There's a Right Way and a Wrong Way to Hire Another Lender's LO
It is more common than one might think for an employee leaving one lender for another to either solicit staff before they leave, move or hold potential loans, or take information to their new employer. There is a right way and a wrong way to switch from one lender to another and making the wrong choice rarely creates a business advantage — as one lender recently learned.
A California jury's decision in March against the lender is a lesson to the tune of $25 million. The verdict was based upon the fact that the lender encouraged its new hire by attaching a bonus to the initial period of employment for engaging in actions constituting a data breach.
Sadly, experience narrates that, in most cases, employees leaving lenders show little consideration of the fiduciary duties owed to the prior lender, nor the fact that most of the information they have access to may be considered trade secrets and/or information proprietary to that employer. Further, the lenders hiring these individuals similarly often fail to appreciate the role they can play in promoting or incentivizing such practices.
The bottom line is that reckless and secretive actions, such as those the exiting employee undertook, needlessly create significant risk for the new employer. Lenders should pay close attention to this verdict and consult with counsel as to what to do, and what not to do, when hiring loan officers from a competitor.
Ari Karen is a partner at Offit Kurman and CEO of Strategic Compliance Partners.