The Consumer Financial Protection Bureau has ordered a California mortgage lender to pay $730,000 for violating the Federal Reserve Board’s Loan Originator Compensation Rule. The money will go to consumers allegedly harmed by the company’s illegal conduct.
Franklin Loan Corporation is being fined for allegedly giving its employees illegal bonuses for steering consumers into loans with higher interest rates. The residential mortgage lender has 18 locations across Southern California and one in Chicago.
The bureau has also asked a federal district court to approve a consent order requiring the company to end its “illegal compensation system and refund the consumers it harmed,” the CFPB says.
The Loan Originator Compensation Rule prohibits mortgage lenders from paying loan officers based on loan terms such as interest rate. The bureau has enforced the rule since July 21, 2011.
According to CFPB findings, Franklin Loan violated the rule by tying its loan officers’ quarterly bonuses to the interest rates on the loans they offered to borrowers. Franklin Loan’s bonus practices allegedly affected more than 1,400 borrowers.
Franklin Loan originated about $887 million in loans between 2011 and 2013, the CFPB says, noting that from June 2011 to October 2013, Franklin Loan paid at least $730,000 in quarterly bonuses to 32 loan officers based in part on the interest rates on the loans they provided to borrowers.
The latest CFPB action is part of the bureau’s ongoing effort to crack down on mortgage lenders who engage in illegal activity. In October the CFPB ordered a Michigan title insurance agency to pay $200,000 for illegal mortgage kickbacks that violated the Real Estate Settlement Procedures Act (RESPA).
“Today’s action will put $730,000 back in the pockets of consumers who may have never suspected that they had been harmed,” says CFPB Director Richard Cordray in a written statement. “Paying bonuses for steering borrowers into more expensive loans violates their trust and is against the law.”
Franklin Loan agreed to end its practice of incentivizing loan officers to upcharge consumers by paying quarterly bonuses based, in part, on the interest rates of loans they originated, the CFPB says.
“The CFPB did not seek a civil penalty based on Franklin’s financial condition and the bureau’s desire to maximize relief directly from Franklin Loan to affected consumers,” the CFPB says.
Written by Cassandra Dowell