Lawsuit • Castle & Cooke allegedly steered customers to higher interest rates.
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A Utah-based company and two top officers have agreed to pay $13.2 million in refunds and fines for allegedly violating a federal rule that prohibits paying bonuses to sales staff for steering consumers into costlier mortgages.
Castle & Cooke Mortgage LLC of Salt Lake City and two officers agreed to pay $9.2 million for refunds to consumers who took out mortgages with higher interest rates than they needed to and for which loan officers received a bonus as a result. The company, President Matthew A. Pineda and Senior Vice President Buck L. Hawkins also agreed to pay $4 million in fines.
Castle & Cooke said it will pay the entire amount for the refunds and the fine and the two officers would not personally pay any part.
"With today's resolution we are pleased that we can now focus our undivided attention on our core mission: extending high-quality loans and superior service to borrowers," the company said in a statement. "The regulations are complex, but we are committed to legal and regulatory compliance in our lending."
Neither the company nor the officers admitted wrongdoing under the agreement that settles a lawsuit filed In July in U.S. District Court for Utah. The lawsuit was the first filed by the Consumer Financial Protection Bureau to enforce a new rule on compensation for mortgage loan officers.
"Our action has put an end to illegal steering of consumers and has put more than $9 million back in their pockets," CFPB Director Richard Cordray said in a statement. "This outcome embodies our mission to root out bad practices from the marketplace and ensure consumers are being treated fairly."
The Federal Reserve Board modified its Regulation Z to prohibit compensating a loan officer based on the terms or conditions of a mortgage loan, a change prompted by lending practices that contributed to the housing bust of 2007 and the Great Recession.
The new rule was made mandatory in April 2011. But, according to the lawsuit, officers of Castle & Cooke maintained their commission program for loan officers and continued to issue checks based on interest rates charged to consumers.
The case was referred to the federal agency last year by investigators with the Utah Division of Real Estate. The Utah suit was the first time the agency has sued over the loan originator compensation rule, a spokeswoman said.
Castle & Cooke funded $1.3 billion in mortgage loans in 2012, according to the lawsuit. It has 330 employees in 45 branches that do businesses in 22 states.
The agency didn't say how it will dole out refunds to borrowers.