WASHINGTON (11/19/14)--A California-based mortgage lender has been ordered to repay $730,000 it earned by steering consumers illegally to loans with higher interest rates, the Consumer Financial Protection Bureau (CFPB) announced Tuesday.
The bureau alleges that Franklin Loan Corp. paid at least $730,000 in illegal bonuses to 23 loan officers from June 2011 to October 2013.
"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."
The Palm Desert, Calif.-based company originated approximately $887 million in loans between 2011 and 2013. From June 2011 to October 2013, the $730,000 in bonuses were based on the interest rates on the loans they provided to more than 1,400 borrowers; the higher the interest rate of the loans closed during the quarter, the higher the loan officer's quarterly bonus.
These payments violated the Federal Reserve Board's loan originator compensation rule, which prohibits mortgage lenders from paying loan officers based on loan terms such as interest rates.
The bureau has 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. According to the CFPB, Franklin Loan has also agreed to end its practice of incentivizing loan officers to upcharge consumers.