Consumer Financial Protection Bureau v. Castle & Cooke Mortgage, LLC (U.S. District Court – District of Utah, Central Division Case No. 2:13CV684DAK)
Loan originator compensation rules prohibit any person from paying a loan originator based on any terms of a loan.
A Utah-based mortgage company, Castle & Cooke Mortgage LLC (Castle & Cooke) began offering and providing mortgage loan products to consumers in 2005. In 2013, at the time of the complaint, Castle & Cooke employed 330 individuals in around 45 branches. It practiced in 22 states in the nation, and originated approximately $1.3 billion in loans in 2012.
Among its employees are loan originators who interact directly with borrowers. Castle & Cooke pay the loan originators to assist borrowers in obtaining mortgage credit.
Prior to April 2011, when the loan compensation rules went into effect, Castle & Cooke paid its loan originators commissions based on the interest rates of the loans originated. The higher the rate, the higher the commission.
To avoid this blatant violation of the loan compensation rules, Castle & Cooke devised a scheme to pay quarterly bonuses to loan originators. These bonuses varied depending on the interest rates of loans originated during the quarter. Again, the higher the interest rates of the loans originated, the higher the bonus. This policy was not written in any of the company’s policies. The policy of paying bonuses based on higher interest rates continued past the April 2011 deadline for implementation of the loan originator compensation rules.
The CFPB determined that, since the implementation date, Castle & Cooke had paid out more than 500 quarterly bonuses. Each of these bonuses was a discrete violation of the loan originator compensation rule.
Further, Castle & Cooke’s failure to document their calculation of, or even the existence of the bonus structure violated the requirement to keep records of the compensation provided to loan originators.
The CFPB’s complaint sought to:
The CFPB’s complaint sought to:
- prohibit Castle & Cooke from incentivizing its loan originators to upcharge borrowers based on interest rates of the loans originated;
- compel Castle & Cooke to pay restitution to borrowers harmed by their conduct;
- impose civil penalties against Castle & Cooke for their violations; and
- order Castle & Cooke to pay the CFPB’s costs in the action, and any other damages deemed appropriate by the court.
This complaint was filed in 2013, and has yet to be resolved by the CFPB and Castle & Cooke. However, recall the minimum civil penalty collectible is $5,000 per violation. As each of the 500 bonuses paid is considered a separate violation, the penalties alone will amount in over $2.5 million dollars.
Although the complaint did not address the individual loan originators’ roles in the alleged transgressions, recall that the loan originator compensation rules forbid both any party from paying bonuses in violation of the rules, and the loan originators from accepting payment in violation of the rules. Thus, each loan originator may be held separately liable for accepting a bonus based on a violation of the loan originator compensation rules.
Nice! Try recovering from that one. :0)
