WASHINGTON, D.C. – The Consumer Financial Protection Bureau (CFPB) has taken action against a former Wells Fargo employee for an illegal mortgage fee-shifting scheme. The CFPB found that David Eghbali referred a substantial number of loan closings to a single escrow company, which shifted its fees from some customers to others at Eghbali’s request. Eghbali could then manipulate loan costs and ultimately increase the number of loans he closed, increasing his commissions. The CFPB filed an administrative consent order requiring Eghbali to pay an $85,000 penalty and banning him from working in the mortgage industry for one year.
“We have taken action against an individual loan officer for illegal mortgage fee-shifting,” said CFPB Director Richard Cordray. “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.”
David Eghbali served as a loan officer for the Wilshire Crescent Wells Fargo branch in Beverly Hills, Calif. The CFPB found that from at least November 2013 to February 2015, Eghbali had an arrangement with an escrow company, New Millennium Escrow, Inc., that allowed him to manipulate the prices his customers would pay for escrow services. In California, an escrow company typically provides services such as preparation of certain documents and holding and transferring payments related to mortgage loan refinance transactions. Consumers obtaining a mortgage do not ordinarily have a preferred escrow company and often rely on their loan officers to recommend one.
The CFPB’s investigation found that, based on direction from Eghbali, New Millennium would reduce its fees for certain customers and make up for its loss by adding fees to loans for other customers. This scheme helped Eghbali generate business by allowing him to offer “no-cost” loans to price-conscious clients who might have gone to a competitor bank to find a cheaper loan. In exchange for these manipulations, the CFPB found that Eghbali referred nearly all his clients to New Millennium.
Eghbali was paid by commission. The CFPB found that Eghbali’s fee-shifting scheme ultimately increased the number of loans he was able to close and, as a result, the commissions he earned. In addition, Eghbali received a top-producing loan officer award from Wells Fargo each year from 2011 to 2014. This recognition meant that he received a bonus on each loan he closed. The CFPB found that Eghbali referred more than 100 loans to New Millennium through the fee-shifting scheme.
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFPB has the authority to take action against institutions or individuals engaging in unfair, deceptive, or abusive acts or practices or that otherwise violate federal consumer financial laws. The CFPB found that this scheme violated the Real Estate Settlement Procedures Act, which prohibits giving a “fee, kickback, or thing of value” in exchange for a referral of business related to a real estate settlement service.
Under the terms of the consent order, Eghbali is banned from the mortgage industry for one year and must pay an $85,000 civil penalty to the CFPB’s Civil Penalty Fund.
The Consumer Financial Protection Bureau (CFPB) 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.