HUD Investigates HSBC's U.S. Unit Over Redlining Allegations

Action prompted by a non-profit’s complaint to the agency involving six metro areas.

housing stocks with image of subdivision homes
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The Department of Housing and Urban Development (HUD) is investigating HSBC Bank USA over allegations that it engaged in discriminatory lending practices in majority Black and Hispanic neighborhoods in six metropolitan areas from 2018 to 2021.

HSBC, which disclosed the investigation in a recent SEC filing, declined Kiplinger’s request for comment. HUD said that it does not comment on investigations or potential complaints.

A spokesperson for the National Community Reinvestment Coalition (NCRC), which prompted the investigation after filing a complaint with HUD involving the six metropolitan statistical areas (MSAs), confirmed the investigation. The NCRC, which includes 700 community development and finance groups, is a non-profit organization that aims to increase private capital investment in traditionally underserved communities.

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The complaint alleges that the bank “has engaged in lending redlining in Black and Brown communities in six MSAs, which is a violation of the Fair Housing Act,” the spokesperson said in a statement. The MSAs are New York; Seattle; Orange County, California; Los Angeles; Oakland, California; and the Bay Area.

DoJ eyes redlining charges

“When NCRC or our members find evidence of redlining or any other form of lending discrimination, we take prompt action,” the spokesperson added. 

Under the Fair Housing Act, redlining is defined as the practice of denying a creditworthy applicant a loan for housing in a certain neighborhood, “even though the applicant may otherwise be eligible for the loan.”

According to an April 24 American Banker report, the Department of Justice (DoJ) reached six redlining agreements with financial institutions since 2021. The article cites Kristen Clarke, DoJ Civil Rights Division assistant attorney, as saying that the agency will hold all types of mortgage lenders, including mortgage companies and credit unions, accountable when they engage in discriminatory redlining practices.

In May, the DoJ announced that ESSA Bank & Trust agreed to pay more than $3 million to settle redlining allegations. The complaint, filed in federal court, alleges that ESSA failed to provide mortgage lending services from at least 2017 to 2021 and did not serve the credit needs of majority-Black and Hispanic neighborhoods in the Philadelphia metropolitan area.

In response, ESSA agreed to take several steps including a plan to invest at least $2.92 million in a loan subsidy fund to increase access to credit for home mortgage, improvement and refinance loans, as well as home equity loans and lines of credit in majority-Black and Hispanic neighborhoods in the bank’s lending area.

Joey Solitro

Joey Solitro is a freelance financial journalist at Kiplinger with more than a decade of experience. A longtime equity analyst, Joey has covered a range of industries for media outlets including The Motley Fool, Seeking Alpha, Market Realist, and TipRanks. Joey holds a bachelor's degree in business administration.