The U.S. consumer watchdog filed a legal complaint on Tuesday against a Utah-based mortgage company that the regulator said rewarded employees for steering borrowers to pricier loans.
The Consumer Financial Protection Bureau said that Castle & Cooke Mortgage LLC, used quarterly bonuses since 2011 to encourage its loan officers to give consumers mortgages with higher interest rates, violating federal regulations.
In the years leading up to the 2007-2009 financial crisis, lenders routinely offered employees incentives to make loans that were more expensive for borrowers. Regulators say that is unfair for consumers and have sought to crack down on the practice.
"Consumers should be able to get a mortgage without worrying about how the financial incentives of their loan officers may cause them to pay higher rates than they actually qualify for," consumer bureau Director Richard Cordray said in a statement.
The consumer bureau was created by the 2010 Dodd-Frank law to protect Americans from financial scams.
It has jurisdiction over a range of consumer financial laws, including regulations that took effect in 2011 that bar lenders from determining employee compensation based on the terms, such as interest rates, of the loans they issue.
Utah-based Castle & Cooke operates in about 22 states and has about 45 branches across the country, the bureau said. More than 150 loan officers received higher bonuses after persuading borrowers to take more expensive loans, possibly affecting tens of thousands of consumers since 2011, the CFPB said.
"The company has been cooperating with the CFPB in its investigation for more than a year, and anticipates an amicable resolution in this complex regulatory matter," Jeff Bell, marketing director at Castle & Cooke, said in a statement.
In the complaint filed in the U.S. District Court for the District of Utah, the bureau said it sought to end the pay practices, get restitution for consumers and obtain civil monetary penalties.
Regulators also filed complaint against two officers with the company, the bureau said.
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