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From Banking and Finance Law Daily, September 24, 2015

N.J. bank to pay largest direct subsidy to settle redlining violations

By John M. Pachkowski, J.D.

The Consumer Financial Protection Bureau and the Department of Justice have filed a lawsuit in a New Jersey federal court against Hudson City Savings Bank for discriminatory redlining practices that denied residents in majority-Black-and-Hispanic neighborhoods fair access to mortgage loans. “Redlining” is the discriminatory practice by which banks or other financial institutions deny or avoid providing credit services to a consumer because of the racial demographics of the neighborhood in which the consumer lives.

As part of the lawsuit, Hudson City Bank would be required to pay $27 million which represents the Justice Department’s largest residential mortgage redlining settlement in its history.

Redlining activity. In their complaint, the CFPB and DOJ alleged that Hudson City violated the Equal Credit Opportunity Act by providing unequal access to credit to neighborhoods in New York, New Jersey, Connecticut, and Pennsylvania. Specifically, the bureau and DOJ claimed that the bank providing unequal access to credit by not locating branches and loaning officers in predominantly Black and Hispanic communities so as to discourage prospective borrowers. Other alleged actions that also discouraged prospective Black-and-Hispanic borrowers included avoiding the use of mortgage brokers in Black-and-Hispanic communities, and excluding majority-Black-and-Hispanic communities from the bank’s marketing strategy. The complaint also alleged that the bank’s conduct violated the Fair Housing Act, which also prohibits discrimination in residential mortgage lending.

Redress. As part of the part of the lawsuit, Hudson City Bank entered into a consent order with the CFPB and DOJ. If the consent order is approved by the court, Hudson City Bank will be required to:

  • invest $25 million in a loan subsidy fund to increase the amount of credit the bank extends to majority-Black-and-Hispanic neighborhoods across its market areas;
  • invest an additional $2.25 million in advertising, outreach, financial education, and community partnership efforts and open two full-service branches in these neighborhoods;
  • pay a civil monetary penalty of $5.5 million; and
  • take necessary step to ensure compliance with its fair lending obligations, provide fair lending training to its employees, senior management, and the board of directors, and create a comprehensive long-term plan to increase lending in previously redlined areas.

Cut off opportunities. CFPB Director Richard Cordray stated 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.” He added, “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.”

Send a message. Principal Deputy Assistant Attorney General Vanita Gupta said, “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.” She added, “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.”

No room for such behavior. Finally, Paul J. Fishman, the U.S. Attorney for the District of New Jersey, noted, “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.”

Disagrees with analysis. In a press release, the bank’s parent, Hudson City Bancorp Inc., stated that it disagrees with the statistical analysis of loans relied upon by the DOJ and CFPB as the principal basis for their claims as well as the agencies' conclusions from their investigations. The company added that it “decided to settle this matter, which includes payment of a $5.5 million civil penalty, to avoid litigation with these agencies so that it can focus on continuing to provide fair credit services to its customers and working to complete its pending merger with M&T Bank Corp.”

Companies: Hudson City Bancorp Inc.; Hudson City Bank; M&T Bank Corp.

MainStory: TopStory ConsumerCredit CFPB EnforcementActions EqualCreditOpportunity Loans Mortgages

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