On April 17, Ohio Attorney General Dave Yost announced that the state has filed a lawsuit against a wholesale mortgage lender, alleging that the company engaged in a statewide scheme to mislead borrowers and inflate mortgage costs through deceptive broker steering practices. The AG's office is seeking a jury trial on all claims.
The complaint alleges that the lender violated the Ohio Consumer Sales Practices Act, the Ohio Residential Mortgage Lending Act, and the Ohio Corrupt Practices Act. The lawsuit accuses the lender of conspiring with brokers to funnel borrowers into high-cost loans under the guise of independent shopping, despite internal agreements that allegedly prohibited brokers from presenting more affordable alternatives.
Specifically, the allegations include:
- Restricting broker competition. The lender contractually prohibited referrals to two major competitors, even when cheaper options were available.
- Marketing misrepresented broker independence. Brokers used lender-supplied marketing materials that described them as "independent" despite contractual restrictions limiting their ability to shop around.
- Rewarding loyalty with exclusive perks. Brokers who funneled loans to the lender received increased exposure on borrower search engines, faster underwriting times, and access to promotional products, all tied to volume metrics.
- Charging borrowers significantly higher costs. The AG asserts that borrowers working with high-funneling brokers paid hundreds more per loan than those using brokers who independently shopped the market.
Putting It Into Practice: Ohio's lawsuit continues a trend of increased state-level enforcement targeting financial services practices, particularly in the mortgage space (previously discussed here). Lenders and brokers who operate in this space should ensure their compliance procedures align with best practices, especially when it comes to referrals.
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