New Lawsuit Accuses Banks of Ripping Off Vets

A whistleblower lawsuit launched in 2006 and unsealed Tuesday in federal court in Atlanta claims several large banks and mortgage companies cheated military veterans and taxpayers out of hundreds of millions of dollars in a "brazen scheme" to hide illegal fees, reports the Associated Press.

The lawsuit, brought under the Federal Claims Act by two mortgage brokers, claims the 13 banks and mortgage firms over-charged veterans who were applying for special home loans guaranteed by the Department of Veterans Affairs.

What's the "scheme?"

Federal rules allow the lenders to charge "reasonable and customary" fees and taxes, according to the lawsuit, but they are barred from charging them attorneys' fees and settlement closing costs for the loans. The firms skirted the rules by charging attorneys' fees by hiding them as "title examination" or "title search" fees.

Veterans were therefore saddled with "excessive and illegal fees at closing," the complaint says.

"This is a massive fraud on the American taxpayers and American veterans," said James E. Butler, Jr., one of the attorneys who brought the case.

The accuses several firms, including Wells Fargo, JPMorgan Chase & Co. and Bank of America, of participating in the scam. The banks have since denied the allegations in related court documents.

More than 1.2 million of the refinanced loans have been made to veterans and their families over the past decade, and up to 90 percent of them were tainted with the alleged fraud, plaintiff's attorneys claim.

The firms reportedly collected $300 to $1,000 with each deal, which could amount to "massive damages" to the federal government, the complaint said.

"Knowing they weren't allowed to charge the fees, the banks and mortgage companies inflated allowable charges to hide these illegal fees without telling the veterans who were the borrowers or the VA they were doing so,"said Butler.

The Associated Press contributed to this story.