NEWARK, NJ - Faced with charges it purposely steered clear of predominantly black and Hispanic areas when offering residential mortgages, Hudson City Savings Bank has agreed to pay a $5.5 million fine and spend more than $27 million on loan programs for the affected areas.
The settlement was announced by the U.S. Attorney’s Office’s New Jersey Office which described it as “largest residential mortgage redlining settlement” in U.S. Department of Justice history.” The consent order is subject to court approval.
The government said Hudson City, which has a branch location at 341 Springfield Avenue in Summit, “engaged in a pattern or practice of redlining predominantly Black and Hispanic neighborhoods throughout its major market areas with respect to the extension of residential mortgage credit.” Redlining is a term used to describe a practice in which lenders, figuratively speaking, draw a line around areas where they don’t want to do business.
“The complaint alleges that Hudson City violated the Fair Housing Act and Equal Credit Opportunity Act (ECOA), which prohibit financial institutions from discriminating on the basis of race, color or national origin in their mortgage lending practices,” said a statement from the U.S. Attorney’s Office.
It said the complaint against Hudson City alleged the company engaged in relining “from at least 2009 to 2013,” all across its business area including New Jersey. “Hudson City Savings Bank structured its business operations to systemically avoid providing credit services in predominantly minority neighborhoods,” said U.S. Attorney Paul Fishman in a statement. “There is no room for such behavior in our banking system.”
However, although it agreed to the consent order’s terms, Hudson Savings asserted it did not engage in the discriminatory lending. It said it agreed to the settlement only to avoid a court battle with the federal government.
“Hudson City asserts that throughout the period of time at issue in this proceeding and to the present, it has treated all of its customers fairly and without regard to impermissible factors such as race and national origin,” says a “Position of Defendant” section of the consent order. “Hudson City believed that it was satisfying its obligations to meet the credit needs of majority-Black-and-Hispanic neighborhoods by purchasing from other lenders FHA-guaranteed mortgages that were secured by residential properties in majority Black-and-Hispanic neighborhoods.”
Additionally, Hudson City said that, rather than fight the allegations, it is going to “devote its resources to providing fair credit services to eligible persons, and to providing important and meaningful assistance to borrowers in certain markets.”
The settlement requires Hudson City to spend $25 million on a “loan subsidy fund to increase the amount of credit the bank extends” to people in black and Hispanic dominated areas. It also requires the company to spend $2.25 million to open two new branches in those neighborhoods and to engage in advertising and other forms of “outreach” to attract borrowers there.
“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. “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.”
The case began in March with a joint investigation by the Consumer Finance Protection Bureau (CFPB). Bureau director Richard Cordray said Hudson City’s practices limited the chance for people in black and Hispanic neighborhoods to participate in “the dream of home ownership.” He asserted that redlined neighborhoods “deteriorate in the long shadow cast by unfair lending.”
A copy of the complaint can be obtained from the Justice Department’s website.