country that the Justice Department will not tolerate racial discrimination in the extension of credit,” said Principal Deputy Assistant Attorney General Vanita Gupta, head of the Civil Rights Division. “A lending institution must treat all potential borrowers equally, regardless of their race or the racial composition of their neighborhood, when deciding to offer its loan services. We encourage all lenders to proactively identify responsible lending opportunities that exist in predominantly minority neighborhoods within their lending areas.”
“Hudson City Savings Bank structured its business operations to systemically avoid providing credit services in predominantly minority neighborhoods,” said U.S. Attorney Paul J. Fishman of the District of New Jersey. “There is no room for such behavior in our banking system. In addition to paying $25 million for a loan subsidy program, today’s settlement agreement will require the bank to take a number of concrete steps to ensure that they improve access to responsible and affordable credit to qualified borrowers in Black and Hispanic neighborhoods.”
Hudson City is a federally chartered savings association with 135 branches and assets of $35.4 billion. Hudson City focuses its lending on the origination and purchase of mortgage loans secured by single-family properties. Hudson City generates the vast majority of its mortgage loan applications for properties within three metropolitan statistical areas. The first area includes New York City, Long Island, and northern New Jersey. The second area includes Philadelphia, Camden, and Wilmington. The third area includes Bridgeport, Stamford, and Norwalk in Connecticut. In 2012, Hudson City generated over 90 percent of its mortgage loan applications for properties within these three areas.
The Equal Credit Opportunity Act (ECOA) prohibits creditors from discriminating against applicants in credit transactions on the basis of characteristics such as race, color, and national origin. In the complaint, the CFPB and DOJ alleged that from at least 2009 to 2013, Hudson City violated the law when it engaged in illegal redlining by offering unequal access to credit based on the race and ethnicity of prospective borrowers’ neighborhoods. The DOJ also alleges that Hudson violated the Fair Housing Act, which also prohibits discrimination in residential mortgage lending.