Obama-era Wall Street enforcement sunsets with one last disappointing deal

A megabank is settling a housing discrimination case for pennies, again.

JP Morgan Chase CEO Jamie Dimon, left, talking with former New York City Mayor Michael Bloomberg (I) in 2007. CREDIT: AP Photo/Mark Lennihan
JP Morgan Chase CEO Jamie Dimon, left, talking with former New York City Mayor Michael Bloomberg (I) in 2007. CREDIT: AP Photo/Mark Lennihan

One of the country’s largest banks is hurrying to settle a federal lawsuit filed Wednesday alleging it had overcharged some 53,000 black and Hispanic homeowners on mortgage loans from 2006 to 2009.

JP Morgan Chase will reportedly pay $55 million — a tiny sum for a megabank — to resolve the allegations without admitting any wrongdoing.

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The suit targets JP Morgan Chase’s now defunct relationship with a network of independent mortgage brokers who acted as freelance salesmen for the company’s home loans at the height of the housing bubble. The bank continues to offer mortgages through its brick-and-mortar retail shops, but ended its relationship with the broker network in late 2009.

The bank’s rules left those brokers free to bump prices up on loans at their discretion, according to Wednesday’s suit. Salesmen and women working on Chase’s behalf could ignore the price that mortgage lending computers spat out for any given borrower.

By giving such discretion to people whose income would be based on the revenue generated by the loans they sold, the government charges, Chase knowingly gave its network partners incentive to fleece borrowers.

The brokers used that leeway to blast black and brown customers with much higher fees and rates than they were offering to white borrowers with the exact same credit history and risk profile, according to the complaint.

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“Chase charged an African-American wholesale customer an average of about $1,126 more…and a Hispanic wholesale customer an average of about $968 more…than a non-Hispanic White borrower,” the suit says.

Prosecutors estimate that 53,000 minority borrowers were taken for “tens of millions of dollars” in discriminatory charges by the bank’s brokers — and that Chase itself knew what was happening and did nothing to stop it. The reported $55 million deal would be enough to make the harmed borrowers whole for the overcharging, but is barely a smudge on the bank’s bottom line.

Such race-based overcharging, regardless of actual creditworthiness, is a well-understood bugaboo of the lending business. These broker practices have replaced the flat-out, old-fashioned mode of housing discrimination embodied in mid-20th-century federal regulations and bank “redlining” practices with a “more subtle” system of “high-pressure sales practices and deceptive tactics,” as Harvard’s Joint Center for Housing Studies noted all the way back in 2005.

While it’s known that brokers discriminated for profit during the housing boom, Wednesday’s lawsuit would have centered on technicalities rather than overt racism. The question of what Chase knew, and what responsibilities its knowledge conveyed regarding third-party brokers’ actions, is the heart of this case. The bank’s lawyers filed an aggressive response to the suit Wednesday, denying all the government’s allegations and arguing the suit should be dismissed with prejudice based on prior settlements and decisions in both lower courts and the Supreme Court.

Roughly an hour later, the Wall Street Journal reported the bank intends to settle rather than fight.

Details of the settlement are as yet unclear, but previous Obama administration deals over Wall Street abuses have included generous provisions for the banks, with potential tax deductions and few if any lasting punitive consequences. The soft touch bankers have gotten from Washington since the financial collapse they caused has not prevented them from whinging about the deals they win.