1. Mortgage lender and servicer HSBC agreed to pay more than $4 million to resolve allegations it received commissions and kickbacks on force-placed insurance policies it obtained for Massachusetts homeowners.
As part of the agreement, HSBC will pay $2.675 million directly to the affected homeowners and another $1.4 million will be paid to the state. This agreement ensures that HSBC returns the money to Massachusetts consumers it received in violation of state laws. Force-placed insurance is expensive property coverage mortgage servicers obtain on their customers’ properties when they believe the property is underinsured. The customer is charged for the insurance and they are often already struggling financially.
Until June 1, 2012, HSBC received compensation that was tied to the force-placed insurance premiums charged to HSBC’s borrowers in violation of state consumer protection laws. Under the terms of the settlement, HSBC agrees not to accept commissions, profit-sharing or reinsurance proceeds or any free or below market value services from insurance carriers that it uses to write force-placed insurance policies on Massachusetts borrowers’ properties in connection with such policies.
Earlier this month, Massachusetts was part of a $470 million joint state-federal settlement with HSBC to address mortgage origination, servicing and foreclosure abuses. Such practices can be extremely costly and have a direct negative impact on an institution’s reputation. Let our seasoned, former, Federal regulators review your compliance program in this area to ensure that adequate policies are in place to adhere to both state and federal rules and regulations to protect your institution from falling into a similar situation.
2. The term fair banking has been emphasized over the last few years, in part, by the expansion under the Dodd-Frank Act of UDAP (unfair or deceptive acts or practices) to UDAAP —prohibition of unfair, deceptive, or abusive acts or practices.
For the most part, many feel that the Consumer Financial Protection Bureau has done little to assist the industry’s understanding of the term “abusive,” leaving banks to attempt to determine what is appropriate. While some bankers have attempted to develop their own approach to what is considered fair, the term can be subjective. Nevertheless, banks are subject to “fairness risk” and banking staff are often at a loss in making such judgments.
A bank typically looks to its Compliance Department to be its “eyes and ears”, since it is this area that escalates risk issues that it identifies. As former, Federal, consumer protection examiners, allow us to review your institution’s policies and practices to determine if you have effective programs in place so that you are treating your customers in a “fair” manner according to applicable rules and regulations.