WBK Industry News - Federal Regulatory Developments

Justice Department Enters into Consent Order Involving Discriminatory Pricing Practices

On November 30, 2015, the Justice Department filed a complaint and a proposed consent order in the U.S. District Court for the District of Massachusetts involving alleged violations of the Fair Housing Act and the Equal Credit Opportunity Act by a depository institution.  In particular, the Justice Department alleged that the bank engaged in a pattern or practice of discrimination on the basis of race and national origin in the pricing of residential mortgage loans.  The lawsuit originated from a referral by the FDIC.  The court approved the consent order on December 1, 2015.

According to the consent order, the bank used a target pricing system to originate mortgage loans.  The Justice Department alleged that the bank’s pricing policy included a target price (referred to as the “Minimum Base Price”) that was assigned to loan officers.  The loan officer was expected to receive the target price on each loan through interest rates and fees, regardless of the borrower’s objective credit-related characteristics.  The target price was based on each loan officer’s previous performance.  The Justice Department also alleged that certain loan officers were assigned higher target prices and disproportionately served African-American and Hispanic borrowers.  Further, the Justice Department alleged that loan officers had discretion to price loans above their target prices and did so to a greater extent for African-American and Hispanic borrowers than for white borrowers.

Based on these findings, the Justice Department concluded that the bank charged African-American and Hispanic borrowers higher prices for home loans than similarly situated white borrowers.  According to the complaint, African-American borrowers on average paid approximately $2,500 more for the loan than similarly qualified white borrowers, and Hispanic borrowers paid approximately $1,400 more.

The consent order provides for monetary relief in the amount of $1,175,000 to compensate borrowers and applicants.  The consent order also requires the bank to develop and implement a mortgage loan pricing policy that will minimize fair lending risk and mandate documentation of loan officer decision-making and managerial approval.  The consent order also requires the bank to develop a compensation policy for individual loan officers, branch managers, and any other employee or agent involved in the pricing of loans.  In addition, the consent order requires the bank to put in place a program to monitor loans for pricing disparities at least semi-annually.  The consent order also requires the bank to implement a training program.

The Justice Department’s complaint and the proposed consent order are available here: http://www.justice.gov/opa/pr/justice-department-reaches-settlement-sage-bank-resolve-allegations-mortgage-lending.