On November 13, the Consumer Financial Protection Bureau ordered a California mortgage lender to pay $730,000 for allegedly paying its loan originators compensation based on loan terms. The CFPB has asked the United States District Court for the Central District of California to approve a consent order requiring the company to end its allegedly illegal compensation system and to issue refunds to the consumers that were allegedly harmed.
The loan originator compensation rule prohibits mortgage lenders from paying loan officers based on loan terms such as interest rates. The rule, enforced since 2011, is intended to protect borrowers from being steered into more expensive loans. The mortgage lender in question allegedly changed its compensation system in 2011 to comply with the rule but retained the system of quarterly bonuses based in part on the interest rates on the loans they provided to borrowers – the higher the interest rate of the loans closed during the quarter, the higher the loan officer’s quarterly bonus.
The complaint filed by the CFPB reflects that the CFPB considers the harm to consumers to be equal to the amount of the improper bonuses paid to the loan originators. Once again, the CFPB is sending a clear signal that the loan originator compensation rule remains one of its enforcement priorities and, if a lender pays its loan originators compensation based on interest rates or origination fees, the CFPB may order the lender to pay that amount (or more) to consumers as well.