Bank of America will pay $108 million to settle federal charges that Countrywide Financial Corp., which it acquired nearly two years ago, collected outsized fees from borrowers facing foreclosure.
It’s the latest evidence of misconduct at Countrywide, once an industry giant that has since fallen. Last year, three top executives, including former CEO Angelo Mozilo, were charged with civil fraud and insider trading by the Securities and Exchange Commission.
The settlement, which seeks to refund money to about 200,000 borrowers, was announced Monday by the Federal Trade Commission. It is the largest mortgage industry settlement for the agency, which oversees non-banking functions such as debt collection. The FTC has been criticized for failing to protect consumers from abuse by financial companies.
The FTC’s chairman, Jon Leibowitz, accused Countrywide of “callous conduct, which took advantage of consumers already at the end of their financial rope.”
Bank of America purchased Countrywide in July 2008. The actions in the case took place before the acquisition.
Bank of America said it agreed to the settlement “to avoid the expense and distraction associated with litigating the case,” which also resolves litigation by bankruptcy trustees. “The settlement allows us to put all of these matters behind us,” the company said.
Countrywide hit the borrowers who were behind on their mortgages with fees of several thousand dollars at times, the FTC said. The fees were for such services as property inspections and landscaping.
In addition, Countrywide created subsidiaries to hire vendors, which marked up the price for such services, the FTC said. The company “earned substantial profits by funneling default-related services through subsidiaries that it created solely to generate revenue,” the agency said in a news release.
The agency also alleged that Countrywide made false claims to borrowers in bankruptcy about the amount owed or the size of their loans and failed to tell those borrowers about fees or other charges. The settlement requires Bank of America to notify bankrupt borrowers monthly notices about what they owe, including fees.
Bank of America has worked to address allegations of deceptive practices at Countrywide since acquiring the mortgage company. In October 2008, it reached a settlement with attorneys general agreeing to modify troubled mortgages with up to $8.4 billion in interest rate and principal reductions for nearly 400,000 customers.