The Associated Press broke a story Wednesday of last week which, to say the least, has the default servicing industry buzzing. A lawsuit, filed Jan. 16 in the U.S. Bankruptcy Court in Houston, claims that Fidelity National Information Services Inc., engaged in “undisclosed kickback/sharing of bankruptcy creditor attorney fees to a non-law firm corporate entity.” From the Associated Press:

The fees the Fidelity-controlled law firms charge in Chapter 13 bankruptcies are inflated by 25 percent to 50 percent,” the lawsuit asserts. The law firms, it says, then “kick back” the extra amount to Fidelity under a formal agreement under which the law firms’ fees are set. “Fidelity keeps its role, as well as the kickback, hidden from the courts as a matter of systematic policy.” A spokesman for Fidelity, Michelle Kersch, said Tuesday that the “lawsuit is without merit, and appears to be an attempt to profit from the current wave of anti-lender sentiment created by the increase in subprime mortgage foreclosures.” She denied the kickback and fee-sharing allegations and said the company is “eager for its day in court.” The lawsuit involves the Jacksonville, Fla., company’s “default management services” business, which handles bankruptcies and foreclosures for mortgage companies. That business has accounted for much of the recent revenue growth in Fidelity’s lender-processing-services operations, according to filings with the Securities and Exchange Commission.

For those interested, here is a copy of the full complaint. The AP reported that Fidelity handles default managment for 22 of the top 25 residential mortgage servicers, and 13 of the top 25 subprime servicers.