Yesterday, the Consumer Financial Protection Bureau (CFPB) announced the issuance of a consent decree with a former mortgage loan officer arising out of alleged violations of the Real Estate Settlement Procedures Act’s (RESPA) anti-kickback laws and Dodd-Frank’s prohibition on unfair, deceptive or abusive acts or practices (UDAAP). The officer was required to pay an $85,000 fine and was prohibited from working in the mortgage industry for one year.
According to the consent decree, the officer, while working at a Wells Fargo branch in Beverly Hills, California, had an arrangement with an escrow company “in which they manipulated escrow fees, at [the officer’s] direction, by shifting them among loans in order to structure a no-cost mortgage transaction.” (Consent Decree at ¶ 8). In essence, the officer would ask for certain borrowers’ closing costs to be lowered in cases where those borrowers’ costs would have exceeded the credit available to them under the bank’s guidelines, and the escrow company would in turn raise fees on other customers to recoup its losses. (Id. at ¶ 10). As a result of this arrangement, the officer was found to have increased the number of loans he could close (and thus, commissions and bonuses paid to him). The scheme also resulted in him referring settlement-services business to the escrow company.
The consent decree is significant because it marks the first significant enforcement action the CFPB has taken directly against an individual employee of a bank – a point CFPB Director Richard Cordray emphasized in his comments announcing the action: “This should send a strong message that the law must be followed not only by large financial institutions, but also by the individuals who work for them.”
Other provisions of the consent decree are also noteworthy. First, to “preserve the deterrent effect of the civil penalty,” the respondent was prohibited from raising the payment of the $85,000 fine to the CFPB as a setoff or reduction of any compensatory monetary remedies imposed in any civil action or enforcement action by another regulatory agency. Second, he was prohibited from funding the payment from any other source, including from an insurance policy. And third, he was required to cooperate with any further CFPB investigation into the alleged scheme, including agreeing to provide information, evidence and testimony.
We will continue to monitor this trend and its potential implications for financial institutions and their employees.