In the seemingly never ending saga of legal actions against the nation’s big banks – and sometimes their foreign counterparts as well – the action usually plays out on a government stage of the highest level, with lawsuits brought by state officials or the Justice Department itself. But a recent lawsuit discreetly settled by Bank of America without naming an amount is noteworthy because it was pressed not by those government entities but by victims themselves.

That lawsuit, filed on behalf of a couple of property owners, names Bank of America – who else? – but also involved HSBC Holdings Plc, a British – based banking and financial services company with branches in several countries including the US. It accuses the defendants, but particularly Bank of America, of rate fixing in the forced place insurance they imposed on risky borrowers.

Homeowners insurance and its close relation, landlord’s insurance, are a familiar part of property ownership. Policies like these protect owners of residential property in the event of a variety of problems. But forced, or forced place, insurance is different. This is a kind of policy that’s placed by banks or mortgage lenders on houses and other high-end purchases such as cars as protection if it seems that a borrower doesn’t have enough coverage, or if their own insurance policy lapses. In this way, the bank has some protection against losses.

But the problem arises with the source of that insurance. Bank of America, and in similar cases, JP Morgan Chase and Citigroup, were accused of force placing insurance at far higher rates than policies available elsewhere. The case was settled before it reached the courtroom. Though the amount of Bank of America’s settlement in this instance wasn’t disclosed by attorneys, Chase and Citigroup settled on this issue for around $100 million each.

It may seem that news that the big banks blinked yet again when faced with charges of bad faith and manipulation doesn’t have much impact on the average borrower – or investors hoping to build wealth through income property, like Jason Hartman

advises. But unlike many of the other legal actions pressed by state and federal officials, this one was oressed by individuals who claimed they were unfairly charged for the insurance.

And though the case assumed a higher profile than it might have done with smaller financial institutions as the defendants, and the amounts these firms settled for represents a drop in the bucket of their holdings, it demonstrates that in some cases, an angry David can bring the banking Goliath to its knees. (Top image:Flickr/road-to)

Source:

Smytbe, Christie and Susannah Nesmith. “HSBC. BofA Reach Forced Insurance Accords, Lawyers Say.” Bloomberg Business, Bloomberg.com. 14 Feb 2014\

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