On September 24, 2015, the Consumer Financial Protection Bureau (“CFPB”) and the Department of Justice (“DOJ”) announced a joint action against New Jersey-based Hudson City Savings Bank for discriminatory redlining practices that denied residents of majority-Black-and-Hispanic neighborhoods fair access to mortgage loans. The agencies allege that the bank took steps to avoid, and thereby discourage, applications from prospective borrowers in predominantly Black and Hispanic communities. If the proposed consent order is approved by the court, Hudson City will 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. This represents the largest redlining settlement in history to provide such direct subsidies.
The Equal Credit Opportunity Act (ECOA) prohibits creditors from discriminating against applicants in credit transactions on the basis of characteristics such as race, color, and national origin. In their complaint, the CFPB and DOJ alleged that from at least 2009 to 2013, Hudson City violated the law when it engaged in illegal redlining by offering unequal access to credit based on the race and ethnicity of prospective borrowers’ neighborhoods. The DOJ also alleges that Hudson violated the Fair Housing Act, which also prohibits discrimination in residential mortgage lending.
The Dodd-Frank Wall Street Reform and Consumer Protection Act authorizes the CFPB to take action against creditors engaging in discrimination in violation of the ECOA.
The consent order is the culmination of a CFPB examination that began in 2014. “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.”
“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. We encourage all lenders to proactively identify responsible lending opportunities that exist in predominantly minority neighborhoods within their lending areas.”
Hudson City is a federally-chartered savings association that focuses its lending on the origination and purchase of mortgage loans secured by single-family properties.
The complaint and the proposed consent order resolving the complaint have been simultaneously filed with the United States District Court for the District of New Jersey. The consent order will have the full force of law only when signed by the presiding judge.