BETA
This is a BETA experience. You may opt-out by clicking here

Breaking

Edit Story

Ireland’s Ulster Bank Hit With $45 Million Fine For Overcharging On Mortgages–But It’s Not The First To Be Punished

This article is more than 3 years old.
Updated Mar 26, 2021, 10:29am EDT

Topline

One of Ireland’s biggest retail banks was handed a record penalty Thursday for deliberately overcharging mortgage customers, highlighting how lenders in both Europe and the U.S. have overcharged mortgage borrowers for years by charging excessive fees and rates, although the ultimate cost to borrowers is unknown.

Key Facts

On Thursday, Ulster Bank was fined $44.6 million by the Central Bank of Ireland—the largest ever penalty slapped by the central bank—for overcharging fees to mortgage borrowers on purpose during the 2008 financial crisis.

That comes on top of some $151 million that Ulster Bank has already paid out in refunds and compensation to nearly 6,000 other overcharged mortgage customers, Irish Times reported.

Last summer, British bank Lloyds was fined $81.2 million by the U.K. government watchdog Financial Conduct Authority for overcharging mortgage customers in financial difficulties – it was the largest fine ever imposed by FCA for mortgage-related failures.

In the U.S., mortgage lenders have also overcharged their customers—in 2010, in the wake of the financial crisis, two mortgage servicing companies owned by Countrywide Financial agreed to pay $108 million to settle allegations by the Federal Trade Commission that they charged “illegal and excessive” fees to struggling borrowers (Countrywide was acquired by Bank of America in July 2008).

In October 2016, Wells Fargo agreed to pay $50 million to settle a lawsuit alleging the bank overcharged hundreds of thousands of homeowners for third-party appraisals after they defaulted on their mortgage loans.

Many other lending institutions, including Goldman Sachs, Bank of America, Chase and Morgan Stanley have all been fined for overcharging mortgage customers.


Key Background

The full extent of mortgage overcharging is unknown and difficult to calculate. Mike Tassone, chief operating officer and co-founder of mortgage marketplace Own Up, told Forbes that many consumers don’t even know when they are being overcharged. He added that more than half of mortgage customers don’t shop around. “Overcharging can occur in various ways, Tassone notes—the first is simply by not disclosing how sales compensation influences the rate that the consumer receives; another is charging large amounts of “points” or pre-paid interest which enables the lender to showcase a lower interest rate even though the total cost of the loan is materially higher. “Oftentimes lenders will encourage consumers to roll [over] high amounts of closing costs and points into the existing loan balance which softens the out-of-pocket expense, but increases the interest paid as the consumer now pays interest on a higher principal balance,” he adds. The Home Ownership and Equity Protection Act of 1994 was designed to discourage banks from predatory lending when they fund mortgages and home equity loans. A Federal Reserve report from June 2020 estimated that borrowers with identical characteristics in the same market can receive mortgage rates that vary by as much as 54 basis points— equivalent to about $6,500 in extra upfront payment costs for the average loan of $250,000.

Surprising Fact

Tassone pointed out that each state imposes usury laws which determine the maximum rate of interest on a loan, however, these state limits can be preempted if a loan was originated by an entity in a higher-rate state and then exported to the state with a lower rate.

Big Number

$35,700. That’s how much a mortgage borrower could potentially pay in additional interest over the life of a $350,000 loan if he or she was slapped with a rate 0.50% higher than another borrower, Tassone said. 

Tangent

A report from Bankrate.com last November revealed that Black and Hispanic borrowers in the U.S. tend to have more expensive mortgages than their white peers–as high as 6% interest or more, while white borrowers tend to pay rates between zero and 5.99%. The report also found that Black and Hispanic borrowers were more not to know their mortgage interest rates, more likely to pay higher mortgage interest, and less likely to refinance (as credit conditions tightened, it became harder for those with lower FICO scores, especially minorities, to refinance). “Black homeowners each year pay about $1,800 more for their mortgage and another $400 more on their property taxes,” said Edward Golding, executive director of MIT’s Golub Center for Finance and Policy. “That difference, if you didn’t have to spend that extra, if you had just invested it in a savings account, you would have about $65,000 more in savings [by the time you retire.]”

Further Reading

Mortgage Rates Hit Their Highest Point Since Last July. Will They Keep Rising? (Forbes)

Why APRs Are A Misleading Metric For Small-Dollar Loans (Forbes)

Send me a secure tip