The Consumer Financial Protection Bureau filed suit in federal court against mortgage firm Castle & Cook Mortgage, alleging the Utah-based company steered customers into higher interest rate loans, based on resulting bonus incentives, violating rules put into place back in 2011.  

The bureau asked the court to end the firm’s loan officer compensation practices and to provide restitution along with civil penalties.

The aggressive case shows the CFPB flexing its muscle in the area of loan officer compensation – a part of the lending process that received a great deal of scrutiny due to what regulators viewed as the ongoing practice of steering borrowers into higher-cost loans for higher pay. 

The CFPB claims Castle & Cooke, as well as two of its senior officers, violated the Federal Reserve’s loan originator compensation rule, which had a compliance date of April 6, 2011. The rule prohibited compensation based on loan terms, including those that adjust pay for higher interest rates. 

Bureau investigators claim Castle & Cooke’s quarterly bonus program violated this rule by paying 150 loan officers higher levels of bonus compensation for distributing more expensive loans.

In a statement, the bureau wrote: "The average quarterly bonus ranged from $6,100 to $8,700. By contrast, those loan officers who did not charge consumers higher interest rates did not receive quarterly bonuses. The CFPB estimates that more than 1,100 illegal quarterly bonuses were paid and that tens of thousands of customers may have been upsold since April 2011."

Castle & Cooke originated $1.3 billion in loans last year, the CFPB reported. The company currently does business in 22 states total.

The CFPB also alleged Castle & Cooke violated a rule forcing companies to retain compliance records for a certain period of time. The bureau claims Castle & Cooke failed to record what portion of each loan officer’s quarterly bonus was the result of a particular loan being issued.

Click here to read the full complaint.