WASHINGTON — RPM Mortgage and its chief executive are facing $20 million in fines on allegations that the company violated the loan originator compensation law enforced by the Consumer Financial Protection Bureau.
The CFPB said Wednesday it filed an order and complaint in federal court against the Alamo, Calif.-based lender and CEO Erwin Robert Hirt for allegedly paying bonuses and higher commissions to loan originators for steering consumers into costlier mortgages. RPM has agreed to pay a $1 million civil money penalty as well as $18 million in redress for affected consumers, while Hirt will pay an additional $1 million penalty. The fines are pending approval by the court.
"RPM rewarded its loan officers for steering consumers into mortgages with higher interest rates," said CFPB Director Richard Cordray in a press release. "Today we are putting an end to RPM's unlawful practices and holding Robert Hirt personally responsible for his involvement in them."
The CFPB said RPM created a compensation plan in 2011 that paid more to loan originators who allegedly steered consumers into mortgages with higher interest rates. The compensation varied but was based partly on the interest rate of the loan, according to the bureau. Hirt was cited for allegedly orchestrating the compensation package.
The agency said RPM "sought to mask" the scheme by filtering the interest-rate-based compensation through what appeared to be employee expense accounts.
"RPM deposited profits from an originator's closed loans — profits that were directly tied to the loans' interest rates — into an expense account set up for the originator," the CFPB said in the agency's press release. "RPM used the expense accounts to pay bonuses and higher commissions to its loan originators."
Although the CFPB order said RPM agreed to the fines, a company spokeswoman objected to claims made in the agency's press release.
The "press release claims that RPM loan officers steered consumers into higher cost loans, but the CFPB's own complaint does not support this claim," Jill Sonderby, senior vice president of marketing and communications, said in an email to American Banker. "The complaint does not allege that steering actually occurred or that RPM's customers paid higher costs. Instead, the CFPB's complaint alleges only that RPM's 2011-2013 compensation policies created an incentive to steer. As stated in our press release, there is no evidence to support a claim that RPM customers paid higher costs."
According to the bureau, between April 2011 and January 2012 RPM paid 511 bonuses to loan originators from their individual employee-expense accounts.
Loan originators were also allowed to dip into these expense accounts in order to offset interest-rate reductions or credits that were given to certain consumers so they would not lose that client to a competitor, the CFPB said. The arrangement "allowed loan originators to 'bank' profits extracted from certain consumers that enabled them to close on and receive additional compensation from loans to future consumers," the agency said.
"RPM paid or financed millions of dollars in unlawful bonuses, pricing concessions, and supplemental commissions," the agency said.
In a statement, the company said while it has complied with loan originator rules, it opted for a settlement with the CFPB rather than incur the cost of a court battle.
"The company has always taken great care to provide outstanding service and highly competitive rates while complying with the rules governing loan originator compensation, despite the limited and sometimes confusing guidance provided by regulators," Hirt said in a press release.
"The company chose to settle this matter without an admission of wrongdoing in order to avoid the cost and distraction of litigation. RPM values its reputation as a respected mortgage lender and has maintained from the beginning of the investigation that all of its compensation policies were and are fully compliant with the law."
The CFPB said RPM eventually did stop paying the bonuses from the employee-expense accounts, but the bureau alleges the lender continued to allow originators to use those accounts to supplement their commissions on future loans.
"In this way, profits from earlier high-interest loans were converted into tens of millions of dollars in commission income," the CFPB said.
RPM and Hirt were cited for violating the Loan Originator Compensation Rule and the Consumer Financial Protection Act for activities dating from 2011 through 2013.
