CFPB Fines Large National Bank $1 Billion for Alleged Dodd-Frank Violations Relating to Mortgage Interest Rate-Lock Extension Fees and Force-Placed Insurance on Auto Loans

The CFPB, in a coordinated action with the OCC, recently announced a settlement with a large national bank that assessed a $1 billion penalty for alleged violations of the Dodd-Frank Consumer Financial Protection Act relating to how the bank charged borrowers for mortgage interest rate-lock extensions and force-placed insurance for auto loans.

According to the allegations stated in the consent order, the bank unfairly charged borrowers fees for rate-lock extensions that failed to follow the mortgage-interest-rate lock process as explained to borrowers.  As background, it was the bank’s policy that when a mortgage loan does not close within its initial interest-rate-lock period and the primary cause of the delay is attributable to the bank, a borrower may elect to extend the interest-rate-lock period.  Per the bank’s policy, this extension fee was typically charged to the bank, and not the borrower.  However, an internal audit revealed that the bank inappropriately charged borrowers for rate-lock extension fees that should have been absorbed by the bank, and that the bank was inconsistent in applying this policy.

Additionally, the bank allegedly forcibly placed collateral-protection insurance on the vehicles of about 2 million consumers, who had secured auto loans with the bank.  According to the consent order, hundreds of thousands of vehicles had forcibly-placed insurance that was duplicative or unnecessary.  Further, the bank allegedly maintained improper force-placed insurance policies by failing to cancel the insurance and refunding premiums when borrowers provided proof of adequate insurance on their vehicles.

In the settlement, the bank was ordered to implement a compliance risk management plan, a remediation plan for harmed consumers, and be subject to certain reporting and recordkeeping requirements.  The civil money penalty of $1 billion will be remitted by $500 million upon the bank’s payment to the OCC for penalties for related conduct.

The consent order is available here, and the CFPB’s press release is available here.