Bank Settles FDIC Charges for Violating Multiple Real Estate Statutes
An insured State, non-member bank settled FDIC charges for violations of the Real Estate Settlement Procedures Act, the Fair Credit Reporting Act, the Home Mortgage Disclosure Act and the Federal Trade Commission Act.
According to its Press Release, the FDIC determined that the bank:
- "through one of its loan production offices ("LPOs"),... misrepresent[ed] to consumers that they would be able to skip multiple loan payments when refinancing a Department of Veterans Affairs ("VA") mortgage loan. The FDIC determined that loan officers... also misrepresented to consumers their relationship with the VA;"
- "entered into certain co-marketing arrangements and marketing service agreements in which the bank and real estate brokers agreed to market their services together using online platforms;"
- "entered into desk rental agreements whereby the bank rented space from realtors, and entered into agreements with online/digital platforms for lead generation. These arrangements and agreements resulted in the payment of fees by the bank to real estate brokers and online/digital platforms for their referrals of mortgage loan business;"
- "brokered certain reverse mortgage loans where broker fees made to the bank constituted value provided in return for loan referrals;" and
- "failed to provide consumers with firm offers of credit and required disclosures,... and the bank failed to report accurate data on its 2021 loan application register."
To settle the charges, the bank agreed to (i) pay a civil money penalty of $1,500,000 and (ii) a "prohibit[ion] from seeking or accepting indemnification from any third party for the civil money penalty assessed and paid," and (iii) to "take affirmative steps to ensure a Compliance Management System that effectively identifies, addresses, monitors, and controls consumer protection."
According to the Release, nine former employees of one of the bank's LPOs, settled FDIC charges that they engaged in deceptive and unfair practices involving the VA refinance loans.
Commentary
This enforcement action follows the FDIC's issuance of its March 2024 Supervisory Highlights report, which identified certain RESPA Section 8 violations involving mortgage broker relationships, both in cases where financial institutions pay mortgage brokers and when institutions act as mortgage brokers. (See related coverage.) The latest Supervisory Highlights report provides risk-mitigating strategies for banks to manage their mortgage broker relationships that could strengthen compliance management systems and assist with RESPA Section 8 compliance. It is notable that the Consent Order requires the bank to take affirmative steps to ensure a compliance management system that effectively identifies, addresses, monitors and controls consumer protection.
Although the FDIC's supervisory jurisdiction is restricted to the banks it monitors, all lenders—whether bank or nonbank, and whether under the FDIC’s purview or not—should pay close attention to the FDIC's enforcement developments. In addition, regulated entities should assume that issues of importance to the FDIC may be areas of focus for the CFPB as well.