Suit claims Fidelity abuses homeowners
BusinessWeek - The Associated Press - January 23, 2008, 2:55PM ET
Homeowners have sued Fidelity National Information Services Inc., a giant financial data-processing company, accusing it of raising the price that cash-strapped consumers must pay to avoid foreclosure of their homes.
The lawsuit, filed Jan. 16 in the U.S. Bankruptcy Court in Houston, contends that Fidelity has conspired with mortgage-servicing companies and law firms to "add to the indebtedness" of homeowners by tacking on secret fees that remain undisclosed for years.
"The fees the Fidelity-controlled law firms charge in Chapter 13 bankruptcies are inflated by 25 percent to 50 percent," the lawsuit asserts. The law firms, it says, then "kick back" the extra amount to Fidelity under a formal agreement under which the law firms' fees are set. "Fidelity keeps its role, as well as the kickback, hidden from the courts as a matter of systematic policy."
A spokesman for Fidelity, Michelle Kersch, said Tuesday that the "lawsuit is without merit, and appears to be an attempt to profit from the current wave of anti-lender sentiment created by the increase in subprime mortgage foreclosures." She denied the kickback and fee-sharing allegations and said the company is "eager for its day in court."
The lawsuit involves the Jacksonville, Fla., company's "default management services" business, which handles bankruptcies and foreclosures for mortgage companies. That business has accounted for much of the recent revenue growth in Fidelity's lender-processing-services operations, according to filings with the Securities and Exchange Commission.
Fidelity counts Washington Mutual and Bank of America among the biggest clients of its default-management services. The company says it handles default mortgage servicing for 22 of the top 25 residential mortgage servicers, and 13 of the top 25 subprime servicers.
According to the lawsuit, Fidelity and its default-management business are "merely middlemen who, in effect, sell the legal business of their mortgage-servicing customers, and secretly control and direct counsel who appear on behalf of those mortgage-servicer customers."
That, the lawsuit says, runs afoul of bankruptcy court rules requiring the disclosure of fees and ethical rules banning fee-splitting by lawyers, a practice in which law firms pay for client referrals. Kersch, the Fidelity spokeswoman, said law firms don't pay kickbacks, but they do pay to access the company's Web-based technology, which gives them data on a particular mortgage.
Fidelity contracts with law firms, cited as evidence in the lawsuit, show that lawyers who sign on to service Fidelity's mortgage clients are allowed to charge $300 to start foreclosure proceedings against a consumer in Chapter 7 bankruptcy. If it's a Chapter 13 case, the lawyer can charge $400 for filing the motion to start foreclosure. Fidelity gets $100 from the lawyers who file the motions, whether it's a Chapter 7 or a Chapter 13 case, according to its "network fees for services schedule.