On July 23, the Consumer Financial Protection Bureau filed a complaint against Castle & Cooke Mortgage, alleging that the Salt Lake City-based mortgage bank paid quarterly bonuses to loan officers who nudged borrowers into higher-cost loans. According to the complaint, the bank violated Regulation Z by developing and implementing “a scheme” to pay loan officers “in amounts that varied based on the interest rates of the loans they originated—the higher the interest rates . . . the higher the loan officer’s quarterly bonus.” The regulation was amended in September of 2010 to prohibit such forms of compensation.
Matthew A. Pineda, Castle & Cooke’s president, and Buck L. Hawkins, senior vice president of capital markets, were also named as defendants. The CFPB called each a “related person,” and as such, the two men can be held liable.
The CFPB estimates that, between July 8, 2011 and April 27, 2012, Castle & Cooke paid out more than 500 quarterly bonuses, ranging from $6,100 to $8,700, which totaled more than $4 million. The CFPB further claims that the company has paid out more than 1,100 illegal bonuses since April 2011, when the updated regulation went into effect.
Besides faulting Castle & Cooke for its quarterly bonus policy, the CFPB complaint also highlighted the lack of a paper trail documenting that policy. Regulation Z requires that evidence of compliance be kept on file for two years, and, according to the complaint, “while [Castle & Cooke] maintains payroll records of the quarterly bonus amounts paid to loan officers . . . it does not record what portion of a loan officer’s quarterly bonus is attributable to a given loan;” nor do employee agreements “identify, explain, or refer to the existence of the Company’s quarterly bonus program.”
The CFPB complaint seeks restitution for consumers allegedly upsold by the company as well as civil money penalties for each bonus paid out on a three-tiered scale: violation (up to $5,000), reckless violation (up to $25,000) and knowing violation (up to $1,000,000).