Hudson City Savings Bank today reached a $33 million settlement with the Department of Justice and the Consumer Financial Protection Bureau to resolve allegations that it engaged in a pattern of “redlining” predominantly African American and Hispanic neighborhoods in its residential mortgage lending practices.
“Redlining” is the discriminatory practice by banks or other financial institutions to deny or avoid providing credit services to a consumer because of the racial demographics of the neighborhood in which the consumer lives. “This resolution represents the Justice Department’s largest residential mortgage redlining settlement in its history,” the Justice Department said.
Under the terms of the proposed settlement, Hudson City will invest $25 million in a loan subsidy fund to increase the amount of credit the bank extends to African American and Hispanic neighborhoods across its market areas. The bank will further invest $2.25 million in advertising, outreach, financial education, and community partnership efforts and open two full-service branches in these neighborhoods, and will further pay a $5.5 million civil monetary penalty.
The settlement also will require Hudson City to further develop robust internal controls to ensure compliance with 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.
“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.
The settlement, which is subject to court approval, was filed in conjunction with the agencies’ complaint in the U.S. District Court for the District of New Jersey. According to the allegations, Hudson City violated the Fair Housing Act and Equal Credit Opportunity Act (ECOA), which prohibits financial institutions from discriminating on the basis of race, color or national origin in their mortgage lending practices.
Specifically, the complaint alleges that from at least 2009 to 2013, Hudson City failed to serve the credit needs of majority-Black-and-Hispanic neighborhoods throughout its major market areas, including in New Jersey, New York City and its surrounding counties, and the Philadelphia and Bridgeport, Connecticut, metropolitan areas. Hudson City has agreed to settle this matter without contested litigation.
The lawsuit originated from a joint investigation with the CFPB that commenced in March 2015.