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In a complaint by the Consumer Financial Protection Bureau and the Department of Justice, a New Jersey bank has been ordered to pay $33 million for illegal discriminatory lending practices.
The CFPB and DOJ allege that Hudson City Savings Bank withheld mortgage loans from residents in black and Hispanic neighborhoods, according to a CFPB news release.
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 Equal Credit Opportunity Act (ECOA). The practice of denying services to residents of areas based on their race or ethnicity is known as redlining.
Paramus-based Hudson City is a federally-chartered savings association with 135 branches and assets of $35.4 billion.
If the proposed consent order is approved by the U.S. District Court, Hudson City will pay $25 million in direct loan subsidies to qualified borrowers in affected communities, $2.25 million in community programs and outreach, and a $5.5 million penalty.
The CFPB said the Hudson City case is 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 in a statement. “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 CFPB said between 2009 and 2013, Hudson City Bank purposefully avoided locating its branches and loan officers in neighborhoods that had a significant African-American or Hispanic population. Instead, it focused on setting up branch offices in predominantly white, affluent suburbs.
The bank also avoided using mortgage brokers in black and Hispanic areas, excluded them from its marketing strategy and left the minority groups out of its credit assessment areas.
“There is no room for such behavior in our banking system,” said U.S. Attorney Paul J. Fishman of the District of New Jersey. “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.”
In addition to the $33 million Hudson City will have to pony up for its discriminatory lending practices, it has been ordered to offer full-service banking in majority-black and Hispanic communities and develop a fair lending compliance and training plan.
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