HSBC to pay $4 million to settle force-placed insurance kickback charges

Second settlement this month for HSBC

HSBC will pay a fine of $4 million as part of a settlement with the state of Massachusetts over charges that the bank took commissions and kickbacks for force-placed insurance policies.

According to the office of Massachusetts Attorney General Maura Healey, HSBC received “compensation” in connection to the force-placed insurance premiums charged to HSBC’s borrowers, which Healey’s office alleges created an “improper conflict of interest” and violated state consumer protection laws.

Healey’s office states that an affiliate of HSBC was allegedly paid commissions by Assurant for the sale of the force-placed insurance policies, despite the fact that HSBC’s affiliate did not perform any of the “traditional functions” of an insurance agent.

Additionally, Healey’s office alleged that HSBC also participated in Assurant’s quota-share reinsurance program, which enabled its affiliate to share in the profits of Assurant’s “highly lucrative” force-placed insurance business.

Under the terms of the settlement, HSBC agreed to not accept commissions, profit-sharing, or reinsurance proceeds or any “free or below market value services” from insurance carriers that it uses to write force-placed insurance policies on Massachusetts borrowers’ properties.

As part of the settlement, HSBC will provide $2.675 million in restitution to affected Massachusetts homeowners, and pay an additional $1.4 million to Massachusetts.

“The settlement provides for refunds to thousands of Massachusetts borrowers who were improperly charged force-placed insurance premiums that included commissions or other payments to HSBC,” Healey’s office said in a statement.

“Mortgage servicers should not enrich themselves through insurance products at the expense of struggling homeowners,” Healey said. “This agreement ensures that HSBC returns the money to Massachusetts consumers it received in violation of state laws.”

When contacted by HousingWire about the settlement with Massachusetts, a spokesperson for HSBC simply stated, “We confirm reaching a settlement with the Massachusetts Attorney General that will provide refunds of certain mortgage customers in Massachusetts.”

The settlement is the second for HSBC in the month of February over charges relating to its mortgage business.

Earlier this month, HSBC agreed to a sizable settlement with the Department of Justice, the Department of Housing and Urban Development, the Consumer Financial Protection Bureau, 49 states and the District of Columbia over charges that the bank engaged in mortgage origination, servicing and foreclosure abuses.

As part of that settlement, HSBC is required to provide $370 million in “creditable consumer relief to benefit homeowners across the country” and requires HSBC to reform its servicing standards, according to Acting Associate Attorney General Stuart Delery.

HSBC is also required to pay $100 million, including $40.5 million to be paid to the settling federal parties; and $59.3 million to be paid into an escrow fund administered by the states to make payments to borrowers who lost their homes to foreclosure between 2008 and 2012.                  

And this settlement with Massachusetts isn’t the first time HSBC and Assurant have run into trouble over force-placed insurance.

In April 2015, HSBC and Assurant agreed to pay $1.8 million to put an end to a class action lawsuit that alleged the bank took kickbacks for steering some 11,000 consumers into inflated flood insurance contracts.

The agreement stemmed from a lawsuit that alleged that HSBC intentionally herded consumers to unnecessary coverage levels when force placing homeowners whose coverage had lapsed into flood-insurance policies.

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