Wells Fargo and JPMorgan Chase have been ordered to pay $35.7 million in penalties for "illegal mortgage kickbacks" as a result of the joint investigation by the Consumer Financial Protection Bureau, the state of Maryland and the Maryland Insurance Administration.
"These banks allowed their loan officers to focus on their own illegal financial gain rather than on treating consumers fairly. Our action today to address these practices should serve as a warning for all those in the mortgage market," CFPB Director Richard Cordray said.
In violation of the Real Estate Settlement Procedures Act, the CFPB said both banks allegedly participated in an "illegal marketing-services-kickback scheme" with Genuine Title of Maryland, which went out of business in April of last year.
"Homeowners were steered toward this title company, not because they were the best or most affordable, but because they were providing kickbacks to loan officers who referred consumers to them," Maryland Attorney General Brian Frosh said. "This type of quid pro quo arrangement is illegal, and it's unfair to other businesses that play by the rules."
The CFPB said Genuine Title gave the banks' loan officers cash, marketing materials, and consumer information in exchange for business referrals.
"The proposed consent orders, filed in federal court, would require $24 million in civil penalties from Wells Fargo, $600,000 in civil penalties from JPMorgan Chase, and $11.1 million in redress to consumers whose loans were involved in this scheme," the CFPB said.
More than 100 Wells Fargo loan officers from at least 18 branches located mainly in Maryland and Virginia were a part of the scheme, according to the CFPB.
Wells Fargo was allegedly warned about the illegal practices but did not take action. Former Wells Fargo employee Todd Cohen and his wife, Elaine Oliphant Cohen, have also been fined $30,000 for taking cash payments in exchange for referrals, according to the agencies.
The CFPB alleged that these loan officers referred thousands of loans to Genuine Title over the course of the scheme. Despite the fact that Wells Fargo had multiple warnings of the illegal arrangements between its loan officers and Genuine Title, including a federal lawsuit explicitly alleging the existence of such agreements, the bank failed to take action to stop the practices and did not have an adequate system in place to identify these violations, the bureau said.
According to the CFPB, at least six Chase loan officers located in three different branches in Maryland, Virginia, and New York referred about 200 loans to Genuine Title.
"The Bureau also alleges that Chase did not have an adequate system in place to ensure that its loan officers were following the law, the CFPB said.
In addition to JP Morgan Chase and Wells Fargo, an unnamed institution was involved but it cooperated with the CFPB's investigation and put in place a remediation plan. The bureau said it resolved the investigation and did not order the institution to pay any penalties.
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