The U.S. Bank Forced Placed Flood Insurance lawsuit was filed against the bank for charges incurred by mortgage holders in connection with lender-placed flood insurance, or “forced flood insurance.” Under federal law, lenders have the right to force-place flood insurance in certain areas known as Special Flood Hazard Areas even when the borrower is not insured. Plaintiffs allege that the bank abused this power by arranging kickbacks, qualified expense reimbursements, and compensation for itself.
Plaintiffs argue that U.S. Bank abused its right to force-place flood insurance by accepting kickbacks
In its lawsuit, the Plaintiffs argue that the U.S. Bank abused its right to force-place flood insurance by accepting kickbacks. HUD regulations prohibit banks from accepting kickbacks or commissions, and the New York State Division of Financial Services has cited cases where such practices were alleged. The New York Division of Financial Services has also conducted investigations into the practice.
The Court notes that the premiums paid by the Plaintiffs were based on the rates filed with the New York State Department of Financial Services (NYSDFS). Assurant Defendants contend that the filed rate doctrine precludes any showing of injury. Further, the Plaintiffs lack subject matter jurisdiction and do not have the standing to challenge the approved rates.
The Defendants do not deny that the forced insurance policies were higher than those of other insurers. HSBC also received a kickback from Assurant. The kickbacks were in exchange for transferring risk without transferring ownership. Moreover, the Plaintiffs claim that the forced insurance policies were higher than the rates of their prior policies. Moreover, these policies were backdated for periods when they had not suffered a loss.
Plaintiffs argue that ASIC participated in the scheme
In their lawsuit, the plaintiffs allege that ASIC violated the Australian Consumer Law by paying kickbacks to U.S. Bank in return for inflating the amounts charged to borrowers. The scheme was designed to profit the bank, which charged borrowers below-market rates for flood insurance. The plaintiffs argue that the ASIC’s participation was materially different from Cohen’s.
The U.S. Bank forced mortgage holders to purchase flood insurance policies that were more than the legal minimum. In exchange for these kickbacks, the bank obtained commissions from insurance companies. As a result, the bank failed to act in good faith and violated the law. In addition, the company, then known as U.S. Bancorp, failed to disclose to borrowers that it had a forced-placed flood insurance scheme and that it knew its actions were contrary to the law.
ASIC received kickbacks from U.S. Bank
In a class-action lawsuit filed against U.S. Bank in California, plaintiffs claim the bank engaged in a scheme to force homeowners to purchase backdated lender-placed flood insurance. The scheme provided ASIC with kickbacks for the insurance policies it sold, as well as subsidized insurance tracking services. The banks did not deduct the kickbacks from their charges. According to the plaintiffs, the bank’s actions were against applicable laws.
The compensation arrangements for force-placed insurance are the subject of court opinions and public deposition testimony. In one deposition, an employee of Assurant said that they are “industry-wide practices” and “standard industry practice.” According to the American Banker magazine, these compensation arrangements were the reason ASIC received kickbacks from the U.S. Bank Forced Placed Flood Insurance lawsuit.
U.S. Bank did not subtract kickbacks from premiums charged to Ellsworth
In this case, the plaintiff, Ellsworth, did not challenge the rate of the ASIC premium. Rather, she challenges the decision of U.S. Bank to choose ASIC as the carrier and the subsequent practice of selecting carriers to earn compensation. This violates the bank’s fee-setting power. Nonetheless, the court finds that Ellsworth’s claims are not preempted by this preemptory ruling.
The lawsuit alleges that the bank exercised discretion in forcing Ellsworth to purchase backdated flood insurance without deducting the kickbacks. In addition, U.S. Bank paid kickbacks for force-placed flood insurance. However, Ellsworth also alleges that the kickbacks were not deducted from the premiums charged to Ellsworth.
The plaintiff argues that the alleged practices are preempted by Martinez, the case that governs the charge of kickbacks. The bank argues that by excluding kickbacks from premiums, it acted by its federally authorized powers to protect its interest in the property. In the context of Martinez, this argument is not persuasive. It is a case of a “tethering” test.