The Consumer Financial Protection Bureau and the Department of Justice have announced a proposed $38 million consent order against Hudson City Savings Bank for alleged mortgage loan discrimination. The CFPB is accusing Hudson of “redlining,” a practice in which lenders systematically avoid offering credit services in predominantly minority neighborhoods. This is the bureau’s first enforcement action against redlining, and represents the largest redlining settlement in history as measured by direct subsidies provided to affected communities.
The consent order, which has yet to be approved by a judge, cites repeated violations of the Equal Credit Opportunity Act (ECOA) from 2009 to 2012. Hudson is accused of conspiring to provide unequal credit access to residents in certain neighborhoods. The CFPB overlaid recent Hudson office locations and records of mortgage applications with neighborhoods identified in census data as majority black or Hispanic. Their maps and other materials can be found here. The CFPB claims Hudson redlined by locating its branches and selecting mortgage brokers nearly all outside of minority neighborhoods. Hudson drew fewer applications from black and Hispanic neighborhoods as compared to its peers and that “statistically significant” difference should have been apparent, according to the CFPB.
In addition to a $5.5 million penalty, the consent order, if approved, will require Hudson to ameliorate the effects of its alleged discrimination against minority borrowers. Hudson will be required to spend $25 million to subsidize mortgage loans in the very neighborhoods that they redlined. They will accomplish this via lower interest rates, direct grants, or mortgage insurance premium payments. Individual subsidies could total as much as $18,750 to qualified applicants who apply for residential mortgages for properties located in affected census areas. An additional $2 million will be required for partnering with community-based organizations that provide assistance in minority neighborhoods and for providing financial education to residents.
Furthermore, Hudson will be required to make internal changes. The consent order forces Hudson to open two new branches in the affected neighborhoods. In addition, all branches and offices will be required to add staff. The order alleges Hudson failed to monitor for redlining by failing to hire enough staff, failed to perform broker monitoring despite the CFPB’s 2012 recommendation to lenders, and failed to hire retail loan officers that were black or Hispanic or who spoke Spanish. Finally, the consent order specifically requires Hudson to hire a dedicated Fair Lending Officer, a Director of Community Lending, a third-party Credit Needs Assessment Consultant, and appoint a Compliance Committee.