The settlement was not for any violations made by Provident, but for lending discrimination by Brokers who originated loans for Provident. The discrimination came about in the form of higher rates being charged to minority buyers by the Brokers, not Provident (Settlement).
The discrimination resulted from Provident allowing their Brokers certain pricing discretions on the rates and fees offered on their products. It turns out that the Brokers were charging higher rates and fees to more minority borrowers than non-minority borrowers.
When the Broker was able to deliver the higher rate, they shared in the additional marketing gains they generated. This was common practice prior to the SAFE Act compensation rules of 2011. Since this settlement was the result of higher rates being provided to minorities by Provident’s Brokers between 2006 and 2011, how many other wholesale lenders may be found liable for this same practice?
Provident says it had no knowledge or any intentional discrimination and did nothing wrong. The CFPB and DOJ didn’t agree, nor care. Provident was held responsible and accountable for the actions of their Brokers. In essence, it was up to Provident to police the activities of their Brokers. When a Broker breaks the rules, the wholesale lender must pay. And Provident did; $9 million worth.
One important factor is that the CFPB and the DOJ teamed up to go after Provident as a result of a referral from the Federal Trade Commission. This shows that these federal agencies are working together to weed out the bad actors in the name of consumer protection.
It also validates that as far as their concerned, the prime players are the Banks and Independent Mortgage Bankers. They are the ones that close the loans and will be held accountable for any violations. If they choose to do business with Brokers they had better do their homework.
Every Broker with whom a Lender does business becomes a lending partner. Such partnerships may prove to be very profitable or costly. You do the math.
It all comes back to quality and compliance. Lenders must have the technology and processes in place to monitor all Broker activity, including loan pricing. Systems should be in place to analyze a Broker’s loan activity to determine any discrepancies in loans being priced to certain buyers, areas or markets. In the end, it’s the Lender who will be on the hook for any violations, and who will end up paying the piper.
Make sure your Brokers dance to your tune and don’t march to the beat of a different drummer.