CFPB Sues Lender for Violations of LO Comp Rule

The Consumer Financial Protection Bureau has sued a Salt Lake City-based mortgage lender for allegedly violating the loan officer compensation rule by paying bonuses to LOs that charge consumers higher interest rates.

Loan officers at Castle & Cooke Mortgage LLC that “didn’t charge higher rates did not receive quarterly bonuses,” according to the CFPB.

“We are taking action against the type of practices that precipitated the financial crisis,” said CFPB director Richard Cordray. “Consumers should be able to get a mortgage without worrying about how the financial incentives of their loan officers may cause them to pay higher rates than they actually qualify for,” he said.

The consumer bureau is alleging that Castle & Cooke violated the LO compensation rule approved by the Federal Reserve Board which went into effect in April 2011. The Fed rule prohibits lenders from creating incentives that could encourage LOs to steer borrowers into higher-priced loans.

The CFPB claims 150 of Castle & Cooke’s loan officers received quarterly bonuses ranging from $6,100 to $8,700 for charging higher rates. The bureau estimates 1,100 of the bonuses were illegal.

Castle & Cooke did not immediately respond to a request for comment on the CFPB lawsuit which also cites the company’s president Matthew Pineda and senior vice president Buck Hawkins individually for the alleged violations. It later denied the allegations.

The CFPB is seeking restitution for borrowers that were allegedly harmed by the lender’s action along with civil money penalties.

C&C Mortgage is the 85th largest lender in the U.S. after originating $332 million in loans in the first quarter, according to the NMN Quarterly Data Report.