Wednesday, March 24, 2010

FYI: Feds Announce $6.1M+ Race Discrimination Settlement

President Obama's Financial Fraud Enforcement Task Force (FFETF) announced that two subsidiaries of American International Group Inc. have agreed to pay a minimum of $6.1 million to resolve allegations that they engaged in a pattern or practice of discrimination against African American borrowers, in the form of the alleged disparate impact of higher mortgage broker fees.  Copies of the complaint, proposed consent order, and press release are attached.
The settlement was filed in conjunction with a complaint made by the Justice Department in U.S. District Court in Delaware.  Brought under the federal Fair Housing and Equal Credit Opportunity Acts, the complaint alleges African American borrowers nationwide were charged higher fees on wholesale loans made by AIG Federal Savings Bank (FSB) and Wilmington Finance Inc. (WFI), an affiliated mortgage lending company.

AIG FSB and WFI contracted with mortgage brokers to obtain mortgage applications that were underwritten and funded by the defendants. The complaint alleges that AIG FSB and WFI failed to supervise or monitor brokers in setting broker fees. This practice had a disparate impact on African American borrowers, who were charged higher broker fees than white, non-Hispanic borrowers on thousands of such loans from July 2003 until May 2006, a period of time before the federal government obtained an ownership interest in American International Group Inc.

According to the settlement, which is subject to court approval, AIG FSB and WFI will pay up to $6.1 million to African American customers who were charged higher broker fees than similarly-situated, non-Hispanic white customers, and will invest at least $1 million in consumer financial education efforts. AIG FSB and WFI will also be prohibited from discriminating on the basis of race or color in any aspect of wholesale home mortgage lending.

This case resulted from a referral by the Treasury Department's Office of Thrift Supervision to the Justice Department's Civil Rights Division in 2007, when this type of communication between agencies was too often the exception to the rule, said Adkins. In November 2009, President Barack Obama established the FFETF to make such cross-agency coordination the standard.

The FFETF states that it is "waging an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes and remedy other abuses in the financial markets." The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources.

AIG FSB and WFI are not currently engaged in the business of wholesale home mortgage lending, but the settlement provides that if either defendant re-enters that business, the lender will implement specific, nonracial standards for broker fees and monitor all fees charged on the mortgage loans they fund to ensure that all customers are treated equally

Let me know if you have any questions.  Thanks.


Ralph T. Wutscher

Kahrl Wutscher LLP

The Loop Center Building

105 W. Madison Street, Suite 2100
Chicago, Illinois  60602
Direct:  (312) 551-9320 

Fax:  (866) 581-9302
Mobile:  (312) 493-0874


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