The FTC filed a complaint in federal court on May 7, 2009, alleging Golden Empire Mortgage, Inc. and its owner, Howard D. Kootstra, violated the Equal Credit Opportunity Act in pricing mortgage loans based on ethnicity rather than applicants' credit characteristics or underwriting risk.Kootstra and his company agreed to pay $1.5 million to settle the suit, as well as a number of court-ordered sanctions, including a monitoring program to make sure Golden Empire no longer discriminated.
"We will continue to be vigilant in enforcing fair lending laws and we're not going to tolerate discriminatory practices by mortgage lenders," FTC Chairman Jon Leibowitz said in a statement. "Lenders who allow discretion in pricing loans can't escape liability simply by burying their heads in the sand. Those lenders must monitor discretionary pricing to ensure that American borrowers are treated equally based on their credit – not their race, national origin, or gender."
Kootstra and Golden Empire Mortgage, the FTC said, allegedly gave loan officers and branch managers wide discretion to charge some borrowers, in addition to the risk-based price, "overages" through higher interest rates and higher up-front charges.
According to the original FTC complaint, these loan officers also received a percentage of overages as a commission, and failed to monitor whether Hispanic consumers were paying higher overages than non-Hispanic borrowers.
The settlement order permanently prohibits Golden Empire and Kootstra from discriminating on the basis of national origin in credit transactions – or otherwise failing to comply with the Equal Credit Opportunity Act and its implementing Regulation B.
In addition, Golden Empire will be required to implement:
- A policy that restricts loan originators' pricing discretion
- A fair lending monitoring program
- A program to ensure the accuracy and completeness of their data
- Employee training programs
The order also imposes a $5.5 million judgment that will be suspended when Kootstra and his company pay $1.5 million for consumer redress. The full $5.5 million will be due immediately if the defendants are found to have lied about their finances.
The Equal Credit Opportunity Act and its implementing Regulation B bar creditors from discriminating against applicants for credit on the basis of race, color, religion, national origin, sex, marital status, age or if an applicant's income is derived from public assistance. More information about consumers' rights under the Act is available here.