CHARLOTTE (dpa-AFX) - Financial services firm Bank of America Corp. (BAC) agreed Wednesday to pay $335 million as a settlement for charges related to alleged discriminatory lending practices by its subsidiary Countrywide Financial. The settlement will see thousands of African-American and Hispanic borrowers being compensated for the alleged discriminatory practice between 2004 and 2008.
The settlement, the largest residential fair lending settlement in history by the Department of Justice, resolves the pricing and steering claims in the U.S. against Countrywide for its discrimination against African Americans and Hispanics.
The DoJ investigation into the actions began after the case was referred to its Civil Rights Division in 2007 and 2008 by the Board of Governors of the Federal Reserve and the Office of Thrift Supervision.
'The department's action against Countrywide makes clear that we will not hesitate to hold financial institutions accountable, including one of the nation's largest, for lending discrimination,' Attorney General Eric Holder said in a statement.
However, the allegations are for discriminatory practices that occurred prior to Charlotte, North Carolina-based Bank of America's purchase of Countrywide in 2008. Countrywide is said to have indulged in unfair lending practices by excluding borrowers in low-income and pricing discrimination solely based on race or origin.
The actions affected more that 200,000 African-American and Hispanic borrowers, who were charged higher fees than non-Hispanic white borrowers in both retail and wholesale lending or steered into subprime loans rather than prime loans, compared to non-Hispanic white borrowers with similar credit profiles receiving prime loans.
Subprime loans carry higher cost terms such as prepayment penalties and adjustable interest rates that jumped suddenly after two or three years, making payments unaffordable.
'With today's settlement, the federal government will ensure that the more than 200,000 African-American and Hispanic borrowers who were discriminated against by Countrywide will be entitled to compensation,' Holder added.
As part of the settlement, Countrywide is also required to implement policies and practices to prevent discrimination if it returns to the lending business during the next four years. Countrywide currently operates as a subsidiary of Bank of America but does not currently originate new loans.
Assistant Attorney General for the Civil Rights Division, Thomas Perez said, 'We are using every tool in our law enforcement arsenal, including some that were dormant for years, to go after institutions of all sizes that discriminated against families solely because of their race or national origin.'
BAC closed Wednesday's regular trading session at $5.23, up $0.06 or 1.16% on a volume of 203.60 million shares, lower than the three-month average volume of 274.75 million shares.
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