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CFPB Takes Action Against Castle & Cooke For Steering Consumers Into Costlier Mortgages

Company to Pay $9 Million in Restitution and $4 Million in Civil Penalties

Update November 13, 2013: A copy of the final order can be found at http://files.consumerfinance.gov/f/201311_cfpb_final-order_castle-cooke.pdf

WASHINGTON, D.C. — The Consumer Financial Protection Bureau (CFPB) today announced a proposed consent order in its enforcement action against Castle & Cooke Mortgage, LLC, for allegedly steering consumers into costlier mortgages. The Bureau has asked a federal district court to approve a consent order that would provide more than $9 million in restitution for consumers and obtain $4 million in civil money penalties against Castle & Cooke and two of its officers for allegedly paying loan officers illegal bonuses.

“Our action has put an end to illegal steering of consumers and has put more than $9 million back in their pockets,” said CFPB Director Richard Cordray. “This outcome embodies our mission—to root out bad practices from the marketplace and ensure consumers are being treated fairly.”

Castle & Cooke is a Utah-based mortgage company that originated about $1.3 billion in loans in 2012. The company maintains 45 branches and does business in 22 states, including Arizona, California, Colorado, Florida, Hawaii, Iowa, Idaho, Nebraska, New Mexico, Nevada, Texas, and Utah. On July 23, 2013, the CFPB filed a complaint in federal district court against the mortgage company and two of its officers for allegedly paying illegal bonuses to loan officers who steered consumers into mortgages with higher interest rates.

The complaint alleged that Castle & Cooke, through actions taken by its president, Matthew A. Pineda, and senior vice-president of capital markets, Buck L. Hawkins, violated the Federal Reserve Board’s Loan Originator Compensation Rule by paying loan officers quarterly bonuses that varied based on the interest rate of the loans they offered to borrowers. That rule banned compensation based on loan terms such as the interest rate of the loan. The rule had a mandatory compliance date of April 6, 2011, and authority over that rule transferred to the CFPB on July 21, 2011. The CFPB estimates that more than 1,100 quarterly bonuses were paid to over 215 Castle & Cooke loan officers.

Enforcement Action

Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFPB has the authority to take action against institutions for violations of federal consumer financial protection laws. To ensure that all impacted consumers are repaid and that consumers are no longer subject to these illegal practices, the defendants have agreed to:

  • End unlawful compensation practices: Castle & Cooke must end compensation practices, such as giving loan officers bonuses that vary based on the interest rate of the loans they offered to consumers, that violate the Loan Originator Compensation Rule.
  • Pay $9,232,896 toward consumer redress: The defendants will pay $9,232,896 to administer redress to consumers for their actions. Any borrower who has obtained a home loan from a Castle & Cooke loan officer since April 6, 2011, and whose loan officer received a quarterly bonus from Castle & Cooke for that loan, will receive a check as a result of today’s action. The Bureau estimates that more than 9,400 consumers will receive checks.
  • Pay a $4 million civil money penalty: The defendants – Castle & Cooke, Pineda, and Hawkins – will pay $4 million to the CFPB’s Civil Penalty Fund for their alleged violations.
  • Ensure that Castle & Cooke retain records of compensation:Castle & Cooke will abide by federal law that requires creditors to retain evidence of compliance, such as payroll records.

This case was originally referred to the CFPB by investigators with the Utah Department of Commerce, Division of Real Estate. The complaint was filed in the United States District Court for the District of Utah, where the company is located and where the individual defendants reside.

A copy of the proposed consent order, which will not be final until approved by the court, can be found at: http://files.consumerfinance.gov/f/201311_cfpb_proposed-final-order_castle-cooke.pdf

A copy of the complaint filed in July can be found at: http://files.consumerfinance.gov/f/201307_cfpb_complaint_Castle-and-Cooke-Complaint.pdf

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The Consumer Financial Protection Bureau is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives. For more information, visit www.consumerfinance.gov.

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