The Department of Justice (DOJ) is awaiting court approval for a settlement agreement with Sage Bank of Lowell Mass., to the tune of almost $1.2 million. Sweet music to the DOJ.
This action was brought about for alleged discrimination in lending to minority home buyers or owners. The alleged discriminatory lending practices were brought to DOJ’s attention under a referral from the FDIC. This just goes to show that these agencies do work together. Sage Bank is said to have violated the terms of both the Fair Housing Act and the Equal Credit Opportunity Act. Hard to believe that some lenders still don’t get it…
In this case, the main contributor to these alleged violations stems from the Bank’s Loan Originator (LO) compensation plans. The Bank hired LOs with an assigned base price for each loan they originated. The required base price was higher for the LOs originating in predominately minority areas. Red flag!
To compound the problem, the Bank allowed each individual LO to price up their loans to any amount above the minimum price, without prior bank approval. Double Red Flag, with flashing lights! In essence, they could set any price they believed they could get from the consumer. Many did with the result being that minority borrowers paid much more for their loans than did white borrowers for the same loan amount. Any way you look at it, that’s discrimination.
I suggest you read the entire DOJ compliant which may be accessed at the end of the article linked HERE. I believe you may find this very interesting and informative. It is a guide how to not create an LO comp plan.
If your originator compensation plans resemble the Sage Bank plan in any way, I strongly suggest you immediately seek legal counsel and modify your plans. If not, it still can’t hurt to have them carefully reviewed by competent counsel. Better to be safe than sorry later.
Just when you thought it might be safe to go back into lending…