JP Morgan Agrees to $55M Settlement for Mortgage Discrimination
JP Morgan Chase has agreed to settle mortgage discrimination claims, brought by the Department of Justice for $55 million. The federal lawsuit alleged that Chase worked with mortgage brokers that discriminated against minority borrowers by charging them, on average, $1,000 more than white borrowers. While Chase admits no wrongdoing as part of the settlement, the lawsuit alleged that approximately 53,000 black and Hispanic borrowers were charged more than white borrowers by the allegedly independent brokers that Chase was working with between 2006 and 2009.
Currently, the settlement is still awaiting judicial approval. The settlement amount may seem like a significant sum of money to most, however, when the $55 million is put up against the bank's $250 billion in equity, and $2.4 trillion in assets, the settlement seems a bit paltry.
Mortgage, or lending, discrimination occurs when a lender refuses to lend to an individual because of that person's race, national origin, or other protected status. Also, sometimes lending discrimination comes in the form of borrowers being charged a higher interest rate simply as a result of their protected status and the lender's bias. Regardless, discrimination in lending is illegal and enforced by the Department of Justice, who recently hit Wells Fargo for $175 million over similar allegations.
According to Chase, during the time frame alleged in the lawsuit, they were working with independent mortgage brokers. These independent brokers would be provided with wholesale mortgages that they could sell to qualified customers. However, the wholesale mortgages' interest rates were adjustable by the broker, despite having been set using objective factors. While the above sounds fine in theory, in practice it did not work. Not only were brokers rewarded with bonuses for selling mortgages with higher interest rates, Chase did not track the reasons why rates were changed, and did not address race discrimination in lending.
Lesson to learn for small business: Monitor your independent contractors and employees. Just because you don't know what an employee is doing, doesn't mean you won't end up liable for their actions.
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