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From Banking and Finance Law Daily, May 29, 2015

Unequal mortgage broker practices equal CFPB/DOJ penalty

By Katalina M. Bianco, J.D.

The Consumer Financial Protection Bureau and Department of Justice have filed a joint complaint against Provident Funding Associates for allegedly charging higher mortgage broker fees to African-American and Hispanic borrowers in violation of the Equal Credit Opportunity Act. Under the proposed consent order filed by the agencies, Provident would pay $9 million in damages to affected borrowers.

“Consumers should never be charged higher fees because of their race or national origin,” said CFPB Director Richard Cordray. “I look forward to working closely with our partners at the Department of Justice to ensure consumers are treated fairly.”

U.S. Attorney Melinda Haag said, “The law is clear: access to mortgage loans may not be made more difficult because of an applicant’s race or national origin.”

Background. Provident, headquartered in California, is a non-bank wholesale mortgage lender that originates mortgage loans through its nationwide network of brokers, the CFPB said. Between 2006 and 2011, Provident made over 450,000 mortgage loans through its brokers. The company’s practice was to set a risk-based interest rate and then allow brokers to charge a higher rate to consumers. Provident would then pay the brokers some of the increased interest revenue from the higher rates. The bureau said that Provident’s mortgage brokers also had discretion to charge borrowers higher fees, unrelated to an applicant’s creditworthiness or the terms of the loan. Brokers were not required to justify or document the reasons for the amount of total broker fees charged.

Complaint. In the complaint, the CFPB and DOJ allege that Provident violated the Equal Credit Opportunity Act (15 U.S.C. §§ 1691-1691f) by charging African-American and Hispanic borrowers more in total broker fees than white borrowers based on their race and national origin and not based on their credit risk. The DOJ also alleges that Provident violated the Fair Housing Act (42 U.S.C. §§ 3601-3619), which also prohibits discrimination in residential mortgage lending. The agencies allege that Provident’s discretionary broker compensation policies caused the differences in total broker fees, and that Provident unlawfully discriminated against African-American and Hispanic borrowers in mortgage pricing.

Consent order. Under the proposed consent order, Provident not only would pay a $9 million penalty but would be required to hire a settlement administrator to distribute the funds to the approximately 14,000 African-American and Hispanic borrowers who paid higher total broker fees because of the company’s discriminatory practices. The proposed consent order provides that Provident continues its non-discretionary broker compensation policies and procedures. Provident’s current policy does not allow discretion in borrower- or lender-paid broker compensation because individual brokers are unable to charge or collect different amounts of fees from different borrowers on a loan-by-loan basis, the CFPB said. The consent order also requires that Provident continue to have in place a fair lending training program and broker monitoring program.

Companies: Provident Funding Associates

MainStory: TopStory CFPB EnforcementActions EqualCreditOpportunity Loans Mortgages UDAAP CaliforniaNews

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