WASHINGTON (Reuters) - Hudson City Bancorp will pay nearly $33 million to settle civil charges alleging the New Jersey-based bank wrongfully discriminated against prospective black and Hispanic home buyers, in a case that marks the largest ever redlining settlement in history, the U.S. government said on Thursday.
The joint action by the U.S. Justice Department and the Consumer Financial Protection Bureau said that Hudson City Savings Bank tried to avoid locating branches and marketing mortgages in neighborhoods with a majority of black and Hispanic residents.
If approved by the court, Hudson City will be required to pay $25 million in direct loan subsidies to qualified borrowers in the affected communities, plus another $2.25 million toward community programs and outreach and a $5.5 million penalty.
“This case should send a message to lenders throughout the country that the Justice Department will not tolerate racial discrimination in the extension of credit,” said Principal Deputy Assistant Attorney General Vanita Gupta, the head of the Justice Department’s Civil Rights Division, in a statement.
The bank said it disagrees with the statistical analysis the government did of the loans at issue in the case, but wanted to avoid litigation.
“Although we do not agree with the DOJ’s and CFPB’s claims against the bank, we agree, and have always believed, that there should be no discrimination based on race, national origin, gender or age in obtaining a loan,” said Hudson City Savings Bank CEO Denis J. Salamone in a statement.
Gupta said Thursday that the settlement is the largest the Justice Department has ever struck both, in terms of the monetary amount and the geographic regions covered.
She added that the civil rights division has recently seen an increased number of active redlining investigations.
Paramus-based Hudson City Savings Bank has 135 branches and assets of $35.4 billion. It is currently awaiting approval from the Federal Reserve for a merger with M&T Bank Corporation.
The bank said M&T signed off on the settlement with the government.
Federal law prohibits creditors from discriminating against applicants for mortgages and other lines of credit on the basis of characteristics such as race, color, and national origin, a practice that along with other discriminatory financial behavior is known as redlining.
The government alleges that from 2009 to 2013, Hudson City violated the law by offering unequal access to credit based on the race and ethnicity of prospective borrowers’ neighborhoods, and sought to discourage minorities from applying for mortgages.
Editing by Eric Walsh and Andrew Hay