In November 2012 then Federal Reserve Board Chairman Ben Bernanke told an audience attending a HOPE Now event in Atlanta that there were two types of discrimination that continue to have particular significance to mortgage markets.  "One is redlining, in which mortgage lenders discriminate against minority neighborhoods, and the other is pricing discrimination, in which lenders charge minorities higher loan prices than they would to comparable nonminority borrowers."

Redlining refers to the practice of refusing to grant home mortgages in areas or neighborhoods deemed poor financial risks.  The practice, which received a lot of publicity in the 1960's was not eradicated but driven underground by the Fair Housing Act of 1968.  Still the government has won major redlining judgments over the years.    In recent years the nature of mortgage discrimination became less a matter of refusing credit and more Bernanke's second example, targeting minority and low income areas for risky subprime mortgages.  Last week the City of Providence Rhode Island joined Bernanke in declaring that old style redlining is back.

On Thursday Providence sued Santander Bank NA accusing it of discriminating against the city's black and Hispanic residents in the granting of mortgages while marketing aggressively to white borrowers.  The suit said that the bank is similarly curtaining lending to minorities in other New England localities including Boston.

Providence Mayor Angel Taveras said in a statement that since 2009 (when it bought the former Sovereign Bank), Santander had deliberately reduced its lending in the city's minority neighborhoods while actively expanding its business in areas that were predominantly white. The lawsuit, filed in the United States District Court for the District of Rhode Island, also alleges that Santander performance stands in stark contrast to many of its peer banks, who have performed far better in minority neighborhoods.

"Santander's practices violate fair lending laws and hurt Providence families," Taveras said. "Many borrowers in minority neighborhoods are qualified for prime loans, but Santander has written them off. That holds down property values and the broad economic recovery that a healthy housing market can help generate in every neighborhood in Providence."

Over the past 18 months the City Solicitor Jeffrey Padwa has led an investigation comparing lending in predominant minority and while neighborhoods both before and after Santander acquired Sovereign.  The city maintains that the bank's average annual mortgage originations have increased substantially over this period in white neighborhoods but declined precipitously in minority neighborhoods. Specifically, they say that, while applications for mortgages have declined across the board due to economic conditions, applications to the Santander for prime loans from minority neighborhoods declined by 61 percent compared to a 37 percent decline in applications to other leading banks.  Providence found the same pattern when analyzing data for the combined metropolitan statistical area that includes Boston, Providence, and much of the remainder of New England.  There originations in minority neighborhoods dropped 7 percent for other major banks after 2009 but 34 percent for Santander.

In its suit the City of Providence alleges that the stark contrast in Santander's mortgage lending activity between white and minority neighborhoods is the result of a deliberate decision to engage in redlining and supports its contention with declarations from officials at three of the city's community development corporations.

Santander Bank spokesman Mary Ellen Higgins said the bank categorically rejects the city's accusations and intends to defend themselves against the legal action.  "However, we are willing to work with the City of Providence to allay its concerns," she said.

Santander may be the biggest bank of which no one has ever heard.  The U.S. bank, headquartered in Boston, is a subsidiary of Spanish bank Banco Santander, S.A which claims to be one of the largest banks in the world with 102 million customers, 14,500 branches and 190,000 employees.   The Santander group of banks was founded in 1857 and has a presence in the United Kingdom, Latin America and Europe.

Providence is seeking "millions in damages" and Taveras said he hopes the suit will encourage the government to step up enforcement against redlining.