Alert November 12, 2013

CFPB Settles with Mortgage Company over Loan Originator Compensation Incentives

The CFPB announcedproposed consent order against a mortgage company and two of its senior officers, alleging that the mortgage company, through the actions of such officers, steered consumers into mortgages with higher interest rates in violation of the rules governing loan originator compensation. The settlement follows a complaint filed by the CFPB alleging that the mortgage company paid loan officers quarterly bonuses that varied based on the interest rate of the loans they offered to borrowers 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 (see August 6, 2013 Alert). The CFPB also 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.

The terms of the consent order require the mortgage company to pay $4 million in civil money penalties and provide restitution of over $9 million to consumers. The mortgage company is also required to end unlawful compensation practices, and for 3 years following the effective date of the consent order, to submit compliance reports as requested by the CFPB and to create, retain and make available to the CFPB upon request all records necessary to demonstrate full compliance with the consent order, including records detailing all compensation paid to loan originators and how such compensation was calculated.