On October 1, 2015, McGuireWoods reported on the mortgage redlining settlement entered into by Hudson City Savings Bank, F.S.B. (Hudson City), the Consumer Financial Protection Bureau (CFPB), and the Department of Justice (DOJ). Aside from the significant costs imposed on Hudson City under the consent order, the action also illustrates the CFPB’s revised approach to redlining analysis, focusing on applications rather than originations and comparing Hudson City’s credit application statistics to those of its peers. The complaint identified the following statistically significant disparities:
The complaint also noted statistical disparities associated with Hudson City’s brokers. Per 2010 census data, only 7.4 percent of brokers utilized by Hudson City in the New York/New Jersey MSA were headquartered in majority African-American or Hispanic census tracts, and none of the brokers utilized by Hudson City in the Camden MSA were headquartered in such tracts. Between 2011 and 2013, only 0.67 percent of applications generated by Hudson City’s brokers came from African-American or Hispanic applicants.
Similar redlining concerns arose in connection with Hudson City’s retail branches. The complaint alleged that, between 2004 and 2010, Hudson City opened or acquired 54 branches, yet of those branches, only four were located in majority African-American or Hispanic census tracts.
In addition, the CFPB and DOJ alleged that Hudson City’s Community Reinvestment Act assessment areas excluded a significant percentage of majority African-American and Hispanic neighborhoods in the New York/New Jersey MSA, and all of such neighborhoods in the Camden MSA. As a result, residents of these areas would not be considered for benefits the bank generally offered to low-income borrowers, such as discounted home improvement loans. Moreover, the complaint identified problems with Hudson City’s fair lending compliance management system. Hudson City had no written policies to ensure compliance with fair lending obligations, and it failed to conduct internal redlining analyses after being instructed to do so by the CFPB in 2012.
In light of the CFPB and DOJ action and the costs imposed on Hudson City through the consent order, financial institutions should be cognizant of the following: