What It Looks Like When a Bank Goes out of Its Way to Avoid Minorities

According to federal prosecutors, Hudson City Savings Bank opened few branches in black and Hispanic neighborhoods around the New York and Philadelphia regions where it does much of its mortgage business. It placed few of its loan officers in these communities. It worked with hardly any mortgage brokers there, either. And its marketing was mostly elsewhere, too.

On Wednesday, the Department of Justice and the Consumer Financial Protection Bureau jointly ordered the bank to pay about $33 million to make amends for these patterns, in one of the largest “redlining” settlements the government has ever reached.

The case, though, is notable not just for the size of the bank–Hudson City has assets of more than $35 billion–or its location, centered around the largest housing market in America. Hudson City, unlike several other banks recently accused of discrimination, wasn’t charged with denying loans to qualified minorities, or jacking up their interest rates. In a subtle but more insidious claim, the government says it was “structuring its business so as to avoid majority-Black-and-Hispanic neighborhoods.”

Hudson City, in other words, was set up to ensure that few borrowers in minority neighborhoods ever even applied in the first place, according to prosecutors.

“At the core of this case is a pretty simple story,” said Paul Fishman, the U.S. attorney in New Jersey whose office worked on the case. “From 2009 to 2013, if you lived in a majority-black or Hispanic neighborhood and you wanted to apply for a mortgage, Hudson City Savings Bank was not the place to go. If you wanted not just to apply for one, but actually to get one so you could buy a house, your time would have been spent much better if you went to another bank.”

{snip} It agreed to pay $25 million in loan subsidies to borrowers in minority neighborhoods and to invest in advertising and outreach there. The bank also must open two new branches in minority neighborhoods. And it will pay a $5.5 million penalty to the Consumer Financial Protection Bureau’s Civil Penalty Fund.

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“Redlining is not a vestige of the past,” said Vanita Gupta, head of the Justice Department’s Civil Rights Division. “Banks continue to build and structure their lending operations in a way that avoids or fails to really meaningfully serve communities of color.”

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The bank didn’t accept mortgage applications at all of its branches, requiring some borrowers to travel to locations that happened to be farther away and in overwhelmingly white communities. The bank also offered a home improvement loan program for low-to-moderate income families, but the advertising for it specified that closings could only occur at one branch. It was in Fairfield, Conn., where the median income is $117,000 and the population is 92 percent white.

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