Bank Settles Landmark ‘Redlining’ Action

TRENTON, N.J. (CN) - Hudson City Savings Bank has agreed to pay $33 million to settle claims it turned away blacks and Hispanics seeking home mortgages.

If a federal judge approves the agreement announced Thursday, it will be the largest residential-mortgage redlining settlement in history, the Justice Department said. The Consumer Financial Protection Bureau touted the action as the first of its kind.

Federal regulators accused the Paramus, N.J.-based thrift of engaging in a number of activities that discouraged borrowers in predominately minority communities.

These included Hudson City's choice of branch locations, choice of mortgage brokers, and how it marketed its products.

"We allege that Hudson City's redlining practices illegally cut off opportunities for consumers in predominately black and Hispanic neighborhoods to get a mortgage and achieve the dream of home ownership," said Richard Cordray, director of the Consumer Financial Protection Bureau, in a statement.

"Without access to affordable credit, neighborhoods deteriorate in the long shadow cast by unfair lending," Cordray said.

Under the terms of the settlement, the bank agreed to pay $25 million in loan subsidies to borrowers, an additional $2.25 million for community programs, and a $5.5 million fine.

The Consumer Financial Protection Bureau's investigation into Hudson City began in March 2014, which expanded a year later. Authorities found that from 2009 through 2013 Hudson City had engaged in redlining by discouraging mortgage loan applicants in neighborhoods throughout New York and New Jersey that were primarily black or Hispanic.

According to regulators, from 2011 to 2013, only 3.7 percent of the bank's mortgage applications came from black-and-Hispanic areas, and less than one-fifth of those applications were from black or Hispanic borrowers.

In addition, the government said, the bank advertised for discounted home improvement loans-which were offered to homeowners with low-to-moderate incomes-but only allowed those loans to close in its Fairfax, Conn., office. The town of Fairfax is less than 7 percent black and Hispanic.

Regulators accused the bank of failing to properly oversee its staff or ensure compliance with fair lending laws, with only one compliance officer in 2009 and 2010. When the bank expanded its compliance department to a chief compliance officer and 12 other compliance positions in 2011, it left six of those positions unfilled for months. Most of the bank's compliance staff left in 2013, and those vacant positions have yet to be filled, the government said.

Redlining was outlawed by the Fair Housing Act of 1968, but some banks are thought to continue the practice.

Hudson City CEO Denis Salamone said in a statement that he did not agree with the allegations of redlining, but that "we agree, and have always believed, that there should be no discrimination based on race, national origin, gender, or age in obtaining a loan."

The Hudson City settlement could be another speed bump for Hudson City's planned merger with M&T Bank Corp. The two banks began talks on the proposed merger in 2012, subsequent investigations of both banks led to several postponements in finalizing the deal. The merger is currently scheduled for a closing at the end of October, pending government approval.

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