CFPB files first suit under new loan-origination rules

This story by Jim Puzzanghera explains that

The Consumer Financial Protection Bureau on Tuesday sued Castle & Cooke Mortgage, accusing it of paying
illegal bonuses to employees who steered home buyers toward
higher-interest loans. The suit marks the first time a company has been targeted
under new federal loan-origination compensation rules adopted after a
mountain of bad home loans set off a global financial crisis. . . . More than 1,100 such bonuses were paid beginning in April 2011, when
the new rules went into effect, and tens of thousands of consumers could
have been effected, the bureau said. “Consumers should be able to get a mortgage without worrying about
how the financial incentives of their loan officers may cause them to
pay higher rates than they actually qualify for,” said Richard Cordray, the bureau's director. He said such bonuses were among the practices that triggered the 2008 financial crisis.

According to the CFPB's press release, the suit seeks to

  • End unlawful compensation practices: The complaint
    seeks to prohibit Castle & Cooke from continuing its practice of
    incentivizing loan officers to upcharge consumers by distributing
    quarterly bonuses based on the interest rates of loans sold.
  • Ensure that Castle & Cooke retain records of compensation:
    The complaint seeks to ensure that Castle & Cooke complies with
    federal law that requires creditors to retain evidence of compliance.
  • Secure restitution for consumers: The CFPB is looking to secure restitution for consumers of Castle & Cooke who may have been upsold.
  • Obtain civil money penalties: The CFPB is looking
    to obtain civil money penalties for each bonus paid out. The Dodd-Frank
    Wall Street Reform and Consumer Protection Act allows civil penalty
    amounts to be determined under a three-tiered framework: up to $5,000
    for any violation; up to $25,000 for reckless violations; and up to
    $1,000,000 for knowing violations.

Read the complaint for more details.

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