Alert August 06, 2013

CFPB Files Complaint Against Mortgage Company over Loan Originator Compensation Incentives

The CFPB filed a complaint in the United States District Court for the District of Utah against a mortgage company and two of its principals, alleging that the mortgage company gave bonuses to loan originators who steered consumers into mortgages with higher interest rates in violation of the Consumer Financial Protection Act and the Federal Reserve Board’s 2010 compensation rule, which prohibits any person from compensating a loan originator based on a term or condition of a mortgage loan. In particular, the CFPB alleged that in an attempt to circumvent the 2010 compensation rule issued by the FRB, the mortgage company paid quarterly bonuses to loan officers in amounts that varied based on the interest rates of the loan. The CFPB further alleged that the mortgage company did not refer to the quarterly bonus program in its written compensation agreement with its loan officers, nor did the mortgage company refer to the quarterly bonus plan in any written policies—in violation of the CFPA and the record retention requirements of Regulation Z.