The Consumer Financial Protection Bureau last week fined RPM Mortgage and CEO Rob Hirt $20 million for illegally paying bonuses and higher commissions to loan agents to lead people into more expensive loans.
CFPB officials said Hirt offered his employees incentives to place clients in loans with higher interest rates, earning tens of millions of dollars in payments from 2011 to 2013. RPM Mortgage, based in Alamo, Calif., has agreed to pay the fine, according to the CFPB.
On Monday, Hirt said the company did nothing wrong.
"The decision [to settle with the CFPB] was not an easy one but, at the end of the day, I felt it was better to move forward and focus solely on the needs of our customers," he said.
Up to $18 million of the total fine will be sent to mortgage holders affected by the alleged scheme. The other $2 million will go into the CFPB's civil penalty fund. Hirt is personally responsible for $1 million.
Eligible consumers will be notified by the CFPB and receive refund checks in the mail. CFPB officials were not sure how many people will receive compensation.
"RPM rewarded its loan officers for steering consumers into mortgages with higher interest rates," said CFPB Director Richard Cordray. "Today, we are putting an end to RPM's unlawful practices and holding Robert Hirt personally responsible for his involvement in them."
Hirt said the company settled to avoid the high cost and distraction of litigation. He pointed out that there were no allegations of harm to customers in the filed complaints. The company reviewed pricing in 2011-2013 and confirmed that RPM's rates were competitive and, for the majority of its loans, matched or beat the average rates in RPM's markets of northern and southern California, Hirt added.
"RPM values its reputation as a respected mortgage lender and has maintained from the beginning of the investigation that all of its compensation policies were and are fully compliant with the law," according to a company statement.
David Stevens, president and CEO of the Mortgage Bankers Association, said the CFPB's action against RPM is troublesome. He said the CFPB has shown a pattern of issuing complicated rules without any written supervisory guidance to clarify common industry concerns.
The Loan Originator Compensation Rule issued by the Fed in 2010, and since assumed by the CFPB, is a source of industry confusion, Stevens added. He said the Mortgage Bankers Association has several times asked for more details and clarification from the Fed and CFPB - including on some of the issues that are part of the complaint against RPM. While the CFPB amended the rule with additional guidance in 2014, it appears to be applying ammendments retroactively, he said.