M&T Bank, American Security Insurance Co. Facing Suit Over Force-Placed Insurance

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A New Jersey man has filed a proposed class action against M&T Bank Corp. and American Security Insurance Company alleging the companies have an exclusive arrangement to “manipulate the force-placed insurance market” and charge borrowers more for this coverage than permitted.

In a standard mortgage agreement, the lawsuit explains, there is a provision that requires the borrower to maintain hazard, among other types, of insurance on the property securing the loan – and, in the instance that such coverage lapses, gives the bank authority to force-place insurance and expense it to the homeowner. According to the suit, ASIC is the exclusive provider of force-placed insurance coverage for M&T Bank – and, in exchange for this, allegedly pays the bank “gratuitous kickbacks that are mischaracterized to borrowers as legitimate compensation.” The alleged kickbacks, the suit claims, essentially operate as a rebate to the bank on the cost of the coverage – but these savings are never passed on to borrowers.  

“Despite representations to borrowers that they will only be charged for the cost of insurance coverage, and provisions in the mortgage contracts binding them to do so, M&T charges borrowers the cost of coverage plus the amount of the kickbacks; it does not, that is, pass these rebates on to the borrower. M&T deducts the initial, pre-rebate amount from borrowers’ escrow accounts, and attempts to disguise the kickbacks as legitimate by mischaracterizing them as income earned.”

According to the complaint, the relationship between M&T and American Security Insurance has “resulted in extraordinary profits…totaling millions.”