Fleet Financial Group's mortgage subsidiary will pay $4 million to settle Justice Department claims that it charged Blacks and Hispanics higher interest rates and loan fees than comparably qualified White homeseekers.
In May, Fleet agreed to establish a $3.8 million settlement fund to compensate the 600 Black and Hispanic customers who obtained mortgage loans from branches in Westbury, N.Y., and Woodbridge, N.J., between August 1, 1993 and June 1, 1994. Fleet promised to spend an additional $200,000 for community outreach and education programs, including a new monitoring system that will ensure that its branches adhere to its new policy of fair pricing without regard to race or national origin.
From the settlement fund, Fleet will pay up to $15,000 to the 600 minority borrowers who paid higher fees and interest, or overages, on mortgage loans. The amount of each individual customer's settlement will depend on the amount of the overage they paid to Fleet.
The Justice Department lawsuit claimed that Fleet's branches in Westbury and Woodbridge charged overages to Blacks and Hispanics for home mortgage loans far more often than to similarly-situated White borrowers.
Assistant Attorney General Deval Patrick said that an overage generally refers to the price paid by the borrower in excess of any minimum price set by a financial institution. He said that loan officers of many companies have the discretion to charge rates and fees higher than the minimum; any amount obtained above the minimum price is an overage. Loan officers typically receive some or all of the excess price that they charge. It is not common knowledge among the American public that such mortgage charges are negotiable.
The Justice Department began its investigation in the fall of 1995 after both the Federal Reserve Bank of Boston and the Federal Reserve Board in Washington found problems in the lending practices of the mortgage company. The Justice Department sued Fleet for violations of the Fair Housing Act and the Equal Credit Opportunity Act.
Based on the investigation, the Justice Department's suit claimed that from January 1993 to June 1994, Fleet's Westbury and Woodbridge branches gave its loan officers the discretion to charge its customers higher prices, which provided extra commissions to the loan officers who charged overages. The branches also gave the loan officers discretion to charge an amount that was less than the minimum price, or granting underages.
The Justice Department investigation found the Columbia, S.C. based company imposed overages more often and granted underages less often to Blacks and Hispanics on mortgage loans than it did on loans to Whites. Patrick noted that the disparities in the pricing did not occur by chance and could not be explained by differences in the borrowers' loan qualifications or other factors not related to race or national origin. Overages and underages, as used by Fleet's loan officers, were not related to risk.
The settlement with Fleet is the ninth settlement in nine such discrimination cases. The Justice Department recently filed its tenth suit against a Nebraska bank which allegedly charged higher rates to Native Americans. The Nebraska suit is still pending.
"Loans should be based on risk, not race," said Deval Patrick, Assistant Attorney General for Civil Rights. "By changing their practices, Fleet has stepped forward and done the right thing."