CFPB Punishes Mortgage Company for Steering Customers to More Pricey Loans

The Consumer Financial Protection Bureau (CFPB) recently filed a complaint in federal district court against a Utah-based mortgage company, Castle & Cooke Mortgage LLC, and two of its officers for illegally giving bonuses to loan officers who steered consumers into mortgages with higher interest rates.

Castle & Cooke is a mortgage company that originated approximately $1.3 billion in loans in 2012. The company does business in approximately 22 states and maintains approximately 45 branches across the country.

The CFPB alleges that Castle & Cooke, through the actions taken by its president, Matthew A. Pineda, and senior vice-president of capital markets, Buck L. Hawkins, violated the Federal Reserve Board’s Loan Originator Compensation Rule that had a mandatory compliance date of April 6, 2011. That rule banned compensation based on loan terms such as the interest rates.

The CFPB alleges that the company violated the rule with its quarterly bonus program, which paid more than 150 Castle & Cooke loan officers greater bonus compensation when they persuaded consumers to take on more expensive loans. The average quarterly bonus ranged from $6,100 to $8,700. By contrast, those loan officers who did not charge consumers higher interest rates did not receive quarterly bonuses. The CFPB estimates that more than 1,100 illegal quarterly bonuses were paid and that tens of thousands of customers may have been up-sold since April, 2011. By tying bonuses to the interest rate of the loans in this manner, the CFPB alleges that Castle & Cooke was in direct violation of the law.

The CFPB also believes Castle & Cooke violated laws that require companies to retain their compliance records for a certain period of time. Creditors are required to retain evidence of compliance with the rule. The complaint alleges that Castle & Cooke did not record what portion of each loan officer’s quarterly bonus was attributable to a particular loan and did not reference its quarterly bonus program in each loan originator’s compensation agreement, in violation of federal consumer financial law.

The CFPB’s complaint seeks to:

  • End unlawful compensation practices: The complaint seeks to prohibit Castle & Cooke from continuing its practice of incentivizing loan officers to up-charge consumers by distributing quarterly bonuses based on the interest rates of loans sold.
  • Ensure that Castle & Cooke retain records of compensation: The complaint seeks to ensure that Castle & Cooke complies with federal law requiring creditors to retain evidence of compliance.
  • Secure restitution for consumers: The CFPB is looking to secure restitution for consumers of Castle & Cooke who may have been up-sold.
  • Obtain civil money penalties: The CFPB is looking to obtain civil money penalties for each bonus paid out. The Dodd-Frank Wall Street Reform and Consumer Protection Act allows civil penalty amounts to be determined under a three-tiered framework: up to $5,000 for any violation; up to $25,000 for reckless violations; and up to $1,000,000 for knowing violations.

This case was referred to the CFPB by investigators with the Utah Department of Commerce, Division of Real Estate. The complaint was filed in the United States District Court for the District of Utah, where the company is located and where the individual defendants reside.

This case highlights the importance of complying with Federal Consumer Protection regulations for credit unions. Credit unions should ensure they are in compliance with the new requirements for the Loan Originator Compensation Rule prior to the January 10, 2014 effective date.

 

Questions? Contact the Compliance Hotline: 1.800.546.4465, compliance@nwcua.org.

Posted in Compliance.