An independent title company based in South Bend, Indiana was hit with
a $1.25 million penalty from the Consumer Financial Protection Bureau
(CFPB) for steering clients to title insurers partly owned by executives
of the company.
The agency issued a consent order to Meridian Title Corporation for directing
customers to related businesses without disclosing the affiliation. CFPB
Director Richard Cordray released a statement to announce the enforcement
action saying that “Meridian Title illegally steered consumers into
purchasing a product from an affiliated company to add to its bottom line.
We’re ordering it to halt this practice and pay up to $1.25 million
to consumers who were harmed.”
Meridian Title is a real estate settlement agent that provides real estate
related escrow and closing services in connection with consumer residential
mortgage lending. As a requirement of obtaining a mortgage, lenders require
that the borrower obtain title insurance. Typically, a borrower is allowed
to choose their title insurance issuer as long as the policy is compliant
with lender requirements.
The Bureau said that the Meridian commonly referred customers to Arsenal
Insurance Corp. for their title insurance underwriting. Arsenal is owned
in part by three executives from Meridian. “When it selected Arsenal,
the CFPB found that Meridian was able to keep extra money beyond the commission
it would normally have been entitled to collect, based on an understanding
that Meridian would select Arsenal as underwriter,” the release stated.
The CFPB also claimed that the investigation uncovered that Meridian had
failed to make the required disclosures to over 7,000 customers that it
had selected Arsenal as the preferred insurance provider. A settlement
company such as Meridian must disclose to the consumer an affiliated relationship
that provides value from that arrangement to avoid a violation of the
Real Estate Settlement Procedures Act.
Under Dodd-Frank, the financial watchdog and consumer advocacy group has
the authority to take action against institutions that violate consumer
financial laws. In this case, the Bureau determined that by steering customers
to a related insurance company, the money earned brought value to the
company, and therefore a violation of RESPA.
The consent order requires that Meridian comply with RESPA by establishing,
implementing and maintaining testing policies, procedures, standards,
and technology designed to provide a compliance management system to monitor
the delivery of disclosure forms. The company must also provide consumers
with information as to the relationship between its affiliated business
relationship with Arsenal, as well as any other affiliate arrangements.