Financial Services Litigation & Investigation Monitor : Financial Services Lawyer & Attorney : Perkins Coie Law Firm : Government Investigations, Class Actions

On December 21, 2011 the U.S. Department of Justice announced it had reached a $335 million settlement with Countrywide, now owned by Bank of America, to resolve allegations of lending discrimination.  The settlement resolves claims that Countrywide charged Hispanics and African-American borrowers higher prices for credit compared to similarly situated non-Hispanic and white borrowers.  The Justice Department announced that the settlement is the largest fair lending settlement in the Department's history. 

The settlement, which is subject to court approval, was filed today in the U.S. District Court for the Central District of California in conjunction with the department’s complaint which alleges that Countrywide discriminated by charging more than 200,000 African-American and Hispanic borrowers higher fees and interest rates than non-Hispanic white borrowers in both its retail and wholesale lending.  The complaint alleges that these borrowers were charged higher fees and interest rates because of their race or national origin, and not because of the borrowers’ creditworthiness or other objective criteria related to borrower risk.  

According to the DOJ press release, the settlement also resolves allegations that Countrywide violated the Equal Credit Opportunity Act by discriminating on the basis of marital status against non-applicant spouses of borrowers by encouraging them to sign away their home ownership rights. 

For the last three years, the Civil Rights Division has warned of its stepped-up enforcement efforts in the fair lending arena.  While case filings were slow to come, the Countrywide settlement, along with recent fair lending activity out of the Division and by members of the interagency Financial Fraud Enforcement Task Force, suggests that government enforcement of fair lending laws may continue to impact the consumer finance industry during 2012.

Read the DOJ's Press Release here; the Complaint here; and the proposed Consent Order here. 

Read MarketWatch's article here and Bloomberg's article here.

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On September 14, 2011, Law360 reported that the U.S. Department of Labor's Occupational Safety and Health Administration has ordered Bank of America to pay $930,000 to a former employee allegedly fired for exposing fraud at Countrywide Financial Corp. before its merger with the bank.   OSHA also ordered that the bank rehire the employee, according to an OSHA News Release.  According to the Law360 report, the whistleblower led internal investigations at Countrywide (before the BofA merger) regarding its business practices. 

OSHA found that the employee's firing violated the whistleblower protections included in the Sarbanes-Oxley Act (SOX), Law360 reported.   OSHA is the federal agency responsible for investigating complaints under SOX's whistleblower protections.  BofA may appeal the decision.

The OSHA decision is a strong reminder of the importance of SOX policies and procedures regarding the handling of internal complaints and non-retaliation policies.

(For further information:  OSHA News Release; LA Times Blog; CNBC.com)

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The Associated Press reports that Illinois Attorney General Lisa Madigan has sued Countrywide Home Loans, alleging the company discriminated against African American and Latino borrowers in Illinois between 2005 and 2007.  The complaint includes allegations that Countrywide charged African American and Latino borrowers higher rates and fees compared to similarly situated white borrowers.   The complaint states that Countrywide engaged "in practices that resulted in a disparate impact and disparate treatment of African American and Latino borrowers.  The complaint also alleges that Countrywide utilized lending standards that had no economic basis and were discriminatory in effect..."

While the complaint includes allegations not unfamiliar in lending discrimination cases, it may spark important legal analysis regarding the use of the disparate impact theory as the sole basis to provide lending discrimination.  See prior posting  - "AAG Perez Reiterates DOJ's Emphasis on Lending Discrimination Enforcement," June 24, 2010.

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According to a June 7, 2010 New York Times article, the FTC announced that two Countrywide mortgage-servicing companies agreed to pay $108 million to resolve charges that they collected excessive fees from homeowners.  The FTC alleged that Countrywide charged excessive fees to homeowners who were behind on their mortgage payments, in some cases asserting that borrowers were in default when they were not.

In addition, the FTC said in its statement announcing the settlement that Countrywide at times imposed a new round of fees on homeowners who had recently emerged from bankruptcy protection, sometimes threatening the consumers with a new foreclosure.   The case was brought with the assistance of the U.S. Trustee.

The FTC charge alleges that when homeowners fell behind on mortgage payments and were in default on their loans, Countrywide ordered property inspections, lawn mowing, and other services meant to protect the lender’s interest in the property.  However, according to the FTC complaint, rather than hire third-party vendors to perform the services, Countrywide created subsidiaries to hire the vendors that marked up the price of the services charged by the vendors.  The mark-ups were then passed on to the borrower. The complaint alleges that the company’s strategy was to increase profits from default-related service fees in bad economic times.

The settlement requires Countrywide to pay $108 million for refunds to homeowners that the FTC alleges Countrywide overcharged before July 2008.

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The Los Angeles Times reported on May 14, 2009 that SEC investigators had recommended the filing of civil fraud charges against former Countrywide chief executive Angelo Mozillo.  According to the article written by E. Scott Reckard and William Heisel, persons familiar with the matter report that SEC staff are seeking approval to file fraud charges that include insider trading and failing to disclose to shareholders the company's risks associated with its sub-prime mortgage business.  The article states that Mozillo's attorneys were provided with a "Wells" letter weeks ago, and the matter is now before the SEC's five commissioners to approve or reject the investigator's recommendation. 
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