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Financial Services Law Insights and Observations

CFPB Settles With Mortgage Company, Senior Executives Over Alleged Loan Officer Compensation Practices

CFPB Mortgage Origination Compensation Enforcement

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On November 7, the CFPB announced it reached a settlement with a mortgage company and two of its executives accused of using compensation to incentivize loan officers to steer consumers into costlier mortgages. The proposed consent order, entered jointly and severally against the company and the individual executives, requires the defendants to pay more than $9 million in restitution to over 9,400 consumers and a $4 million civil money penalty. In addition, all defendants are subject to regular and mandatory compliance reporting and monitoring for a period of three years and are permanently enjoined from paying compensation to loan officers in a manner that violates the Loan Originator Compensation Rule. The order also mandates that the company maintain compensation records in compliance with federal law going forward. The defendants do not admit the CFPB’s allegations.

The settlement resolves an action commenced by the CFPB in July 2013 in which the CFPB employed its civil litigating authority to charge that the company’s quarterly bonus program violated the Federal Reserve Board’s Loan Originator Compensation Rule and other consumer financial protection laws by, among other things, incentivizing loan officers to steer consumers into loans with higher interest rates. According to the complaint, after the rule took effect in 2011, the defendants eliminated from their compensation program any written reference to compensation based upon loan terms or conditions, but in practice continued to adjust loan officers’ quarterly bonuses based on the interest rates of loans closed during the quarter. The case was referred to the Bureau by the Utah Department of Commerce, Division of Real Estate.

BuckleySandler recently hosted a webinar about this CFPB action and impending changes to mortgage loan originator compensation rules. Please contact any of the attorneys below for materials from the webinar or with any questions about this action or the new mortgage loan originator regulations.

 

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