Less than a week after Consumer Financial Protection Bureau director Richard Cordray’s nomination cleared the Senate, the CFPB initiated its first loan officer compensation action against a midsized non-depository, as well as its president and vice president, seeking civil monetary penalties, restitution and legal costs for paying loan officers quarterly bonuses. Importantly, the complaint noted that the written employment agreements used by the company made no mention of such bonus plans, and there was no written description of how the bonuses were calculated. Indeed, the failure to maintain such records was in and of itself a basis for seeking relief. Separately, of course, the complaint sought damages for improper steering. According to the complaint, the bonuses were correlated to the terms of the loans generated over the prior quarter, although the complaint made no mention of the proof for this conclusion. The company is denying the allegations.
It goes without saying that this should be a giant wake-up call for non-depository lenders and community banks.
This action by the CFPB will likely spur additional complaints by other regulators and borrowers against other companies. In essence, the dam has now been broken and it is a decent bet that this is the first of many lawsuits and enforcement actions under the LO comp laws to be brought against lenders, and their officers and directors, for violations of the amendments to Regulation Z. As such, lenders must adopt and implement written compensation and adhere religiously to the terms of such plans without exception. The warning shot has been fired. I hope everyone out there is listening
