$20 million class action settlement centers around licensing, overcharging
By LISA D. BURDEN
5/17/2004

Minneapolis-based US Bancorp has agreed to pay $20 million to settle a class action lawsuit brought by consumers who alleged that they were charged mortgage loan fees that violated some state laws. The loans were originated and purchased from a now defunct subprime lender.

As many as 12,000 people in 20 states stand to get anywhere from $461 to $7,500, depending on how each affected state's laws are written.

But the bank didn't originate the loans -- worth an estimated $13.0 billion -- it purchased them from a company, FirstPlus Financial of Dallas, that no longer exists because it filed for bankruptcy protection. Under federal law, buyers of mortgages can be held responsible for overcharges.

Karl Cambronne, a Minneapolis attorney who is representing the borrowers, said the bank purchased the secondary loans in the late 1990s as part of a securitized pool. As is customary for such transactions, the loans came with warranties and representations that the loans were in compliance with various state and federal laws. In addition, FirstPlus, at the time one of the largest players in the second mortgage market, also agreed that if the loans ran afoul of state lending laws, the company would reimburse the bank for the costs.

Problems with the loans surfaced when FirstPlus went out of business. Cambronne said two problems came to light with the loans. He said that borrowers were charged "huge" upfront fees in order to get the loans and that some of the people who originated the loans on behalf of FirstPlus did not have proper licensing from state authorities.

"They had no inkling," Cambronne said about the bank. "The loan files indicated compliance with state lending laws."

Rick Solum, U.S. Bancorp's attorney, said the bank sampled the loans for compliance with federal laws, HUD requirements and for the credit quality of the borrowers.

The settlement is expected to be filed with the court this week.

Solum said the bank has already sold the loans and that it gave similar warranties and representations.

"These loans are sold in big bundles," Cambronne said. "Unfortunately, for this particular one, these loans had some barnacles on them and the law dictated that U.S. Bank stand good for these problems," he said.

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