Earlier this week, Castle & Cooke Mortgage, LLC, the mortgage company that entered into a consent order with the CFPB in November 2013 to settle charges that it violated the
Regulation Z loan originator compensation rule (“LO Compensation Rule”), filed a motion to dismiss three counts of the class action complaint filed against it in July 2014 in a California federal court by a consumer who received redress under the consent order.  As demonstrated by the class action filing, a CFPB consent order, in the absence of releases from affected consumers, does not necessarily bring finality to the issues it covers.

The CFPB’s complaint alleged that after the LO Compensation Rule became effective, to continue compensating its loan officers based on borrowers’ interest rates, the mortgage company devised a quarterly bonus system under which loan officers would receive greater bonuses for originating loans at higher interest rates.  According to the CFPB, the bonus system was not reflected in any compensation agreements.  While the company’s payroll records reflected the bonus payments, the CFPB claimed there was nothing indicating what portion of a loan officer’s quarterly bonus was attributable to a particular loan.  (The LO Compensation Rule was adopted by the Fed in 2010 and had a mandatory compliance date of April 6, 2011.  The CFPB’s January 2013 loan originator compensation rule, which is effective
January 10, 2014, continues the LO Compensation Rule’s prohibitions, with certain revisions.)

In agreeing to entry of the consent order, the company did not admit any of the CFPB’s allegations other than jurisdictional facts.  The consent order included a  judgment for equitable monetary redress against the company and two officers, jointly and severally, in the amount of $9,228,896.  It also included a judgment for a civil money penalty against the company and the two officers, jointly and severally, in the amount of $4.0 million.  When we reported on the consent order, we commented that the size of the monetary relief likely was intended by the CFPB to send a strong message to the mortgage industry that violations of the LO Compensation Rule will be addressed in a serious manner.

As the named plaintiff noted in his class action complaint, the consent order stated that the redress provided by the company “shall not limit consumers’ rights in any way.”  His complaint makes claims on behalf of a nationwide class, which is defined to include all individual consumers who on or after April 1, 2011 obtained a mortgage loan from the company in which the company paid a bonus or other compensation based on the loan terms other than the amount of credit extended or paid a referral fee or split a charge other than for services actually performed.  The complaint alleges that the company’s violations of the LO Compensation Rule entitle the named plaintiff and class members to actual and statutory damages.  It also alleges that the bonus payments, to the extent the recipients were not bona fide employees of the mortgage company, were unlawful referral fees or fee splits under RESPA entitling the plaintiff and class members to three times the loan origination and settlement charges they paid to the mortgage company.  The complaint also includes claims that the bonuses violated the Utah Residential Mortgage Practices and Licensing Act and constituted unjust enrichment under Utah law and, as to a California subclass, violated California’s Unfair Competition Law (UCL).

On October 27, the mortgage company filed a motion to dismiss the RESPA, Utah unjust enrichment and California UCL claims.  With regard to the RESPA claim, the company argues that the complaint alleges no facts showing that the company paid a referral fee in connection with the named plaintiff’s loan or paid anyone for services not provided.  Citing Ninth Circuit precedent that RESPA Section 8 does not prohibit overcharges, the company further argues that the named plaintiff still does not have a RESPA claim to the extent he is trying to allege that he was charged too much for his loan.  The company argues that the plaintiff’s Utah unjust enrichment and California UCL claims should be dismissed because his TILA/Regulation X and other claims provide an adequate legal remedy.  As a further reason for dismissal of the UCL claim, the company argues that only injunctive relief and restitution are available under the UCL and plaintiff’s claim is one for damages rather than restitution.