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Financial Services Law Insights and Observations

District Court preliminarily approves $12 million class action settlement over automated mortgage errors

Courts Mortgages Settlement Class Action Consumer Finance

Courts

On August 17, the U.S. District Court for the Southern District of Ohio granted preliminary approval of a proposed settlement in a class action that claimed a national bank’s automated mortgage loan modification tools failed to approve borrowers due to technical issues. Class members (defined as borrowers who qualified during a specified time period for a home loan modification or repayment plan pursuant to the requirements of government-sponsored enterprises, FHA, or the Department of Treasury’s Home Affordable Modification Program that “were not offered a home loan modification or repayment plan by [the bank] because of excessive attorneys’ fees being included in the loan modification decision process” and whose homes were not sold in foreclosure) sued the bank alleging it “failed to detect or ignored multiple systematic errors in it automated decision-making software.” This software, class members claimed, is used to create automated calculations and determine whether consumers in default are eligible for loan modifications. According to class members, the bank allegedly “failed to adequately test, audit, and verify that its software was correctly calculating whether customers met threshold requirements for a mortgage modification” and failed to regularly and properly audit its software for compliance with government requirements, thus allowing errors to remain uncorrected. Class members further claimed that the bank apparently took several years to implement new controls and disclose the error. Under the terms of the preliminarily approved settlement, the bank must pay $12 million in relief to the settlement class.

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