On November 28, the Federal Reserve announced that it had entered into a consent order with a Kansas state bank, resolving allegations that the bank engaged in deceptive residential mortgage lending practices in violation of Section 5 the Federal Trade Commission Act.
According to the consent order, the bank’s loan officers often gave borrowers the option to obtain a lower interest rate by paying “discount points” – a portion of the loan balance – at closing. Borrowers typically paid thousands of dollars to the bank in the form of discount points. The bank provided borrowers with a disclosure that, according to the order, mischaracterized the nature of the loans by indicating that a specified portion of the fees paid at closing were being used to purchase a lower, discounted rate, when in fact that was not always the case. Many borrowers who paid discount points did not actually receive a reduced interest rate, or received a rate that was not reduced commensurate with the price paid for the discount points.
The bank has since ceased charging borrowers discount points for which borrowers do not receive the full financial benefit, and has terminated its national mortgage business. Under the terms of the consent order, the bank agreed to cease making any misrepresentations in connection with the extension of credit, and to pay $2.8 million in restitution.