JPMorgan Chase will pay more than $22 million to end a proposed class action lawsuit filed by homeowners who alleged that the bank forced superfluous insurance on its customers in a so-called “force-placed insurance” scheme.
Plaintiffs claimed that Chase forced them to buy flood insurance.
Force-placed insurance is the controversial practice of forcing unnecessary or excessive insurance policies onto customers who allowed their coverage to lapse or who never bought insurance in the first place. Several class action lawsuits allege that a number of banks and financial institutions abused their authority to force-place insurance and paid “kickbacks” to mortgage lenders.
Yesterday’s agreement ends a lawsuit consolidated from three cases filed in New York and California. Plaintiffs, who had mortgages with the bank, claimed that Chase forced them to buy flood insurance far in excess of government or lender requirements. As such, the suit alleged, the bank profited from its unfair policies.
The settlement includes a three-year ban on requiring homeowners to buy excessive flood insurance, with the acceptable level to be based off the federal minimum standard. The $22.1 million is reported to represent almost 75% of the unfair commissions Chase gained between 2007 and 2012. Chase is also required to attempt to renew flood insurance policies chosen by homeowners, rather than requiring its own be used, for the next six years. The bank has also agreed to reject any commission from force-placed insurance policies for the next six years.
JPMorgan Chase faced claims that the premiums for its force-placed insurance were often ten times higher than they should have been. Banking experts have reported that force-placing insurance became common throughout the U.S. banking industry – so much so that in November federal regulators effectively banned the practice when new Federal Housing Finance Agency rules limited the purchasing of mortgages from banks (“Amid Lawsuits, Regulators Crack Down On Force-Placed Insurance”) . At the time, Reuters described some banks’ charges for force-placed insurance as “insanely enormous.” Meanwhile, lawsuits have been filed against Bank of America, Wells Fargo, and a number of other institutions. Attorneys are investigating allegations against almost fifty more institutions (see here for the full list).
In January 2012, the New York Times reported that “the sad truth is that most homeowners will give up before they win a battle against a bank, particularly one that holds the mortgage on their home. Homeowners are at a disadvantage, even if they believe they are right.” However, this is no longer the case, and this week’s settlement is a sign of the changing fortunes of homeowners and financial customers. As the banking industry changes, so too the courts are able to more effectively wield their power, and the threat of class action lawsuits seems to be enough to force banks’ hands.
It’s nice to see consumers being the ones doing the forcing at last.
The deadline to submit claims for this settlement was April 28, 2014. As such, the settlement is now expired.