WASHINGTON Wells Fargo and JPMorgan Chase could face more than $35 million in penalties and restitution for allegedly receiving data on consumers and other services in return for directing customers to a Maryland-based title company.
The kickbacks were alleged in a complaint filed Thursday by the Consumer Financial Protection Bureau and the Maryland attorney general, which say the two banks benefited from "valuable services" in exchange for referring business to Genuine Title, which has since shut down. One former Wells employee is accused of being paid for referring business to Genuine.
Authorities are asking a federal court judge to sign off on an order requiring Wells to pay $24 million in civil penalties and $10.8 million in redress to affected consumers, and one that requires Chase to pay $600,000 in civil penalties and $300,000 in redress. Officials also want a former Wells employee, Todd Cohen, and his wife, Elaine Cohen, to pay a $30,000 penalty for their alleged involvement, which authorities say included receiving cash payments.
The banks have agreed to the terms of the CFPB consent orders without admitting or denying the allegations.
"Today we took action against two of the nation's largest banks, Wells Fargo and JPMorgan Chase, for illegal mortgage kickbacks," said CFPB Director Richard Cordray in a press release. "These banks allowed their loan officers to focus on their own illegal financial gain rather than on treating consumers fairly. Our action today to address these practices should serve as a warning for all those in the mortgage market."
The CFPB and Maryland AG's office claim Genuine Title provided services to loan officers of "several financial institutions," including Wells and Chase, in exchange for business referrals. Among the services Genuine allegedly offered were the purchasing, analyzing and providing of consumer data to loan officers as well as crafting letters with the banks' logos for mailings. The banks would then refer homebuyers to Genuine for closing services, authorities said. Genuine Title offered closing services from 2005 until it closed in April 2014.
Wells Fargo and Chase have been charged with violating the Real Estate Settlement Procedures Act.
"This scheme was especially profitable for the loan officers, who generally are paid by commission," the CFPB said.
Maryland Attorney General Brian Frosh said borrowers were referred to the closing company "not because they were the best or most affordable, but because they were providing kickbacks to loan officers who referred consumers to them.
"This type of quid pro quo arrangement is illegal, and it's unfair to other businesses that play by the rules," Frosh said.
The CFPB alleged that six of Chase's loan officers were involved. The company "did not have an adequate system in place to ensure that its loan officers were following the law," the agency said.
A spokesman for the company said Chase has been working with regulators since July and an internal review indicated a link between six former employees and the alleged scheme, affecting 191 loans. Yet the spokesman stressed that none of the former employees had received kickbacks in the form of cash payments.
"We are fully committed to ensuring that our mortgage bankers comply with all legal and regulatory requirements," the spokesman said. "These former employees clearly violated our policies, procedures and training."
Meanwhile, the CFPB said more than 100 Wells loan officers in at least 18 branches were allegedly tied to the scheme.
Wells said it had terminated employees implicated in the case.
"Wells Fargo holds its team members to the highest ethical standards and does not tolerate improper activities or failure to comply with rules, regulations or company policies," said Tom Goyda, a spokesman. "We have fully cooperated with the CFPB in this matter and have taken strong corrective action, including terminating team members who were involved and enhancing our procedures to provide greater oversight and monitoring of both the process and our team members."
Still, the CFPB said Wells Fargo too "failed to take action to stop the practices and did not have an adequate system in place to identify these violations" despite multiple warnings.
The former loan officer, Cohen, was also charged with taking "tens of thousands of dollars" directly paid to his wife in exchange for making business referrals to Geniune. Cohen was a loan officer at Wells for one year beginning in April 2009. The pending order bans Cohen from the mortgage industry for two years.
The CFPB noted that it found several loan officers at another unidentified financial institution were allegedly involved in a similar scheme with Genuine. However, that institution self-identified and corrected the problem while providing the borrowers with remediation. As a result, the CFPB did not publically name it.
The actions identified Thursday were the result of a joint investigation by the CFPB, Maryland and the Maryland Insurance Administration. The complaint is pending in the U.S. District Court for the District of Maryland.