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Hudson City Agrees to Settle Suit on Unfair Lending Practices

On Thursday, Hudson City Bancorp, Inc.HCBK agreed to settle the lawsuit under which the bank was sued for encouraging discriminatory mortgage lending practices. The settlement agreement was entered with the U.S. Department of Justice ("DOJ") and the Consumer Financial Protection Bureau ("CFPB").

The bank was accused for violating the Fair Housing Act and Equal Credit Opportunity Act. Both DOJ and CFPB investigated Hudson City's lending practices in majority-Black and Hispanic areas mostly outside New Jersey from 2009 to 2013 and concluded that the bank used racial criteria to direct potential borrowers toward certain neighborhoods and determine their eligibility for loans. We note that, as per the DOJ, such discriminatory practice is referred as 'redlining'.

Moreover, regulators revealed Hudson City Bancorp evaded areas with large African-American and Hispanic populations and refrained from opening branches or allocating those areas to loan officers.

On the U.S. District Court's approval in New Jersey, the bank will be paying around $33 million, including about $27 million as loan subsidy with a penalty amount of $5.5 million. Notably, the aforementioned settlement is the largest residential-mortgage redlining settlement in DOJ's history and the first redlining action for CFPB.

"Redlining is not a vestige of the past," said Vanita Gupta, head of the Justice Department's Civil Rights Division on the conference call with the Consumer Financial Protection Bureau to discuss the settlement. The Justice Department expects more similar cases against banks over "redlining".

"Discriminatory practices in the mortgage market undermine people's ability to buy a home and build long-term wealth," added CFPB director Richard Cordray. "Rooting out discrimination to ensure fair and equal access to credit for all qualified borrowers remains a priority."

Hudson City neither accepted nor denied the wrongdoings and said it "disagrees with the statistical analysis of loans relied upon by the DOJ and CFPB as the principal basis for claims as well as the agencies' conclusions from their investigations." It added that it settled the matter "to avoid litigation with these agencies so that it can focus on continuing to provide fair credit services to its customers and working to complete its pending merger." Meanwhile, Hudson City's merger with M&T Bank Corporation (MTB) announced in 2012 is pending and awaits regulators' approval.

Among other mortgage lenders - Citigroup Inc. C , JPMorgan Chase & Co. JPM and Bank of America Corp. BAC were also sued for discrimination in lending practices. Deutsche Bank AG had also been previously accused by Los Angeles of letting the foreclosed homes in low-income regions deteriorate to poor conditions. The case was settled in Jun 2013.

For banks, legal headwinds are on the rise. They continue to face several cases and probes regarding their business conduct preceding the financial crisis. Though the banks have resolved many such issues in the past years, increasing legal hassles keep dragging their financials downward.

Currently, Hudson City carries a Zacks Rank #3 (Hold).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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