WASHINGTON The Consumer Financial Protection Bureau slapped Franklin Loan Corporation with a $730,000 fine on Thursday for allegedly incentivizing loan officers to guide customers into mortgages with higher interest rates.
"Paying bonuses for steering borrowers into more expensive loans violates their trust and is against the law," CFPB Director Richard Cordray said in a statement.
The CFPB said Franklin Loan which operates primarily in California was in violation of the Federal Reserve Board's Loan Originator Compensation rule which prohibits tying a mortgage broker's compensation to the terms of a loan.
The regulator said Franklin Loan paid 32 loan officers at least $730,000 in quarterly bonuses between 2011 and 2013 and tied compensation to interest rates, rewarding employees for closing loans with higher rates.
"Today's consent order will ensure that all affected consumers are repaid and that no more consumers are harmed by the illegal compensation system," the CFPB said.
According to a CFPB release, Franklin Loan originated roughly $887 million in loans between 2011 and 2013 and that more than 1,400 customers fell victim to the illegal practices.
"Today's action will put $730,000 back in the pockets of consumers who may have never suspected that they had been harmed," Cordray said.