CFPB and Department of Justice Take Action Against Provident Funding Associates for Discriminatory Mortgage Pricing
Harmed African-American and Hispanic Borrowers Will Receive $9 Million
WASHINGTON, D.C. – Today, the Consumer Financial Protection Bureau (CFPB) and the Department of Justice (DOJ) filed a joint complaint against Provident Funding Associates for charging higher broker fees on mortgage loans to African-American and Hispanic borrowers. The agencies also filed a proposed order that, if entered by the court, would require Provident to pay $9 million in damages to harmed African-American and Hispanic borrowers.
“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.”
“The Civil Rights Division is committed to ensuring that all types of lending institutions, including wholesale mortgage lenders, comply with the fair lending laws,” said Principal Deputy Assistant Attorney General Vanita Gupta of the Justice Department’s Civil Rights Division. “We look forward to further collaboration with the Bureau in protecting consumers from illegal and discriminatory lending practices.”
“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.”
Provident is headquartered in California and originates mortgage loans through its nationwide network of brokers. Between 2006 and 2011, Provident made over 450,000 mortgage loans through its brokers. During this time period, Provident’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 – these payments are also known as yield-spread-premiums. Provident’s mortgage brokers also 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 were thus made up of these two components: payments by Provident from increased interest revenue and through the direct fees paid by the borrower.
The Equal Credit Opportunity Act prohibits creditors from discriminating against applicants in credit transactions on the basis of characteristics such as race and national origin. In the complaint, the CFPB and DOJ allege that Provident violated the Equal Credit Opportunity Act 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, 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. Approximately 14,000 African-American and Hispanic borrowers paid higher total broker fees because of this discrimination.
On December 6, 2012, the CFPB and the DOJ signed an agreement that has facilitated strong coordination between the two agencies on fair lending enforcement, including the pursuit of joint investigations such as this one.
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 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 complaint and the proposed consent order resolving the complaint were filed today with the United States 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.
A copy of the complaint filed today is available at: https://files.consumerfinance.gov/f/201505_cfpb_complaint-provident-funding-associates.pdf
A copy of the consent order filed today is available at: https://files.consumerfinance.gov/f/201505_cfpb_consent-order-provident-funding-associates.pdf
The Consumer Financial Protection Bureau (CFPB) is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives. For more information, visit www.consumerfinance.gov.