Title Settlement Company Hit with $1.25 Million Fine

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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.

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