US Department of Justice and the Consumer Financial Protection Bureau (CFPB) announced December 23rd a settlement with NCB resolving allegations that the bank charged black and Hispanic borrowers higher prices/fees for mortgages. The settlement was filed in US District Court in Western District of Pennsylvania and is awaiting court approval. In a complaint the agencies claimed that National City violated Fair Housing Act and the Equal Credit Opportunity Act by charging more than 75,000 borrowers nationwide higher loan rates based on their race or ethnicity-not their credit risk. The allegations involve loans made at National City branches and through the banks network of mortgage brokers between the years 2002-2008.
Under the settlement PNC, which took over for National City Bank will set aside $35 million in a fund dedicated to victims of discrimination by NCB. NCB will pay an independent administrator to manage payments and contact victims.
According to court filings, National City rewarded loan officers for charging fees that boosted the cost of a home loan above what the bank stated on its term sheets. Broad discretion was given to offer loans at higher costs and thus the bank lacked clear guidelines for the pricing decisions and failed to require loan officers to justify their actions.
These lack of guidelines resulted in a greater burden for black and Hispanic applicants seeking mortgages. Black applicants were charged , on average, $159 more per year and Hispanics were charged $125 more per year. The federal agencies said these disparities could not be explained by factors aside from race or nationality.
Consumers who secured loans through NCB’s network of mortgage brokers fared worse. Those customers who were black paid on average $228 more than white borrowers and Hispanic borrowers paid $154 more than white borrowers on average.
“It undermines confidence in our banking system when people get different deals not only based on their credit scores, but their skin color” Steven Dettlebach, US Attorney for Ohio’s Northern District stated in a written statement. With all the positive things that National City stood for so many years, this is a troubling epilogue to be entered on the other side of the ledger. Hopefully today’s settlement will afford some relief to customers who were shortchanged by this conduct.”
“Borrowers should never have to pay more for a mortgage loan because of their race or national origin.” Richard Cordray, who heads up the CFPB stated in a written statement. "Today’s enforcement action puts money back in the pockets of harmed consumers and makes clear that we will hold lenders accountable for the effects of their discriminatory practices.”
Any settlement monies not claimed by individuals will go to organizations that offer credit counseling and housing assistance, including foreclosure prevention and loan-modification services.