A large northeast savings bank has been named in a consent order filed by the Consumer Financial Protection Bureau (CFPB) and the Department of Justice (DOJ) for alleged redlining.  Hudson City Savings Bank, a federally-chartered savings association with 135 branches and assets of $35.4 billion is accused of lending practices that denied residents in majority Black and Hispanic neighborhoods in New York New Jersey, Connecticut, and Pennsylvania fair access to mortgage loans. 

The order charges that Hudson City located branches and loan officers, selected mortgage brokers, and marketed products to avoid and thereby discourage prospective borrowers in minority communities.  If approved by the court, the order will require Hudson City to 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. CFPB says this would be the largest redlining settlement in history to provide such direct subsidies.

"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."

The vast majority of the bank's mortgage loan applications, primarily for single-family residences, are concentrated in three metropolitan statistical areas; New York City-Long Island-northern New Jersey, Philadelphia-Camden-Wilmington, and Bridgeport-Stamford-Norwalk Connecticut. In 2012, Hudson City generated over 90 percent of its mortgage loan applications for properties within these three areas.   

CFPB and DOJ charged specifically that Hudson City structured its business to avoid and thereby discourage residents in majority-Black-and-Hispanic neighborhoods from accessing mortgages. The DOJ also alleges that Hudson violated both the Fair Housing Act and the Equal Credit Opportunity Act, engaging in illegal redlining by offering unequal access to credit based on the race and ethnicity of prospective borrowers' neighborhoods.

The consent order charges that:

  • From 2004 through 2010, the bank embarked on a branch expansion in Staten Island, Long Island, areas north of New York City, and Connecticut. These are areas which exclude and form a semi-circle around the four counties in New York with the highest proportions of minority neighborhoods. Hudson City also placed all of its loan officers outside of majority-Black-and-Hispanic areas.
  • The bank generated 80 percent of its mortgage applications through mortgage brokers who were heavily concentrated outside of minority areas. In 2011 and 2012, 94.5 percent of Hudson City's top 50 brokers' offices were not in majority-Black-and-Hispanic areas.
  • The bank excluded minority communities from its marketing strategy, advertising and offering discounted home improvement loans only to residents of certain counties. It excluded from eligibility the four New York State counties with the highest proportions of majority-Black-and-Hispanic neighborhoods.
  • It also excluded minority neighborhoods from its credit assessment areas under the Community Reinvestment Act.  For example, Hudson City's assessment area near Philadelphia and Camden excluded all 337 neighborhoods with a majority of Black and Hispanic residents.

Court approval of the joint order will require that the bank:

  • Pay $25 million to a loan subsidy program in majority Black and Hispanic neighborhoods to make mortgage loans more affordable than those otherwise available from the bank. The loan subsidies can include interest rate reductions, closing cost assistance, and down payment assistance.
  • Spend $1,000,000 on targeted advertising and outreach over a five year period to generate applications for mortgage loans from qualified residents in the affected neighborhoods.
  • Spend $750,000 to partner with community-based or governmental organizations that provide assistance to residents in Black and Hispanic neighborhoods.
  • Spend $500,000 over five years to provide financial educational events covering credit counseling, financial literacy, and other topics to help identify and develop qualified loan applicants from the affected communities. 
  • Open two new branches offering full-service banking in majority-Black-and-Hispanic communities:
  • Expand assessment areas to include majority-Black-and-Hispanic communities:
  • Complete an assessment of the credit needs of the majority-Black-and-Hispanic communities within the affected metropolitan areas:
  • Develop a fair lending compliance and training plan and train all of its employees involved in mortgage lending to ensure their activities are nondiscriminatory and hire a full-time Director of Community Development to oversee and foster lending in Black and Hispanic neighborhoods. 
  • Pay a $5.5 million penalty to the CFPB's Civil Penalty Fund.

 "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."

The complaint filed by CFPB and DOJ is not a finding or ruling that the defendants have actually violated the law. The proposed federal court order will have the full force of law only when signed by the presiding judge.