Mortgage originator Provident Funding Associates will pay about $9 million in penalties for allegedly charging higher broker fees on loans to African-American and Hispanic borrowers, the Consumer Financial Protection Bureau (CFPB) and U.S. Department of Justice recently announced.
Authorities allege that between 2006 and 2011, California-based Provident made more than 450,000 mortgage loans through its brokers. During this time, the lender'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.
Officials say Provident's mortgage brokers had discretion to charge borrowers higher fees unrelated to an applicant's creditworthiness or the terms of the loan. An investigation revealed that the brokers charged African-American and Hispanic borrowers higher fees – a violation of the Equal Credit Opportunity Act.
Authorities say Provident's discretionary broker compensation policy is what led to the discrimination. Approximately 14,000 African-American and Hispanic borrowers paid higher total broker fees as a result of this discrimination.
Pending court approval, Provident will pay about $9 million to redress the victims.
‘Consumers should never be charged higher fees because of their race or national origin,’ says Richard Cordray, director of the CFPB, in a release. ‘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.’