Cuomo Cracks Down with NY Fair Lending Audits

It’s been nearly six months since New York Governor Andrew Cuomo announced the findings of a broadly-sweeping New York state investigation into alleged redlining practices among lenders in the city of Buffalo and the effects are still reverberating statewide and even nationwide. The findings of the investigation, disclosed to the public on February 4, showed that although Buffalo has a nearly 20% minority population, only 9.74% of the loans made in the region were to minority homebuyers. It also found that several of the Buffalo lenders that the New York Department of Financial Services (NYDFS) investigated made little to no effort to attract minority customers or lend in minority-heavy neighborhoods and had no tracking system in place related to how well they were serving their minority population as loan servicers.

While many lenders that were specifically singled out by the report as inadequately serving their minority communities pledged to step up their efforts, Cuomo also disclosed that the state was partnering with local non-profit organizations to deploy ‘undercover’ testers to act as potential home buyers or renters throughout New York in an effort to uncover potential discriminatory treatment by lenders and landlords. Due to decades of particularly rampant redlining in the first half of the 20th century, Buffalo remains one of the most racially segregated cities in the United States despite the practice being banned by the Fair Housing Act of 1968.

Since these dual announcements in February, the NYDFS has begun levying penalties tied to discriminatory lending probes initiated by the investigation’s results. On June 29, Adirondack Trust Company and Chemung Canal Trust Company were fined a total of $700,000 for charging higher interest rates via indirect lending to minority customers. The probe found that black borrowers were charged an average of .59 percentage points more and Hispanic borrowers an average of .46 points more than white borrowers, regardless of credit worthiness or other objective factors. Both banks were also ordered to find their non-white borrowers who were affected by this discrimination and compensate them accordingly.

While redlining is illegal on a state and federal level, the Cuomo audits are another point of proof that it still does occur. As penalties are severe, it’s safe to say that, in most cases, said discrimination is inadvertent or unintentional. But whether a lender purposely avoids working in minority neighborhoods - due to prejudices that these customers are a “bad risk” - or its failure to serve minority communities is accidental, state and federal investigators cannot be expected to go easy on offenders. New York’s national influence is such that one can reasonably expect the use of these ‘undercover testers’ to be utilized by other states in the coming months. For lenders, a good (and obvious) rule of thumb remains: treat all customers as equals. Not only is it the right thing to do and a boon to your community, but it will help keep your company in compliance as well.