When you have a mortgage but your insurance lapses, your mortgage servicer will go out and get insurance for you. This forced-place insurance generally comes at a much higher rate and with less coverage than what a homeowner would get on her own.
The class-action lawsuit had alleged that the high rates on forced-place policies purchased by Chase weren’t just a matter of the insurance company, Assurant, charging more, but also of the bank receiving kickbacks and commissions. Thus, the plaintiffs claimed that Chase had a financial stake in seeing that homeowners were charged a higher premium.
According to the settlement, Chase can not earn commissions on forced-place insurance for six years. The bank says that it “stopped accepting commissions several years ago.”
Payments to affected mortgage borrowers will be equivalent to 12.5% of the net premium.
Similar lawsuits are pending against Citigroup, Wells Fargo, Bank of America and HSBC.
Assurant has already settled a class-action for $14 million. Neither it nor Chase has admitted any wrongdoing.
Fees on forced-place insurance has come under fire in recent years, with some advocates and regulators concerned that charging homeowners a premium on something they are having trouble affording at a lower price is just pushing some further toward foreclosure.
The Federal Housing Finance Agency is reportedly considering a rule change that would prohibit lenders who earn commissions and fees from forced-place insurance from doing business with mortgage-backers Fannie Mae and Freddie Mac.