The Fed just fined Kansas-based Peoples Bank for deceptive mortgage practices that persisted for four full years before being addressed. People’s loan officers were telling borrowers that if they paid an upfront fee – known as buying Discount Points – their interest rate would be reduced. In many instances, however, Peoples Bank neglected to reduce borrowers’ interest rates whatsoever.
- Peoples Bank in Kansas ran deceptive mortgage practices for over four years
- They falsely told borrowers that paying an upfront fee would reduce their interest rate
- The Fed ordered Peoples to pay $2.8 million into an account for borrower restitution
- Peoples is planning to exit the mortgage business soon
“During the origination process, Peoples’ loan officers often gave prospective borrowers the option to obtain a lower interest rate on a loan by paying an amount at closing calculated as a percentage of the loan amount, ‘Discount Points’”
While borrowers regularly paid thousands for those Discount Points, they often receive no reduction in interest rate. Even though Peoples provided several disclosure during the loan origination process, the Fed said that they “mischaracterized the nature of those [loan] costs because they indicated that a specified portion of the fees paid at closing were being used to purchase a lower, discounted rate, but sometimes that was not accurate.”
The Fed added: “A borrower acting reasonably under the circumstances could have concluded based on the disclosures that the interest rate he or she was purchasing with the Discount Points was lower than what Peoples otherwise would make available to that borrower without the payment of Discount Points.
In addition, the Fed notes that during People’s four years of deceptive origination practices, the bank did not even have a specific written policy regarding Discount Points.
In response, Peoples has 10 days to deposit no less than $2,800,000 into a qualified settlement fund. Within 45 days, Peoples must submit a written plan to the Reserve Bank for “restitution and remediation in connection with [the Fed’s] order.”