Franklin Loan Corp., a residential mortgage lender with 18 locations across Southern California and one in Chicago, will pay $730,000 for allegedly steering consumers into costlier mortgages through an illegal bonus program, the Consumer Financial Protection Bureau (CFPB) reports.
The company allegedly paid its mortgage loan officers larger bonuses if they steered consumers into mortgages with higher rates. The program, which was in effect from 2011 to 2013, worked on a sliding scale: The higher the interest rate, the larger the bonus, the CFPB reports.
This was a violation of the Federal Reserve Board's Loan Originator Compensation Rule, which prohibits mortgage lenders from paying loan officers based on loan terms such as interest rate.
More than 1,400 borrowers were affected by the program, according to the CFPB. The $730,000 will be paid to these borrowers as compensation and the company has been ordered to end its illegal compensation system.