Franklin Loan Corporation tied employee bonuses to interest rates, says the Consumer Financial Protection Bureau (CFPB).
The company rewarded loan officers who steered consumers into mortgages with higher interest rates, a practice that is prohibited by a 2011 federal law.
Between 2011 and 2013 the company paid out $730,000 in quarterly bonuses to 32 loan officers based in part on the interest rates on the loans they provided to borrowers; the higher the interest rate, the higher the quarterly bonus. Franklin Loan, a lender with locations in Southern California and Chicago, will be required to end the practice and pay $730,000 in redress to the 1,400 impacted borrowers.
"Today's action will put $730,000 back in the pockets of consumers who may have never suspected that they had been harmed," said CFPB Director Richard Cordray in a statement. "Paying bonuses for steering borrowers into more expensive loans violates their trust and is against the law."