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CFPB Weekly Update: The CFPB Celebrates Its Entry Into the Terrible Twos by Filing Another Lawsuit

July 26, 2013

On July 20, 2013 the CFPB turned two years old!  The CFPB celebrated the festive occasion by filing a lawsuit against Castle & Cooke Mortgage, LLC, its President, Matthew A. Pineda, and Senior Vice-President, Buck L. Hawkins.  A copy of the filed complaint is here.  The Complaint alleges that the defendants violated Regulation Z, better known as the Compensation Rule.  The Compensation Rule prohibits a person from compensating a loan originator based on a term or condition of a mortgage loan.  A violation of the Compensation Rule is a violation of section 1036 of the CFPA.  The Complaint alleges that Defendants violated the Compensation Rule by engaging in the following acts:

  • Paying company loan officers quarterly bonuses in amounts based on terms or conditions of the loans that they closed.  According to the CFPB’s, this bonus program incentivized loan officers to direct consumers into higher priced mortgages.
  • Mr. Hawkins allegedly created the bonus formula, calculated the bonuses, but did not memorialize the bonus formula or the bonuses as a part of a written compensation plan.

In addition, the CFPB alleged that the Defendants violated Regulation Z by failing to maintain records of the compensation provided to the loan originators or any type of compensation agreement.  The CFPB based this alleged violation upon the allegation that the company failed to maintain a written policy explaining the method that defendant Hawkins used to calculate the amount of the loan officers’ quarterly bonuses.

This lawsuit teaches us that mortgage lenders must document their compensation packages, bonus formulas and have a thorough and clear written explanation for the CFPB as to why a compensation package does not violate the Compensation Rule.  Even if the compensation formula complies with Regulation Z, lenders must make sure that the formula is written, in plain English, because you do not want the CFPB to file a lawsuit for a books and records violation.  When lenders perform their self-assessments, documentation concerning and justifying loan officer compensation (along with equal credit opportunities) must be at or near the top of the list.  If you need any assistance with the self-assessment, please do not hesitate to let us know.

That is all for this week.  Remember that all of our updates are on our website,


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