United Shore Financial Services has agreed to pay a total of $1.4 million to consumers and California regulators to settle allegations it collected interest payments it was not entitled to.
Troy, Mich.-based United Shore has already refunded $293,127 to approximately 3,400 borrowers who were affected by the overcharges.
It also agreed to pay a $1.1 million fine to the California Department of Business Oversight for those violations, plus $125 per loan for any additional violations that a self-audit finds for loans already or to be originated between June 2015 and February 2018.
Having to pay any additional amounts is highly unlikely, said United Shore President and CEO Mat Ishbia in an interview.
The problem was a documentation issue that affected less than 10% of United Shore's originations in the state between 2011 and 2014.
Under California law, borrowers cannot be charged interest for more than one day in the time between when a loan closes but before the proceeds are disbursed from escrow.
The escrow agents used by United Shore, which has a broker business under the name United Wholesale Funding, on purchase loans were selected by the real estate broker or mortgage broker, and the company did not have the documentation in its files that proved the funds were disbursed within one day of closing, Ishbia said.
Since it lacked the documentation at the time of the regulatory examination, United Shore refunded between $30 and $70 per transaction to the borrower.
Since the initial findings in 2014, United Shore has put procedures in place to ensure that the escrow agents are in compliance with the restriction on per-diem interest charges, which only affects nonbank lenders.
"There aren't going to be any issues because now we know how they (California DBO) want it documented and we make the escrow agent give us the information on every file in the exact way they've ask us to do it," Ishbia said.
California DBO has gone after at least one other nonbank lender recently for violating this statute. PrimeLending of Dallas paid a $1.3 million fine and made restitution of $319,500 to settle similar allegations last November.
"I'm pleased we have reached this agreement with United Shore," said DBO Commissioner Jan Lynn Owen in a press release. "It compensates borrowers for the financial harm they suffered, and requires the firm to continue following improved policies and procedures designed to prevent this from happening again."
In December, United Shore agreed to pay $48 million to the federal government to settle allegations it violated the False Claims Act.