“Redlining” is the practice of banks or mortgage companies selectively offering credit based on an applicant’s race, color, sex, religion or national origin. Redlining was once a common practice in Delaware and other states, but it is now prohibited by Federal law. Hudson City Savings Bank announced on Sept. 24, 2015, that it has reached a settlement with the Department of Justice and the Consumer Financial Protection Bureau to pay $33 million for its discriminatory lending practices.
Federal authorities alleged that Hudson City launched a major branch expansion between 2004 and 2010 but located 94 percent of the branches in non-minority neighborhoods. The bank disputes the statistical analysis the DOJ and the CFPB used to arrive at the conclusion that the bank has engaged in discriminatory practices. Even though the bank does not have as many branches in minority neighborhoods, it claims to meet its fair lending obligations by purchasing mortgages for minority borrowers from other loan originators and maintaining those loans on Hits books.
Under the settlement, the largest redlining settlement to include direct subsidies, Hudson City will provide $25 million in loan subsidies to make homes more affordable in minority areas. The bank will pay a $5.5 million penalty and will finance a $2.25 million targeted media campaign. Hudson City did not admit to the allegations, but stated that it settled the complaint in order to focus on continuing to provide fair credit services and completing its pending merger with M&T Bank Corporation.
Discriminatory lending practices take various forms. In the past, many banks simply refused to issue mortgages to minority individuals. The Hudson City practice is more subtle. Because many people will seek a mortgage from a neighborhood bank, by locating branches in non-minority neighborhoods, Hudson City’s approach was indirect, although it had the same result. Whether or not discrimination is present, a person who is seeking a residential mortgage loan may want to obtain the assistance of a real estate attorney in reviewing all applicable documentation.