Class Action Lawsuit Filed Against loanDepot.com Alleges Loan Originator Compensation Rule Violations And TILA Violations
A complaint was filed against loanDepot.Com, LLC (“loanDepot”) in the U.S. District Court for the District of Maryland. The lawsuit was filed in July. However, it received no media attention. Plaintiffs allege in the lawsuit that the company violated the Truth in Lending Act (TILA)/Regulation Z loan originator compensation rule. The rule applies to closed-end consumer credit transactions secured by a dwelling.
The complaint alleges that loanDepot unlawfully steered Plaintiffs and those similarly situated to loans with higher rates. The suit also allges the fees further created a system for the falsification of internal forms and federal disclosures. Loan officers did this to conceal those activities.
The lawsuit points to a sophisticated, years-long scheme to circumvent TILA.
loanDepot concealed its willful violated loan officer compensation laws in TILA.
The company wanted to obtain a competitive advantage over other lenders. They also wantedd to maximize profits at the expense of Plaintiffs. The company also wanted to enhance its financial performance prior to its Initial Public Offering (“IPO”).
The Truth in Lending Act (TILA)/Regulation Z contains three main prohibitions:
- No loan originator may receive and no person may pay to a loan originator compensation in an amount that is based on a term of a covered consumer credit transaction, the terms of multiple covered consumer credit transactions by an individual loan originator, or the terms of multiple covered consumer credit transactions by multiple individual loan originators. For purposes of this prohibition, if a loan originator’s compensation is based in whole or in part on a factor that is a proxy for a term of a transaction, the loan originator’s compensation is based on a term of a transaction.
- If any loan originator receives compensation directly from a consumer in a covered consumer credit transaction secured by a dwelling:
- No loan originator may receive compensation from any person other than the consumer in connection with the transaction; and
- No person who knows or has reason to know of the consumer-paid compensation to the loan originator (other than the consumer) may pay any compensation to a loan originator in connection with the transaction.
- A loan originator shall not direct or “steer” a consumer to consummate a covered consumer credit transaction based on the fact that the originator will receive greater compensation from the creditor in that transaction than in other transactions the originator offered or could have offered to the consumer, unless the consummated transaction is in the consumer’s interest. For purposes of this prohibition, an employee of a party acting as a creditor in the transaction is deemed to comply with the prohibition if they comply with the first prohibition set forth above.
The Complaint Alleges The Following In violation of the Dodd–Frank Act:
- loanDepot linked the commission paid to loan officers to the rates and fees consumers paid.
- To conceal this illegal commission reduction scheme, loanDepot created a system of sham internal transfers, requiring loan officers who failed to push borrowers into higher rate loans to transfer (on paper only) the borrower’s loan file to a purported “Internal Loan Consultant” or ILC.
- [T]here was no actual transfer of the loans to ILCs—the ILC assumed no additional duties—and the original loan officer continued to perform the same duties, but at a reduced commission rate.
- The only purpose of the sham transfer was to provide a false narrative that the loan officer’s compensation was being reduced because of the purported transfer, as opposed to a correlation to the reduction in price, which loanDepot knew was unlawful.
- loanDepot furthered its concealment scheme by choosing to require loan officers who failed to push borrowers into higher rate loans to falsify internal documentation as to the reason for the transfer to the ILC in order to receive any commission and to obscure the reality that the transfer and corresponding commission reduction was linked to a reduction in the loan terms.
- Further, loanDepot created transfer forms with false justifications for the transfers that loan officers had to select, and if the loan officers failed or refused to do so, loanDepot eliminated their commission altogether.
This lawsuit won’t be smooth sailing the plaintiffs. The plaintiffs will have to overcome a particular hurdle with their claims. The TILA/Regulation Z rule is subject to a three-year statute of limitations. This rule is longer than the one-year statute of limitations that applies to most claims under TILA.
The complaint states the loans obtained from loanDepot were originated between September 12, 2019 and June 16, 2021. Presumably the plaintiffs will argue for the tolling of the statute of limitations under a fraudulent concealment theory. This may be why the compaint includes various references to “conceal” or “concealment.”
