Last month, the CFPB ordered Guarantee Mortgage Corporation, a small California mortgage bank, to pay $228,000 in civil penalties. Guarantee Mortgage, which is no longer in business, allegedly violated the Loan Origination Compensation Rule by paying branch managers based on loan interest rates.
So, why are we writing a blog post about a relatively insignificant penalty against a small, out-of-business mortgage company on the other side of the country?
There is more than meets the eye to this one.
The Guarantee Mortgage Consent Order tells a lot about how the CFPB is approaching its enforcement responsibilities. There are several important points for all financial institutions to note. To highlight two very important lessons from the curious case of Guarantee Mortgage:
- No such thing as too small to care. Guarantee Mortgage operated about 10 branches in the San Francisco Bay area. That makes it a relatively small player in a crowded mortgage business. We frequently see the CFPB go after the biggest names in each regulated industry, but this case reminds us that all companies, regardless of size, are ‘fair game’.
Many installment lenders are of the (erroneous) opinion that the CFPB is only interested in large companies that can pay multi-million dollar orders. And, while the CFPB certainly does seem to tout its scorecard from time to time, companies like Guarantee Mortgage and RealtySouth will tell you that is not always the case.
Earlier this year, Deputy Director Steven Antonakes outlined the CFPB’s enforcement approach explaining, “[G]iven our consumer-protection mandate, we focus on risks to consumers rather than risks to institutions.” Additionally, he noted, “[W]e conduct our examinations by product line rather than an institution-centric approach.” In other words, the CFPB is more concerned with the products offered rather than the name or size of the company.
- You can run, but you can’t hide. Guarantee Mortgage is no longer in business. As of June 2015, it was in the process of legally dissolving.
So how is the CFPB going to enforce a penalty against a dissolved entity? By disregarding corporate protection, of course. The Consent Order explains, “To the extent that Respondent lacks the financial resources to pay the full civil money penalty, Respondent must obtain contributions from Respondent’s individual owners sufficient to pay the full penalty.” Keep in mind this was a consent order, meaning the company and its owners agreed. I am guessing this part of the order was not their idea.
For those who are planning to pack-up, hand over the keys, and retire to the farm the day the CFPB arrives, pay attention. Put simply, if your company cannot pay, you may have to write a personal check.
If the multi-million dollar orders don’t scare you, this one should.