There have been several Department of Justice fair lending settlements recently: Countrywide, SunTrust and Wells Fargo specifically. There are likely numerous takeaways from these settlements but let us focus on one of them: cost. To be sure, charges of non-compliance with fair lending rules and regulation can be very expensive.
The Cases
Calculating the cost of a fair lending settlement is not an exact science in part because the public information in the court documents such as the consent orders is couched in round numbers, hence the cost estimates have a degree of imprecision. What we do know about these cost estimates is that they generally have three components: (1) a restitution amount which reflects what it is going to take in DOJ’s estimation to make the offended borrowers whole; (2) a training/education component that is mandated in the consent order; and (3) a possible civil monetary penalty (CMP) that may or may not be significant based on the point system used by DOJ or a regulatory agency to determine these amounts.
Below is a review of the costs for each of the three banks listed above:
- Countrywide: $335 million in restitution for approximately 200,000 borrowers that DOJ says were harmed. That works out to $1,675 per applicant harmed.
- SunTrust: Restitution was $21 million for 20,000 applicants affected according to the consent order. The cost per applicant is $1,050.
- Wells Fargo: Restitution was $125 million plus $50 million in homeowners’ assistance. In this case, DOJ says about 38,000 protected basis applicants should potentially receive restitution. Conservatively, not counting the $50 million in homeowners’ assistance, the average restitution payment is about $3,800. Furthermore, Wells is liable for restitution that may be need in its retail mortgage lending business. This amount is in addition to the $125 million.
The So What Factor
What does the mean for the compliance officer? Charged non-compliance with fair lending regulations can be expensive. Although your institution may not be as large as Wells, SunTrust or Countrywide, these estimates provide a perspective on what it might cost your institution on a per borrower basis if your bank were to become involved in such a situation.
From a more positive perspective, if these estimates are about right, think how much compliance officers can save their institutions by managing effective compliance programs.
Preiss&Associates is a fair lending consulting firm with more than 20 years experience in fair lending analysis. Rick Preiss can be reached at 847-295-6881 or rpreiss@preissco.com.
