June 16, 2015

The CFPB Renews Enforcement Emphasis on the Loan Originator Compensation Rule

2 min

In back-to-back enforcement actions, the CFPB announced proposed consent orders involving two mortgage companies and their respective CEOs, pertaining to alleged violations of the Loan Originator Compensation (LO Comp) rule under Regulation Z for payment of loan originators based on the terms of loans they originated.

On June 4, 2015, the CFPB entered into a proposed consent order against a California mortgage company and its CEO. In its complaint , the CFPB alleged that the mortgage company and CEO had violated the LO Comp rule and the Consumer Financial Protection Act (CFPA) by maintaining a compensation plan that rewarded loan officers for steering consumers into higher-rate mortgages. Specifically, the CFPB alleged that the company created "employee-expense accounts," funded through compensation based on profits from closed loans, from which loan officers could receive periodic bonuses and grant "price concessions" to consumers. In addition to standard injunctive relief, the company would be required to pay $18 million in restitution to its mortgage customers. Further, both the company and its CEO would be required to pay a $1 million civil money penalty.

On June 5, the CFPB entered into another proposed consent order against a former California mortgage bank. The CFPB alleges that the mortgage bank based the compensation of its loan originators partially on the interest rates charged on loans they had originated. The CFPB found that the mortgage bank had violated the LO Comp rule because the amounts it paid its loan originators varied according to the interest rates on the loans originated. In addition to standard injunctive relief, the bank was ordered to pay a civil penalty of $228,000.