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(Reuters) - Bank of America Corp (BAC.N) has agreed to settle U.S. Department of Justice civil accusations that it violated federal laws by discriminating against mortgage applicants on the basis of disability.
The accord resolves allegations the second-largest U.S. bank, which made about $152 billion of first mortgages in 2011, imposed extra burdens on borrowers who relied on Social Security disability insurance income to qualify on home loans, including that they provide letters from doctors to document that income.
Bank of America's activity violated the Fair Housing Act and Equal Credit Opportunity Act, the Justice Department said.
While the cost of the settlement is unclear, Bank of America agreed to pay $1,000, $2,500 or $5,000 to eligible mortgage loan applicants who were asked to provide doctors' letters.
It also agreed to hire an outsider to review 25,000 loan applications to identify other possible victims and to improve the training of underwriters and loan officers.
"Loan applicants with disabilities should not be subjected to invasive requests for medical information from a doctor when they are applying for credit," said Thomas Perez, assistant attorney general in the Justice Department's civil rights unit.
Bank of America denied the allegations in agreeing to the settlement, which requires approval by the federal court in its hometown of Charlotte, North Carolina.
The bank had been charged with discrimination in February by the Department of Housing and Urban Development, which referred the matter to the Justice Department. Bank of America changed its documentation policies during the HUD probe.
"The government's position has been inconsistent regarding whether a doctor's note should be requested," the bank said in a statement. "HUD determined this policy is in compliance for its loans, yet suggests it somehow violates the Fair Housing Act for non-HUD loans. Same statute, same alleged conduct, different result. We're being accused of wrongdoing by the government for following a policy that the government approved."
Borrowers who filed the original three complaints with HUD will receive a total of $125,000 in compensation, the Justice Department said.
The case is U.S. v. Bank of America NA, U.S. District Court, Western District of North Carolina, No. 12-00605.
Reporting By Jonathan Stempel in New York and Rick Rothacker in Charlotte, North Carolina; editing by Carol Bishopric and Andre Grenon