Discrimination Against Whites Leads to Flagstar Settlement

Flagstar Bank will pay $1.2 million in a class-action settlement to resolve a judge’s ruling that it charged white borrowers up to 4% in revenue per loan fees, while setting the maximum at 3% for minority borrowers. The unequal fee caps were set forth in the bank’s internal loan officer revenue per loan policy, which was effective from May 2001 through January 2002, according to plaintiff lawyer Amy Ficklin DeBrota.

DeBrota said the lawsuit emerged when an Indianapolis female loan officer came to her after being terminated by Flagstar for refusing to sign the policy. This prompted the lawyer to search for white borrowers affected by the policy and she ended up representing 970 overcharged consumers.

“It was really a lose/lose situation for everybody involved,” said DeBrota. “The policy was probably just as detrimental to minorities because it created a disincentive for loan officers to market their services and pursue minority loans if they couldn’t charge as much.”

Each lawsuit participant will receive a compensation determined by the amount they were charged over 3% plus the interest rate on that charge, which is based upon a loan’s effective date and interest rate. Extra charges range from $200 to $3,000. Additionally, each will receive a flat fee of $193.66 for non-economic damages, according to DeBrota.

U.S. District Court Magistrate Judge Tim Baker signed the settlement agreement in Indianapolis last month.

Upon MortgageDaily.com requests Flagstar, which reported $56.4 billion in mortgage production for 2003, did not disclose why it implemented the policy. In an e-mailed statement, the lender said that the circumstances leading to the lawsuit “were unintentional on Flagstar’s part” and that it took “immediate, corrective steps to rectify the situation” once it became aware of the possible misinterpretation of its actions.

“We remain strongly committed to equal treatment of customers and employees alike,” Flagstar added.

However, in the case, Flagstar said it implemented the policy due to an informal Office of Thrift Supervision audit, in which one auditor pointed out that there might possibly be a problem with them charging more in loan commission fees to minorities than nonminorities in certain areas of Detroit, according to DeBrota.

“They were only looking at that area and said there was a possibility that they were finding, not that it was a definitive finding,” she added. “Basically, they overreacted” and “put this policy into place that clearly had a discriminatory effect.”