The city of Providence filed suit Thursday against Santander Bank alleging the institution engaged in discriminatory lending practices.
The 88-page suit filed in federal court claims that, since 2009, Santander has deliberately limited its lending in minority neighborhoods in Providence while expanding it in predominantly white areas. It calls the drop in lending "drastic."
Mayor Angel Taveras said in a statement that many borrowers in minority neighborhoods qualify for prime loans but Santander has written them off. The suit claims Providence has suffered significant harm as a result because insufficient credit is suppressing home prices and preventing community development corporations from rehabilitating vacant properties.
"Redlining by Santander is one of the leading causes of the lack of adequate mortgage credit in the city's majority-minority neighborhoods," the suit says.
"We categorically reject this accusation and will vigorously defend ourselves against the legal action," Mary Ellen Higgins, a Santander spokeswoman, said in a statement.
She added that the bank was willing to work with the city to allay its concerns. She said the bank supports Providence through lending, work with local charities and other efforts.
Santander was formerly known as Sovereign Bank. It has been owned by Banco Santander, a Spanish company, since 2009.
The suit claims that the annual number of mortgages by Santander in white areas in Providence from 2009 to 2012 increased 25 percent compared to 2006 and 2007, while decreasing 63 percent in minority neighborhoods.
It alleges the bank's "disregard for majority-minority neighborhoods is part of a broader and intentional redlining strategy" that is also being used in Boston and throughout New England.
The suit asks the court to order the alleged practice halted and seeks compensatory and punitive damages, as determined in a jury trial.
Taveras is seeking the Democratic nomination for governor.
This is the second lawsuit the city has filed in recent months against the financial industry. A federal complaint filed in April claims that stock exchanges, investment banks and other institutions defrauded the city, which managed funds on behalf of active employees and retirees, by manipulating market data in favor of split-second traders.