CFPB Complaint Over Bonuses Linked to Loan Terms

A Utah-based mortgagerncompany is being accused of paying its employees for steeringrncustomers into higher priced mortgages. The Consumer FinancialrnProtection Bureau (CFPB) has filed a complaint in the U.S. DistrictrnCourt against Castle & Cook Mortgage, LLC and its presidentrnMatthew A. Pineda and senior vice-president of capital markets BuckrnL. Hawkins for violations of the Federal Reserve Board’s LoanrnOriginator Compensation Rule which went into effect on April 6, 2011.rn</p

CFPB alleges that therncompany paid quarterly bonuses ranging from $6,100 to $8,700 to morernthan 150 of its loan officers who had persuaded consumers to take onrnloans with higher interest rates. By contrast those loan officersrnwhose customers did not take such loans did not receive bonuses. CFPB said some 1,100 illegal bonuses may have been paid and tens ofrnthousands of customers charged higher rates since the Fed rule wentrninto effect. By tying bonuses to the interest rate of the loans inrnthis manner, the CFPB alleges that Castle & Cooke was in directrnviolation of the law.</p

“Todayrnwe are taking action against the type of practices that precipitatedrnthe financial crisis,” said CFPB Director Richard Cordray.rn”Consumers should be able to get a mortgage without worrying aboutrnhow the financial incentives of their loan officers may cause them tornpay higher rates than they actually qualify for.”</p

 Castle & Cooke, founded in 1851, is a privatelyrnheld company operating in a number of fields including aviation,rnhotels, resorts, mining, logistics, and real estate development. Thernmortgage subsidiary was founded in 2005 and does business in 22rnstates and maintains an estimated 45 branch offices. It originatedrnapproximately $1.3 billion in loans in 2012. </p

CFPB also charges the companyrnviolated laws that require companies to retain their compliancernrecords for a certain period of time. The complaint alleges thatrnCastle & Cooke did not record what portion of each loan officer’srnquarterly bonus was attributable to a particular loan and did notrnreference its quarterly bonus program in each loan originator’srncompensation agreement, in violation of federal consumer financialrnlaw. </p

CFPB is seeking restitution forrnconsumers of Castle & Cooke who may have been sold the morernexpensive loans and is asking the court to end the unlawfulrncompensation practice of tying bonuses based on the interest rates ofrnloans sold and to ensure that the company retains appropriaterncompensation records. The Bureau is also looking for civil moneyrnpenalties. The Dodd-Frank Act’s three tiered framework of civilrnpenalties allows fines of up to $5,000 for each violation (in thisrncase a bonus); up to $25,000 for each reckless violation, and up torn$1 million for each knowing violation. </p

This case was referred to the CFPB byrninvestigators with the Utah Department of Commerce, Division of RealrnEstate.

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