CFPB Fines Wells Fargo, JPMorgan Chase For Alleged Kickback Scheme

Posted by Patrick Barnard on January 23, 2015 No Comments
Categories : Residential Mortgage

The Consumer Financial Protection Bureau (CFPB) and the Maryland Attorney General (AG) are suing Wells Fargo and JPMorgan Chase for $24 million and $600,000, respectively, for allegedly engaging in a marketing-services-kickback scheme with now-defunct title company Genuine Title – a violation of the Real Estate Settlement Procedures Act (RESPA).

In addition, the two banks will pay $11.1 million in redress to consumers whose loans were involved in this scheme.

What's more, the bureau and Maryland AG also took action against former Wells Fargo employee Todd Cohen and his wife, Elaine Oliphant Cohen, for their involvement in the scheme.

Officials say Genuine Title gave the banks' loan officers (LOs) cash, marketing materials and consumer information in exchange for business referrals.

Cohen and Oliphant Cohen also will pay a $30,000 penalty, according to a CFPB press release.

‘Today, we took action against two of the nation's largest banks, Wells Fargo and JPMorgan Chase, for illegal mortgage kickbacks,’ says Richard Cordray, director of the CFPB, in a release. ‘These banks allowed their LOs 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.’

‘Homeowners were steered toward this title company, not because they were the best or most affordable, but because they were providing kickbacks to LOs who referred consumers to them,’ adds Maryland AG Brian Frosh. ‘This type of quid pro quo arrangement is illegal, and it's unfair to other businesses that play by the rules.’

As per the release, Maryland-based Genuine Title offered real-estate-closing services from 2005 until it went out of business in April 2014. During that time, the firm offered LOs free services in exchange for referrals for closing services. This scheme was especially profitable for the LOs, who generally are paid by commission.

The marketing services offered included purchasing, analyzing and providing data on consumers and creating letters with the banks' logos that the company had printed, folded, stuffed into envelopes and mailed, according to the CFPB.

More than 100 Wells Fargo LOs in at least 18 branches, largely in Maryland and Virginia, participated in the scheme, the bureau says. Collectively, these LOs referred thousands of loans to Genuine Title over the course of the scheme.

The bureau alleges that, despite the fact that Wells Fargo had multiple warnings of the illegal arrangements between its LOs 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 has ordered Wells Fargo to pay $10.8 million in redress in addition to the $24 million in civil penalties.

The CFPB says at least six Chase LOs in three different branches in Maryland, Virginia and New York were also involved. These LOs referred settlement business to Genuine Title on almost 200 loans. The bureau is seeking $300,000 in redress in addition to the $600,000 in civil penalties for Chase.

A third lender that was involved in the scheme came clean early in the process when officials recognized what was going on and fired the LOs involved.

The CFPB says because that lender self-remedied the problem during the investigation, it will not be subject to any punitive measures.

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