JPMorgan Chase Co. agreed to pay $55 million to settle U.S. allegations of racial discrimination in home loans through mortgage brokers, leading black and Hispanic borrowers to pay higher interest rates and fees from 2006 to 2009, a person familiar with the matter said.
The U.S. sued the bank early Wednesday, claiming at least 53,000 black and Hispanic borrowers suffered tens of millions of dollars in damages. The bank filed an immediate response denying the allegations and then announced the settlement without disclosing the amount.
“We’ve agreed to settle these legacy allegations that pertain to pricing set by independent brokers,” JPMorgan spokeswoman Trish Wexler said in an emailed statement. “We deny any wrongdoing and remain committed to providing equal access to credit.”
The complaint focuses on wholesale loans that allegedly violated federal housing and credit laws. According to the government, a black borrower with the same credit and risk profile as a white borrower paid higher loan rates and larger fees for the same type of Chase wholesale mortgages. Hispanic borrowers allegedly received similar treatment.
The U.S. says mortgage brokers had wide discretion in adjusting fees and rates, and the higher amounts paid by black and Hispanic borrowers didn’t purely reflect credit risk, according to the complaint. The government did a regression analysis to determine how much more minorities paid, the U.S. said, explaining that step was necessary because the bank didn’t keep data.
Black borrowers paid an average of 0.12 percentage point higher rates on loans, while Hispanic borrowers paid 0.06 percentage point more, the complaint said. Black borrowers were charged an average $1,126 in higher fees, while Hispanic borrowers were changed an average of $968 more, according to the complaint.
The lender also created a financial incentive for mortgage brokers to charge interest rates above those JPMorgan had set based on credit risk, the U.S. said.
In its response, the bank said the U.S. claims were at least partially, if not completely, barred by the terms of a 2010 settlement of a Los Angeles federal court case filed on behalf of black and Hispanic borrowers.
The bank also challenged the underlying basis of the Justice Department complaint, contending the government failed to meet U.S. Supreme Court requirements for establishing a “requisite causal link” between the bank’s policies and purported price disparities.
“Chase’s policy of allowing independent brokers limited pricing discretion was supported by a legitimate business justification,” bank attorneys said in their filing.