Loandepot faces claims of 'smoke and mirrors' rate scheme

Borrowers suing Loandepot are sharing alleged evidence of the lender's scheme to steer borrowers to higher rates and deprive its loan officers of their full compensation. 

The latest filing in a Truth in Lending Act lawsuit cites emails, screenshots and the testimony of three LOs discussing the company's actions to circumvent the loan officer compensation rule. Four Loandepot borrowers filed an amended complaint last week, after the lender said their initial filing was full of threadbare allegations.  

The class action lawsuit claims Loandepot since 2019 has offered customers inflated rates, and punished LOs who couldn't close on those terms with reduced, or no commission. The company hid its supposed LO Comp violations via "sham transfers" to internal loan consultants, as the original LO performed all the work and the ILC may have not even existed. 

LOs who made false excuses for the ILC transfers saw their commission reduced from an average of 100 basis points to 30 basis points, while those who did not comply received no compensation. 

Borrowers want to certify a class of consumers who didn't have their loans transferred to an ILC, who therefore allegedly paid higher rates. The class spans at least thousands of customers, and plaintiffs are seeking potentially massive damages including the sum of finance charges and fees paid by affected borrowers. 

Loandepot declined to comment Tuesday on the latest filing, while an attorney for the borrowers didn't reply to a further request for comment. 

Borrowers respond to Loandepot with more evidence

The amended complaint paints Loandepot's behavior as a "front-load and discount strategy" as outlined in a 2013 regulatory filing. The illicit process features a lender offering a higher commission tied to inflated interest rates, and decreasing compensation based on the terms of the loan. 

Attorneys cited testimony from a different case involving Loandepot, in which its LOs said they weren't sure if the ILC was a real person. 

"It was three-card monte," said one LO. "It was literally just smoke and mirrors."

The testimony came from Loandepot's 2023 poaching lawsuit against Movement Mortgage, which the sides agreed to dismiss last summer. In the months preceding the dismissal, an attorney for Movement, in a letter to the court, suggested employees departed Loandepot for Movement in part because of the unlawful commissions scheme. 

A press contact for Movement didn't return a request for comment regarding the accusation or whether the sides had reached a settlement last July. 

Last week's filing included alleged screenshots from Loandepot's Mello software showing managers explaining ILC transfers, and emails between managers discussing transactions. 

One of those purportedly shows John Bianchi, the company's former executive vice president and national production manager of distributed retail, telling other managers to make an ILC transfer prior to a pricing exception request, stating it "becomes problematic" to do the transfer after the fact. 

The complaint also claims "high level executives," including Bianchi and current Human Resource Director Michelle Alexander, told LOs the practice of eliminating compensation on loans transferred based on pricing was approved by the Consumer Financial Protection Bureau. 

Bianchi and some other employees mentioned in the lawsuit are no longer with Loandepot. Plaintiffs have not named any individuals as defendants alongside the larger company.

The sides are also disputing a TILA statute of limitations. While plaintiffs originated their loans between 2019 and 2021, they say they only became aware of the alleged scheme last December. 

Neither further deadlines nor hearings have yet been scheduled in the federal court docket. 

Loandepot, one of the nation's largest originators and servicers, is seeking to turn its fortunes under founder and CEO Anthony Hsieh's return to the helm. The company in August rehired leaders who developed the mello platform, and tasked them to help steer the lender's tech future.