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CFPB Sends Strong Message

By Billy Snider, Esq.

The Consumer Financial Protection Bureau (“CFPB”) inflicted some pain upon a Utah mortgage bank in the form of damages and penalties in excess of $13 million dollars.  The money is part of a November 7, 2013 proposed settlement of an enforcement action brought by the CFPB for alleged violations of the Regulation Z loan originator compensation rule (“LOC Rule”). 

The suit was filed on July 23, 2013 in the U.S. District Court for the District of Utah.  In its complaint, the CFPB alleged that the lender, Castle & Cooke Mortgage, LLC, and two of its officers, “developed and implemented a scheme by which the Company would pay quarterly bonuses to loan officers in amounts that varied based on the interest rates of the loans they originated-the higher the interest rates of the loans closed by a loan officer during the quarter, the higher the loan officer’s quarterly bonus.” CFPB v. Castle & Cooke Mortgage, LLC, et al., Case No. 2:13CV684DAK (“The Complaint”).    The LOC Rule, which was part of the 2010 RESPA reform passed in the wake of the financial crisis, prohibits a loan originator from receiving “compensation in an amount that is based on any of the transaction’s terms or conditions.” 12 C.F.R. § 1026.36(d)(1(i). 

The complaint also alleged that the bonus system was not reflected in any compensation agreements, and that the company failed to maintain a written policy explaining the method used to calculate the bonuses.  Despite this, the bonuses were reflected in the payroll records, without any indication as to what portion of a bonus was attributable to a particular loan.  In addition, the CFPB claimed that the defendants violated the LOC Rule’s record keeping requirements. See The Complaint.

The proposed consent order, which needs to be approved by the court, provides for the following:

Monetary damages in the amount of $9,228,896; a civil penalty in the amount of $4 million; a permanent injunction against the defendants from violating the LOC Rule; and a requirement that evidence of compliance with the LOC Rule be maintained.

This case is of note for three reasons: 

(1) The CFPB has once again served notice that it is going to aggressively pursue parties it believes to have wronged consumers, even when that wrong is not readily apparent from the face of the transaction; (2) by including the two officers of the company in the suit, CFPB Director Cordray has remained true to his stated commitment to not only go after companies, but the individuals doing “bad things under the umbrella of the company”; and (3) the size of the settlement is consistent with CFPB enforcement actions in the past, and continues to send the message that if you violate federal consumer laws, the CFPB will find you, and when they do, you are going to pay.