The Consumer Financial Protection Bureau and the Justice Department said that a New Jersey-based bank, called Hudson City Savings Bank, has been engaging in discriminatory mortgage lending, and now the bank has to pay $33 million in a settlement over the issue.
The allegations were that Hudson City Savings Bank was failing to give out credit access to people who lived in neighborhoods that were predominantly made up of minorities, and this type of practice that the bank engaged in is known as “redlining” and it is nothing more than racial discrimination. The Consumer Financial Protection Bureau Director Richard Cordray said in a statement that these redlining practices that Hudson City Savings Bank was engaged in illegally cut off the opportunities for those consumers in the predominantly Hispanic and black neighborhoods, which means these groups were unable to achieve the American Dream of owning their own home. The bank is a subsidiary of Hudson City Bancorp, and it was alleged that from 2009 until 2013, the bank would not serve people who were Hispanic or black, and would also decline opening up branches in the neighborhoods that were predominantly made up of minorities. There is a federal law in place which prevents banks and other establishments from practicing credit discrimination based on the color, sex, religion, national origin, and race of the applicant.
In the complaint, it was alleged that Hudson City Savings Bank began expanding branches in 2004 and stopped in 2010, but 94 percent of these expansions and new branches were not placed in the predominantly Hispanic or black neighborhoods. When you look at Hudson City Savings Bank, there are 135 different banking offices just in the New York metropolitan area alone. The bank said that “it disagreed with the statistical analysis of its loans” although the bank was quick to take subsidies to the tune of $25 million. In a release the company went on to say that loans that were given out to minorities from other originators were tracked on a balance sheet, and that this was in part to fulfill the obligations from the Community Reinvestment Act, and also noted that they had fair lending responsibilities they believe they had also fulfilled.
The terms of the settlement include that Hudson City Savings Bank has to pay $25 million in loan subsidies, which will go towards the minority neighborhoods in order to get them more affordable home loans. The agreement states that the money will go to neighborhoods in New York, Connecticut, New Jersey, and Pennsylvania. In terms of redlining settlements in order to provide the direct subsidies, the Consumer Financial Protection Bureau said that the Hudson City Savings Bank settlement is the largest ever. This should not really be that surprising since this bank has so many branches and locations throughout the United States, and there is also the fact that most of these locations are in very populated cities like New York and Philadelphia. These locations are also very diverse in terms of demographics and races, which makes it even easier for there to be claims of discrimination since there is not just one ethnicity that is dominating. There is also going to be a $5.5 million penalty accessed as a result of the racial discrimination, and part of this money, $2.25 million is going to go towards community outreach programs and targeted advertising.
While it looks like everything is already written in stone in terms of the settlement, it still is going to need approval from the courts before the settlement is finalized. Although it can take a long time for settlements like this to be approved and finalized by the court systems, this case should be relatively easy and it should pass through the courts pretty quickly since both sides have already agreed to the terms and details of the settlement. If a situation happens where the bank decides to backtrack and fight a particular issue or detail within the settlement, then obviously something like that could hold up the final court approval, but it appears that both the bank and the agencies involved have already resolved their differences and have agreed that these allegations are at least strong enough to warrant financial compensation, although it’s not known if any of the parties that have alleged wrongdoing will receive any of the money that is part of the settlement though. This should be a warning to other banks that are practicing or engaging in racial discrimination or wrongdoing in terms of mortgage lending, since federal law prohibits such behaviors and if the bank gets caught, there will be millions of dollars that will have to be paid, so for most banks, it is just not worth the risk of being caught.