United Shore Financial Services, the parent company of United Wholesale Mortgage, will pay $1.4 million in refunds and penalties as part of a settlement with the California Department of Business Oversight, which accused the lender of overcharging “thousands” of borrowers for interest on their mortgages.

According to the CDBO, the issue is related to “per diem interest”. California law prohibits lenders from beginning to charge interest on mortgages prior to the business day that immediately precedes the day the loan is funded.

And the CDBO said that United Shore violated the state’s rules for per diem interest on thousands of occasions.

Mat Ishbia, the CEO of both United Shore and United Wholesale, disagrees with the CDBO’s characterization of the situation and said that the problem is several years in the past.

“This is a documentation issue that concerned about 5% of our loans that were closed in California between 2011 and 2014,” Ishbia said in a statement. “We didn't benefit one penny and not one borrower was harmed.”

Ishbia went on to explain how the interest situation is out of the company’s hands, but said that the company now has procedures in place to ensure that a similar situation won’t arise again in the future.

“The escrow agents who are selected by realtors or brokers didn't have the documentation proving they disbursed our funds within one day of closing,” Ishbia said.

“Thus, we refunded borrowers just to be safe - most of the time between $30-$70 per loan,” Ishbia said. “The state also fined us for not holding the escrow agents accountable with proper documentation. We have had this fixed for years now and have been audited on more recent loans and no issues were found at all.”

According to the CDBO, the settlement includes $293,127 of refunds already provided by United Shore to approximately 3,400 borrowers.

The terms of the settlement also stipulate that United Shore will pay restitution to additional borrowers based on the results of self-audits required by the settlement that will cover loans made from June 2015 through February 2018.

According to the CDBO, the settlement also requires United Shore to pay penalties to the DBO, including $1.1 million for the interest overcharges already identified, plus another $125 for each additional violation identified by the self-audits.

In a statement, CDBO Commissioner Jan Lynn Owen said that this settlement refunds the affected borrowers and helps prevent a repeat occurrence.

“I’m pleased we have reached this agreement with United Shore,” Owen said. “It compensates borrowers for the financial harm they suffered, and requires the firm to continue following improved policies and procedures designed to prevent this from happening again.”

And as Ishbia said, the company doesn’t anticipate any further issues moving forward because since 2014, the lender requires all escrow agents in California provide proper documentation on every loan.

This isn’t the first time the CDBO took action against a lender for per diem interest violations.

In recent years, the CDBO reached a $1.6 million settlement with PrimeLending and a $1.33 million settlement with Prospect Mortgage over similar violations.