The Consumer Financial Protection Bureau has fined the California mortgage lender for giving its employees incentives for steering consumers into loans with higher interest rates.
“Today’s action will put $730,000 back in the pockets of consumers who may have never suspected that they had been harmed,” said CFPB Director Richard Cordray. “Paying bonuses for steering borrowers into more expensive loans violates their trust and is against the law.”
Franklin Loan is a residential mortgage lender with 18 locations across Southern California and one in Chicago. Franklin Loan originated approximately $887 million in loans between 2011 and 2013. 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 higher the interest rate of the loans closed during the quarter, the higher the loan officer’s quarterly bonus.
The CFPB found that these bonus payments violated the Federal Reserve Board’s Loan Originator Compensation Rule, which the regulator has enforced since July 21, 2011. The rule prohibits mortgage lenders from paying loan officers based on loan terms such as interest rate. 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 unlawful bonus practices affected more than 1,400 borrowers.
Franklin Loan has 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. Franklin Loan will also pay $730,000 in redress to affected consumers. 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.
Click here to read a copy of cothe CFPB’s complaint.
