In April, a $6.25 million settlement in a class-action lawsuit against GMAC was announced. That settlement now awaits a judge’s approval. If approved, the settlement will resolve claims that GMAC was illegally involved in kickbacks in its use of force-placed insurance. According to the lawsuit, GMAC paid fees to a reinsurer that were higher than the value of the services the reinsurer provided. Those fees were allegedly passed on to homeowners, who were forced to pay not only for their insurance but also the reinsurance fees. Approximately 66,000 reinsured loans are covered by the settlement.
This is not the first case involving GMAC and allegations of wrongdoing concerning force-placed insurance. In April 2012, a lawsuit was filed in the US District Court, Southern District of New York, alleging the company illegally accepted kickbacks in exchange for using force-placed insurance. The class-action lawsuit, filed on behalf of residential mortgage borrowers who were charged costs associated with force-placed insurance on loans serviced by GMAC from March 6, 2003 on, alleged Balboa Insurance was required to pay kickbacks to GMAC in the form of commissions. Those commissions were actually paid to a GMAC affiliate and designated as commissions to hide that they were in fact kickbacks, the lawsuit alleged. Furthermore, according to the lawsuit, the cost of the fake commissions was passed on to the mortgage borrowers.
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Regulators are getting involved, with some announcing investigations into force-placed insurance practices. In Florida, two companies were recently told to change their practices. Meanwhile, plaintiffs in the GMAC lawsuit wait to hear if their settlement is approved