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$3.5m Bias Settlement - Highlights Fair Lending Monitoring Risk

3 min read
Aug 30, 2012

It was announced on Tuesday that a federal lawsuit (filed back in April) against GFI Mortgage Bankers (GFI) for alledged violations of the Fair Housing Act and the Equal Credit Opportunity Act was settled for $3.5m and included $55,000 civil money penalty.  The suit was the result of a referral from the Department of Housing and Urban Development to the Department of Justice.  The lawsuit alleged African-Americans and Hispanics were charged more for loans than similarly qualified white non-Hispanic white borrowers between 2005 and 2009.  The government says the $3.5m settlement will be used to reimburse the 600 minority borrowers who overpaid.  The GFI case comes after settlements with BOA (Countrywide), SunTrust, and Wells Fargo.  In addition to industry publications, the story was reported on by the The Wall Street Journal, New York Times, and Businessweek to name a few.   

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The original suit and subsequent settlement discussed:

  1. Pricing Disparities:  GFI admitted that it charged higher rates and fees to African-American and Hispanic borrowers than to white borrowers (the review period showed blacks borrowers paid 19-41 bps higher and Hispanics paid 23 bps higher than whites.  
  2. Loan Officer Discretion & Incentives:  GFI admitted that it provided financial incentives to loan officers to charge higher rates and fees to borrowers.
  3. Fair Lending Training:  The company did not have Fair Lending training.
  4. Monitoring, Review & Analysis:  The company did not have monitoring programs in place to statistically analyze and investigate pricing disparaties. 

The governement and GFI maintained their unique positions after the announcement.  

  • According to the Justice Department release, "GFI admits that an analysis of the interest rates for notes, and fees that it charged, on mortgage loans to qualified borrowers showed statistically significant disparaties between non-Hispanic white borrowers and both African-American and Hispanic borrowers that could not be explained by objective borrower characteristics or loan product features."  Beyond the pricing disparaties, the consent order indicates that GFI "agrees, admits, and accepts responsibility" for policies and practices that allowed loan officer discretion, the existence financial incentives that encoraged higher pricing, and acknowledged the lack of training and monitoring programs.
  • While admitting to the fact that pricing disparaties existed, GFI counsel stated the company denied that the discrepencies in rates cited by the government amounted to discrimination.  According to the New York Times, GFI counsel stated "the company wanted to settle the case, but could not afford to do so until the government offered a lower settlement figure last week." 

The bottom line:  The recent settlement serves as a reminder that the regulators have made Fair Lending a top priority, and they remain committed to "fair, equitable, and nondiscriminatory access to credit for consumers."  This regulatory focus reaches well beyond the "big banks."  All financial institutions should be aware of how the Fair Housing Act and the Equal Credit Opportunity Act.  Loan Officer discretion and having pricing disparaties are not illegal.  But they do represent a regulatory compliance risk to the financial institution.  You have to be able to document and explain the reasons behind the decisions.  In order for financial instititons to fair well in your Fair Lending compliance management program, you should include:

  • Clear Policies & Procedures
  • Training (Staff, Officers, Sr. Management, Board)
  • Self Assessments
  • Monitoring with Comparative Analysis (critical when disparaties and discretion exist)

TRUPOINT Partners helps financial instittutions across the country manage a effective Fair Lending Compliance Management Program and avoid getting blindsed.  We provide expert analytics, powerful insights and clear direction.  We can help reduce the burden and simplify your approach.  Get started by reviewing your Fair Lending (Denial Disparity) report - simply click the button below.


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