The Consumer Financial Protection Bureau ordered Franklin Loan Corporation to pay $730,000 for giving its employees illegal bonuses for steering consumers into loans with higher interest rates.
From here, the CFPB 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.
Between 2011 and 2013, Franklin Loan originated approximately $887 million in loans.
And according to the Bureau, 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 bonuses violate the Federal Reserve Board’s Loan Originator Compensation Rule, which 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.
As a result, Franklin Loan’s unlawful bonus practices affected more than 1,400 borrowers.
“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.”