The Consumer Financial Protection Bureau and the Department of Justice filed a complaint against Provident Funding Associates for charging higher broker fees on mortgage loans to African-American and Hispanic borrowers.

The lender could potentially pay $9 million in damages if the court accepts the order.  

Provident allegedly violated the Equal Credit Opportunity Act by charging African-American and Hispanic borrowers more in total broker fees than white borrowers based on their race and national origin and not based on their credit risk.

Between 2006 and 2011, Provident made over 450,000 mortgage loans, and during this time period, Provident’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. Provident’s mortgage brokers also had discretion to charge borrowers higher fees, unrelated to an applicant’s creditworthiness or the terms of the loan. 

The agencies allege that Provident’s discretionary broker compensation policies caused the differences in total broker fees, and that Provident unlawfully discriminated against African-American and Hispanic borrowers in mortgage pricing.

Approximately 14,000 African-American and Hispanic borrowers paid higher total broker fees because of this discrimination.

According to the consent order, which is subject to approval, Provident is required to:

1. Pay $9 million in damages for consumer harm: 

Provident will pay $9 million to a settlement fund that will go to harmed African-American and Hispanic borrowers who paid higher interest or fees for mortgage loans from the company between 2006 and 2011.

2. Pay to hire a settlement administrator to distribute funds to victims: 

The CFPB and the DOJ will identify victims using Provident’s loan records. A settlement administrator will contact consumers, distribute the funds, and ensure that harmed borrowers receive compensation. The settlement administrator will set up various cost-free ways for consumers to contact it with any questions about potential payments. The CFPB will release a consumer advisory with contact information for the settlement administrator once that person is chosen.

3. Not discriminate against borrowers in assessing total broker fees: 

Provident will continue to have in place its non-discretionary broker compensation policies and procedures. Provident’s current policy does not allow discretion in borrower- or lender-paid broker compensation because individual brokers are unable to charge or collect different amounts of fees from different borrowers on a loan-by-loan basis. The consent order also requires that Provident continue to have in place a fair lending training program and broker monitoring program.