Fidelity Banks’ NOLA Lending Group paid “illegal kickbacks” to a local real estate brokerage by charging artificially high rents for office space, according to the Federal Deposit Insurance Corp. (FDIC).
In addition, the bank subsidiary paid “illegal referral fees” through a lead generation service, the FDIC said in its most recent Community Reinvestment Act (CRA) Performance Evaluation of the bank.
The FDIC identified “illegal credit practices inconsistent with helping to meet credit needs” at the June 14 compliance examination. The examination cited “substantive violations” of RESPA Section 1024.14 of Regulation X, which implements Section 8 of RESPA.
“The violations identified by examiners involved the payment of illegal referral fees through the use of lead generation services and unsupported rents for office space to real estate agents and builders,” the FDIC said.
Fidelity Bank CEO Chris Ferris told nola.com the violations related to office space Nola Lending sublet at two Greater New Orleans offices of Keller Williams Realty-New Orleans. Fidelity Bank did not provide further details to RESPA News, which requested additional comment on the FDIC’s findings.
“While the violations were significant in number and substantive in nature, a downgrade of the CRA rating to less than satisfactory was not warranted primarily due to the corrective action taken by the bank,” the evaluation stated. “In addition, the bank ceased certain practices immediately upon discovery. Furthermore, the board and senior management implemented corrective actions during the examination process and committed to enhance its oversight, policies/procedures and monitoring to prevent recurrence of illegal credit practices.”
Sterbcow Law Group’s Managing Attorney Marx Sterbcow said that although the FDIC’s investigation resulted in a mere reprimand, the Consumer Financial Protection Bureau (CFPB) may not be done with the matter.
“It would not surprise me if this [were] not the end of all this,” Sterbcow said. “We may hear more. Are we going to see the CFPB go after Keller Williams? In past actions, they usually have.”
Keller Williams Realty Team Leader Cody Caudill and Operating Principal Jeffrey Doussan did not return emails requesting comment.
Meanwhile, Sterbcow has some advice on how other banks and brokerages can avoid similar attention by regulators.
“One obvious lesson is the bank should have had a compliance department monitoring this stuff,” he said. “And clearly, the FDIC saw this. This was either discovered through their audit process or people were complaining.
“First and foremost, never get into a lease agreement without validating the lease payments. Go find a third party to authenticate that you’re paying the correct amount – whether that’s an attorney or some other third-party service. You need to have evidence. And if they’re overpaying, they’re going to find out that you’re overpaying. It’s not that hard to find out. Unfortunately, a number of lending executives often get internal pressure from their businesspeople to ‘just go ahead and approve it because we are going to lose business if we don’t enter into this arrangement.’ But (Fidelity) is a good example of somebody that got slapped and why you should not just jump into the arrangement without really vetting the arrangement.”
Sterbcow added that the report also shows the FDIC is still focused on keeping competition in the banking community on a level playing field.
“I also think the bank is very lucky that they didn’t single out any officers of the bank – their compliance counsel, their general counsel – and hit them with sanctions for allowing this and engaging in this,” he said.