Last week the Consumer Financial Protection Bureau filed a complaint in federal district court Thursday against RPM Mortgage and its CEO, Erwin Robert Hirt, for allegedly illegally paying bonuses and higher commissions to loan originators to incentivize them to steer consumers into costlier mortgages.

Now Hirt has come out swinging in answer to the charges, and offering a little context. The CFPB’s order and agreement, if approved by the court, would require RPM to pay $18 million in redress to consumers and a $1 million civil penalty, and would require Hirt to pay an additional $1 million civil penalty.

“Recently the Consumer Finance Protection Bureau called into question RPM Mortgage’s interpretation and execution of rules regarding loan originator compensation during 2011, 2012 and 2013,” Hirt says. “As mentioned in the company’s statement, there were no allegations of harm to the company’s customers in the filed complaints. We reviewed our pricing in 2011-2013 and confirmed that RPM’s rates were always competitive and, for the majority of its loans, matched or beat the average rates in RPM’s markets of northern and southern California.”

So why did RPM and Hirt settle with the CFPB – a settlement that involved absolutely no admission of wrongdoing?

“Why take this route instead of fighting the CFPB in court? The decision was not an easy one but, at the end of the day, I felt it was better to move forward and focus solely on the needs of our customers,” Hirt says. “As for our adherence to the LO Comp rules both then and now, RPM has always and will continue to hold itself accountable to the rules put before us by all of our regulators.

“Our current regulatory law firm, Buckley Sandler, extensively reviews RPM’s LO comp policy every six months to ensure that RPM is in accordance with the current directives from the CFPB. Unfortunately for our entire industry, 2010 was the beginning of challenging times regarding the specifics of loan originator compensation,” Hirt said. 

David Stevens, president and CEO of the Mortgage Bankers Association, said that this action against RPM is problematic.

“The Consumer Financial Protection Bureau's latest enforcement announcement is emblematic of a larger concern – the Bureau's pattern of issuing dense and complicated rules and then declining to provide written supervisory guidance to clarify issues of common concern in the industry,” Stevens said. “The rule at play here – the Loan Originator Compensation rule – was originally issued by the Fed in 2010 and then taken over by the CFPB in the wake of Dodd Frank. The rule has long been a subject of industry confusion because of its broad and prescriptive reach into the smallest details of lender compensation plans and the lack of clear guidance on how to comply.

"In fact, MBA repeatedly asked for clarification from the Fed, and later the CFPB, on some of the very same issues that are the subject of this complaint,” Stevens said. “Eventually, in2014, the CFPB amended the rule and provided some additional guidance. However, the Bureau appears now to be applying those amendments retroactively.”

Stevens said that the approach the CPFB is taking in its actions is hurting not just the industry but the very consumers that the CFPB is supposed to protect.

“It should be no surprise, therefore, that this ‘regulate by enforcement’ approach has created tight credit conditions, as fearful lenders avoid even prudent risk-taking activities. The repetition of this misguided approach across a variety of new mortgage-related rules is increasing the costs and restricting the availability of credit for qualified borrowers,” Stevens said. “It is time for the Bureau to end this approach and begin providing meaningful guidance where it is needed and sought by stakeholders. The CFPB should reserve aggressive enforcement actions and punitive monetary penalties for egregious violations that result in proven consumer harm.”

Hirt said that the decision to simply settle and move forward was justified based on other recent CFPB heavy-handed actions.

 “Given what unfolded with [PHH Mortgage Corp.] and the CFPB within hours of our announcement, I am confident that putting this behind us and moving forward is the best decision for our company and our customers,” Hirt said.