On July 23, 2013, the Consumer Financial Protection Bureau filed a complaint against Utah-based Castle & Cook Mortgage, LLC (Castle) and two of its officers. The CFPB alleges that Castle paid its employees for steering customers into higher-priced mortgages in violation of the Federal Reserve Board’s Loan Compensation Rule.
Effective April 6, 2011, the Loan Compensation Rule bans compensation based on loan terms, such as the interest rate of the loan.
In the complaint, the CFPB claims that Castle established a quarterly bonus program that paid more than 150 loan officers for persuading consumers to take on loans with higher interest rates. The average bonuses ranged from $6,100 to $8,700. Notably, loan officers did not receive bonuses when the consumers received less expensive loans.
The CFPB alleges that Castle developed and implemented a scheme by which it would pay the quarterly bonuses to loan officers in varied amounts based on the interest rates they originated.
Specifically, the CFPB claims that Castle used a “formula that incentivizes loan officers to steer consumers into mortgages with less favorable terms.”
Castle is also charged with violations of the record-retention requirements. Although Castle is alleged to have maintained payroll records of the quarterly bonus amounts paid to loan officers, the company did not record what portion of the loan officer’s quarterly bonus was attributable to a given loan.
Under Dodd-Frank’s three-tiered framework, the CFPB may seek civil monetary damages including, $5,000 for any violation, up to $25,000 for reckless violations and up to $1,000,000 for knowing violations.