JPMorgan Chase to Pay $300 Million Over Force-Placed Homeowners Insurance
For years, banks and insurance companies have profited at homeownersâ€™ expense, charging excessive homeowners insurance rates through force-placed insurance.
However, on Feb. 28, a judge ordered a settlement that will costÂ JPMorgan ChaseÂ at least $300 million. The settlement arose as a response to the Federal Housing Finance Agencyâ€™s work at ending homeowners insurance policy kickbacks between big banks and insurance companies.
The Consumerist reports that the order will help approximately 750,000 borrowers, noting that JPMorgan Chase is likely theÂ first of many large financial institutions to face justice for unscrupulous practices.
How Force-Placed Insurance Works
When a homeowner falls behind on insurance payments, the bank has the right to purchase a policy on its own to protect its interests in the property. However, enforcing for-profit,Â force-placed insuranceÂ practices onÂ financially-strapped homeowners keeps borrowers more behind on payments and encourages foreclosures.
The Federal Housing Finance Agency has proposed a rule prohibiting lenders in the practice of taking commissions on force-placed insurance policies from working with Fannie Mae and Freddie Mac.
JPMorgan Chase Class-Action Suit
According to Insurance Journal, the class-action lawsuit alleges that JPMorgan Chase received more than $1 billion in insurance kickbacks since 2008. The settlement also forbids Chase from accepting commissions on force-placed insurance policies for six years, although the bank claims it stopped taking commissions many years ago.
JPMorgan Chase allegedly placed these policies for the insurance company Assurant. The insurer has already settled with New York Insurance Department investigators.
Assurant paid $14 million, but did not admit any wrongdoing.
Is the Settlement Enough?
The cash part of these settlements may not be fair, considering that force-placed insurance can cost homeowners 10 times more than a traditional homeowners insurance policy. Mathematically, the total paid by both companies comes out to about $420 per policyholder. Itâ€™s not clear how much of the money will actually make it into the borrowersâ€™ pockets.
More lawsuits like this are likely, and cases are pending against Bank of America, Citigroup, HSBC and Wells Fargo.