CFPB, DOJ Announce Settlement Action in Mortgage Redlining Case

The Consumer Financial Protection Bureau and the Department of Justice yesterday announced a $25.5 million settlement in what they called the largest-ever mortgage “redlining” case.  

The CFPB and DOJ announced a joint action against Hudson City Savings Bank for discriminatory redlining practices that denied residents in majority African-American and Hispanic neighborhoods fair access to mortgage loans. If the proposed consent order is approved by the court, Hudson City would 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.  

“Unfortunately, we can see that there is still racial discrimination in the mortgage marketplace,” 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.”  

The complaint alleged that Hudson City illegally provided unequal access to credit to neighborhoods in New York, New Jersey, Connecticut and Pennsylvania. It said the bank located branches and loan officers, selected mortgage brokers and marketed products to avoid and thereby discourage prospective borrowers in predominantly African-American and Hispanic communities.  

“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,” Cordray said. “This will hold them to the law of the land.”  

“Between 2009 and 2013, if you were a minority looking for a mortgage in New Jersey, New York and Connecticut, Hudson City was not the place to go,” said U.S. Attorney Paul Fishman of the District of New Jersey. “In New Jersey, Hudson City essentially drew a solid red line around the City of Camden, while making loans to predominately white neighborhoods surrounding the city.”  

Hudson City is a federally chartered savings association with 135 branches and assets of $35.4 billion. It is involved in merger discussions with M&T Bank Corp. Under the proposed settlement, Hudson City officials neither denied the allegations, nor admitted responsibility.  

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. Specifically, the complaint alleged Hudson City structured its business to avoid and discourage residents in minority neighborhoods from accessing mortgages. DOJ also alleged that Hudson violated the Fair Housing Act, which also prohibits discrimination in residential mortgage lending.  

Vanita Gupta, head of the DOJ Civil Rights Division, said the department has “a number of active investigations throughout the country,” including Alabama and Pennsylvania, and has reached more than 20 settlements for mortgage redlining over the past several years totaling more than $1.3 billion in monetary relief. “We encourage all lenders to proactively identify responsible lending opportunities that exist in predominantly minority neighborhoods within their lending areas,” she said.