Prospect Mortgage has reached a settlement with the California Department of Business Oversight in which the lender will issue refunds to more than 12,000 customers.
“The Department of Business Oversight enforces laws to protect all Californians from unfair business practices that hurt consumers and the mortgage lending industry,” said Department of Business Oversight Commissioner Jan Lynn Owen. “This settlement resolves past violations and notices all licensed residential mortgage lenders and servicers that full compliance with the law is non-negotiable.”
The department began an enforcement action against Prospect after discovering multiple violations of the California Residential Mortgage Lending Act, according to a news release. In particular, an audit revealed “systemic problems” in Prospect’s per diem interest policies. California law typically permits residential mortgage lenders to charge customers only one day of interest prior to the disbursement of loan proceeds; many Prospect customers, according to the department, had been overcharged.
Under the terms of the settlement, Prospect will refund about $1.33 million to affected customers and pay administrative fees of about $1.8 million. The company has also been instructed to make “significant changes” to its policies and procedures to comply with California law.
It isn’t the first time Prospect has been under the legal microscope. In October, New York State fined the lender $3 million for misleading customers about interest rates. State regulators claimed that Prospect charged borrowers up-front fees to reduce their interest rates, but didn’t make good on the discounts.
One of the nation’s biggest independent lenders will have to fork out more than $3 million for violating California lending regulations.