United States: Loan Originator Compensation: CFPB Grabs The "Steering" Wheel

The CFPB took action against two mortgage companies for violations of the Loan Originator Compensation Rule ("LO Comp Rule"), which prohibits compensation to loan originators based on loan terms, claiming that the companies' compensation structures encouraged loan originators to "steer" consumers into costlier mortgages. In each case, the CFPB also held individuals involved in the management or ownership of the mortgage companies (the CEO of one company, and the owners of the other) responsible for making certain payments. Each of these cases involved a finding by the CFPB that although the compensation systems may not have directly compensated officers for steering, the arrangements were essentially disguised means by which the loan originators could be paid higher compensation based on the profitability of their loans.

The LO Comp Rule prohibits compensation of loan originators based on the terms of a mortgage loan or multiple mortgage loans, such as interest rate. Because profits resulting from mortgage loans are directly tied to the terms of the loan, compensation based on profitability is prohibited, except in limited circumstances. The CFPB concluded that RPM Mortgage, Inc. ("RPM"), violated the LO Comp Rule by compensating loan originators based in part on the interest rates on the loans they closed. As described by the CFPB:

RPM disguised this interest-rate-based compensation by funneling it though so-called employee-expense accounts. RPM deposited profits from an officer's closed loans – profits that were a direct product of the loans' interest rates – into the loan officer's employee-expense account, and then used it to pay her bonuses and increased commissions. RPM also allowed loan officers to use their employee-expense accounts to offset interest rate reductions or credits for RESPA-tolerance cures or appraisal costs they sometimes granted to avoid losing loans to a competitor.

The CFPB found that loan originators could receive higher amounts deposited into their individual expense accounts by steering consumers into higher-interest-rate loans and that loan officers with a "positive" expense-account balance could withdraw funds from such an account for deferred compensation in the form of bonuses.

The CFPB viewed the RPM arrangement through a wide lens in describing these expense accounts as allowing loan originators to "bank" profits, on loans made to certain consumers, that enabled them to close on and receive additional compensation from loans to future consumers. This approach by the CFPB would warrant a review by lenders of their compensation plans to ensure they have no similar components that the CFPB might view as an attempt to circumvent the "point-bank" prohibition.

In its other case involving the LO Comp Rule, filed by the CFPB against Guarantee Mortgage Corporation ("Guarantee"), the CFPB found that loan originators and "producing branch managers" (loan originators who managed a branch office) were permitted to own marketing-services entities associated with each branch office. The fees that were paid by Guarantee to the marketing entity were based on the profitability of the particular branch. The CFPB noted that certain loans generated more revenue (and more profits) based on the interest rate charged. Because the marketing entity was paid based on profitability of the associated branch and the producing branch manager of the associated branch owned the marketing entity, the producing branch managers were receiving compensation based on the terms of loans they originated, in violation of the LO Comp Rule.

The CFPB's action against RPM requires RPM to pay $18 million in monetary relief and $1 million in civil money penalties. Significantly, the CFPB additionally found that RPM's CEO was so integrally involved in designing and implementing RPM's compensation plan that he individually violated the LO Comp Rule and should be deemed a "covered person" for purposes of the Consumer Financial Protection Act. Based on this finding, the CFPB found that the CEO personally should pay an additional $1 million civil money penalty.

In the Guarantee case, the CFPB required payment of $228,000 in civil money penalties. The CFPB noted that Guarantee was in the process of dissolving and might lack the financial resources to pay the penalty in full. In such event, the CFPB's Order indicates that Guarantee "must obtain contributions from [Guarantee's] individual owners sufficient to pay the full penalty." The basis for the CFPB's Order requiring these contributions from the owners of Guarantee is not expressly indicated, and so it could be based on the fact that Guarantee is in the process of dissolving as a corporation, in which event certain state laws can permit claims to be made against individual owners to the extent of assets being distributed. Regardless, the Guarantee and RPM cases indicate an intent by the CFPB to look beyond the corporate entity to officers (and possibly even owners) that may have had sufficient involvement to be deemed to have violated the LO Comp Rule and hold them responsible for penalties or other amounts.

Note further that RPM's CEO will be required to pay the $1 million civil money penalty without reimbursement or indemnity. The stipulated court order requires that such payment be treated as a penalty paid to the government for all purposes and prohibits either RPM or its CEO from seeking any sort of tax deduction for such payment or, significantly, seeking or accepting, whether directly or indirectly, any reimbursement or indemnification for such payment from any source, even from an insurance policy.

These orders illustrate the extent to which the CFPB will look through a lender's compensation programs with its originators to evaluate whether impermissible payments might be made indirectly to loan originators. Although the LO Comp Rule has a narrow exception that can permit certain profits-based compensation plans, in no event may an originator's compensation be based directly or indirectly on the terms of such originator's transactions. Mortgage lenders should be extremely cautious regarding any compensation program that directly, or indirectly through bonuses or payments to parties affiliated with loan originators, might be construed to include some component of profitability that could be tied back to the interest rate or other terms of a loan originated by the compensated party.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions