The parties have reached a $40.4 million settlement in an enforcement action filed against mortgage company Fairbanks Capital Holding Corporation, its wholly-owned subsidiary Fairbanks Capital Corporation, and their founder and former CEO, Thomas D. Basmajian on behalf of borrowers whose mortgage payments were posted late and who were charged late fees or other charges because of the late postings. The action alleges that Fairbanks engaged in a variety of unfair, deceptive, and illegal practices in the servicing of subprime mortgage loans, violating the federal FTC Act, the Fair Debt Collection Practices Act, the Fair Credit Reporting Act, and the Real Estate Settlement Procedures Act. Persons interested in taking part in the settlement should contact the attorneys for the class.

The action alleges that, in servicing loans, Fairbanks violated the FTC Act when it (1) failed to post consumers' mortgage payments in a timely and proper manner, and then charged consumers late fees or additional interest for failing to make their payments "on time"; (2) charged consumers for placing casualty insurance on their loans when insurance was already in place; and (3) assessed and collected improper or unwarranted fees, such as late fees, delinquency fees, attorneys' fees, and other fees; and misrepresented the amounts consumers owed.

The action also alleges that Fairbanks violated several provisions of the Fair Debt Collection Practices Act, in connection with collecting loans that were in default when Fairbanks obtained them. Allegedly, Fairbanks (1) falsely represented the character, amount, or legal status of consumers debts; (2) communicated or threatened to communicate credit information which was known or which should have been known to be false, including the failure to communicate that a debt was disputed; (3) used false representations or deceptive means to collect or attempt to collect a debt, or to obtain information concerning a consumer; (4) collected amounts not authorized by the agreement or permitted by law; and (5) failed to properly validate debts.

Fairbanks allegedly violated the Fair Credit Reporting Act by furnishing information about consumers' payment status to consumer reporting agencies when they knew that the information was inaccurate. Also, when consumers informed the company that they disputed the reported information, it did not report the dispute to the consumer reporting agencies.

The Real Estate Settlement Procedures Act is a federal statute that requires loan servicers to respond to borrowers' written requests about their loans and to make timely insurance and property tax payments on behalf of borrowers and otherwise properly administer their escrow accounts. The action alleges that Fairbanks failed to timely and adequately acknowledge and investigate borrowers' written requests for information about the servicing of their loans and escrow accounts. Fairbanks also allegedly failed to make timely payments of escrow funds for insurance premiums and property taxes.

The settlement will require the Fairbanks corporations to pay $40 million, and Basmajian to pay $400,000, to the Federal Trade Commission to be used to compensate consumers who suffered harm from unauthorized late fees, other fees Fairbanks imposed on consumers it deemed in default, unauthorized prepayment penalties, or other improper practices by Fairbanks related to consumer defaults.

The settlement will also require Fairbanks to:

1. Accept partial payments from most consumers and to apply most consumers' mortgage payments first to interest and principal.

2. Not force place insurance when the company knows the consumer has insurance, and take reasonable actions to determine whether the consumer has insurance.

3. Stop charging unauthorized fees, and place limits on specific fees.

4. Acknowledge, investigate, and resolve consumer disputes in a timely manner.

5. Provide timely billing information, including an itemization of fees charged.

6. Not take any action toward foreclosure unless the company has (a) reviewed the consumer's loan records to verify that the consumer failed to make three full monthly payments, (b) confirmed that the consumer has not been the subject of any illegal practices, and (c) investigated and resolved any consumer disputes.

7. Not pile on late fees in certain situations.

8. Not enforce certain waiver provisions in forbearance agreements that consumers had to sign to prevent foreclosure.

To provide further remedial relief to consumers harmed by its practices, Fairbanks will correct certain open accounts that may have been classified wrongly as delinquent, re-classify these accounts as current, and report to any consumer reporting agency previously provided with information about the consumer's account that the account is current and that the prior record of delinquency should be removed from the consumer's report.

If the court approves the settlement, affected consumers should receive a notice of the settlement in the mail that will explain how they can participate in the redress program. The Commission's toll-free consumer hotline regarding the settlement is 1-877-862-0886. Consumers who have changed their address recently may provide updated contact information by calling the hotline. Consumers also can find information about the settlement on the FTC's website. At this time, it is not necessary for consumers to take any action other than watching their mail for notice of the settlement.

The settlement will not be effective until the court grants it final approval. The court has not yet scheduled a hearing on the matter.