Golden Empire Mortgage Inc., a California-based mortgage lender and its owner, Howard D. Kootstra, have agreed to settle Federal Trade Commission (FTC) charges that they illegally charged Hispanic consumers higher prices for mortgage loans than non-Hispanic white consumers—price disparities that could not be explained by the applicants’ credit characteristics or underwriting risk.
“We will continue to be vigilant in enforcing fair lending laws and we’re not going to tolerate discriminatory practices by mortgage lenders,” FTC Chairman Jon Leibowitz said. “Lenders who allow discretion in pricing loans can’t escape liability simply by burying their heads in the sand. Those lenders must monitor discretionary pricing to ensure that American borrowers are treated equally based on their credit—not their race, national origin, or gender.”
The FTC filed a complaint in federal court on May 7, 2009, alleging that Golden Empire Mortgage Inc. and Howard D. Kootstra violated the Equal Credit Opportunity Act (ECOA) in pricing mortgage loans. They allegedly gave loan officers and branch managers wide discretion to charge some borrowers, in addition to the risk-based price, “overages” through higher interest rates and higher upfront charges. They then paid loan officers a percentage of the overages as a commission, according to the complaint, and failed to monitor whether Hispanic consumers were paying higher overages than non-Hispanic white borrowers.
The settlement order permanently prohibits Golden Empire and Kootstra from discriminating on the basis of national origin in credit transactions, or otherwise failing to comply with ECOA and its implementing Regulation B. The order imposes a $5.5 million judgment that will be suspended when $1.5 million has been paid for consumer redress. The full judgment will become due immediately if the defendants are found to have misrepresented their financial condition.
The order also requires Golden Empire to have a policy that restricts loan originators’ pricing discretion, a fair lending monitoring program, a program to ensure the accuracy and completeness of their data, and employee training programs. The pricing policy and fair lending monitoring program set forth in the settlement order are intended to facilitate order enforcement in this case.
In fair lending cases, the Commission strives to have before it as wide a range of information as possible to determine whether a lender’s policies have run afoul of fair lending laws. As with other FTC orders, the order against GEM is designed to fit the facts of this case.
The extent to which other lenders should use the same methodology in monitoring ECOA compliance will depend on the facts and circumstances of each lender. An appropriate monitoring program requires an examination of a lender’s policies, business model and business necessities and should include statistical analyses that consider, as warranted by the lender’s particular circumstances, various information such as loan characteristics, geographic variations and other relevant factors.
ECOA and its implementing Regulation B bar creditors from discriminating against applicants for credit on the basis of race, color, religion, national origin, sex, marital status, age or the fact that an applicant’s income is derived from public assistance. More information about consumers’ rights under the Act is available here.
For more information, visit www.ftc.gov.