The Consumer Financial Protection Bureau and the Department of Justice filed a joint complaint Thursday against Provident Funding Associates for charging higher broker fees on mortgage loans to African-American and Hispanic borrowers.

The proposed consent order would require Provident to pay $9 million in damages to harmed African-American and Hispanic borrowers. 

Provident, based in California, originates mortgage loans through a nationwide network of brokers. Between 2006 and 2011, Provident made more than 450,000 mortgage loans through its brokers. 

During this time, Provident’s practice allegedly involved setting a risk-based interest rate and then allowing brokers to charge a higher rate to consumers. Provident allegedly then would pay the brokers some of the increased interest revenue from the higher rates - payments known as yield-spread premiums. 

Provident’s mortgage brokers had discretion to charge borrowers higher fees, unrelated to an applicant’s creditworthiness or the terms of the loan. The fees paid to Provident’s brokers thus were made up of these two components: payments by Provident from increased interest revenue and through the direct fees paid by the borrower.

The CFPB and DOJ 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. An estimated 14,000 African-American and Hispanic borrowers paid higher total broker fees. 

The consent order, which is subject to court approval, requires Provident to:

  • Pay $9 million in damages for consumer harm: Provident will pay $9 million to a settlement fund that will go to harmed African-American and Hispanic borrowers who paid higher interest or fees for mortgage loans from the company between 2006 and 2011.
  • Pay to hire a settlement administrator to distribute funds to victims: The CFPB and the DOJ will identify victims using Provident’s loan records. A settlement administrator will contact consumers, distribute the funds, and ensure that harmed borrowers receive compensation. The settlement administrator will set up various cost-free ways for consumers to contact it with any questions about potential payments. The CFPB will release a consumer advisory with contact information for the settlement administrator once that person is chosen.
  • Not discriminate against borrowers in assessing total broker fees: Provident will continue to have in place 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 consent order also requires that Provident continue to have in place a fair lending training program and broker monitoring program.

The Dodd-Frank Wall Street Reform and Consumer Protection Act and the Equal Credit Opportunity Act authorize the CFPB to take action against creditors engaging in illegal discrimination.  "The settlement demonstrates this U.S. Attorney’s office will devote the resources necessary to root out and address unfair lending practices that affect citizens of this district," said U.S. Attorney Melinda Haag. "The law is clear: access to mortgage loans may not be made more difficult because of an applicant’s race or national origin. We are glad that Provident has agreed to put an end to this practice without engaging in protracted litigation.” The complaint and the proposed consent order resolving the complaint were filed Wednesday with the U.S. District Court for the Northern District of California. The complaint is not a finding or ruling that the defendants have actually violated the law. The proposed federal court order will have the full force of law only when signed by the presiding judge."Consumers should never be charged higher fees because of their race or national origin,” said CFPB Director Richard Cordray. “We will continue to root out illegal and discriminatory lending practices in the marketplace. I look forward to working closely with our partners at the Department of Justice to ensure consumers are treated fairly.”
Added Principal Deputy Assistant Attorney General Vanita Gupta of the Justice Department’s Civil Rights Division, "The Civil Rights Division is committed to ensuring that all types of lending institutions, including wholesale mortgage lenders, comply with the fair lending laws. We look forward to further collaboration with the Bureau in protecting consumers from illegal and discriminatory lending practices."

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