Recently, a complaint was filed against loanDepot.Com, LLC (“loanDepot”) in the U.S. District Court for the District of Maryland alleging violations of the Truth in Lending Act (TILA)/Regulation Z loan originator compensation rule (Rule), which 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 and fees and further created a system for the falsification of internal forms and federal disclosures to conceal those activities.” In particular, loanDepot deployed “a sophisticated, years-long scheme to systemically circumvent and conceal its willful violations of the loan officer compensation laws set forth in . . . TILA . . for the purpose of obtaining a competitive advantage over other lenders and maximizing profits at the expense of Plaintiffs and those similarly situated, all to enhance its financial performance in the months leading up to and following its Initial Public Offering (“IPO”).” The Rule 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.
In particular, the complaint alleges that:
- 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.”
The plaintiffs will have to overcome a particular hurdle with their claims. The Rule is subject to a three-year statute of limitations, which is longer than the one-year statute of limitations that applies to most claims under TILA. Based on the allegations in the complaint, the loans that the class representatives 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, which may be why the complaint includes various references to “conceal” or “concealment.”
[View source.]
