WASHINGTON (CN) – Bear Stearns and subsidiary EMC Mortgage on Tuesday agreed to pay $28 million in settlement with the Federal Trade Commission, on charges of defrauding tens of thousands of home loan customers and violating four sets of federal laws.
“The companies violated four different federal laws, “said Frank Dorman, the spokesperson for the FTC. “We hope people in mortgage servicing companies will read this judgment and adhere to the law.”
Bear Sterns through its mortgage subsidiary, EMC, has handled 475,000 mortgage loans in the last year.
Apart from misrepresenting the amounts borrowers owed, said the FTC’s complaint, the company charged unauthorized fees to clients. One such fee was the $500 loan-modification fee, which was automatically added to the loan’s principle balance, without notice to the client.
The company also made harassing collection calls, where agents would wrongly state the legal status or amount of the customers’ debts.
The defendants also failed to notify customers of their right to obtain verification of the debt, or of their right to dispute the debt. When the loans were contested, the defendants failed to report the dispute to credit reporting agencies, as required by law.
Bear Sterns and EMC did, however, illegally share information about the customers’ payment status with credit reporting agencies.
In total, the FTC Act, the Fair Debt Collection Practices Act, the Fair Credit Reporting Act, and regulation Z of the Truth in Lending Act were all violated.
Apart from the $28 million in redress to affected customers, the settlement prohibits the companies from violating these laws in the future, and requires that they establish and maintain a comprehensive data integrity program to ensure accuracy of their data regarding consumers’ loans.
The companies must also hire a qualified and independent group to ensure compliance with the settlement.
Apart for redress to consumers, no fines were imposed.
Bear Steams and EMC Mortgage are represented by Kevin Arquit, from Simpson Thacher & Bartlett.