Mortgage Company Gets Slapped by Federal Judge Over Alleged TILA Violations

October 3, 2015

Entering into a consent order with the Consumer Financial Protection Bureau (CFPB) will not shield you from class action litigation. Castle & Cooke Mortgage, LLC, the mortgage company that entered into a consent order with the CFPB in November 2013 learned that the hard way.

A federal judge in California rejected Castle & Cooke’s motion to dismiss a class action lawsuit regarding alleged violations by the mortgage company of the Regulation Z loan originator compensation rule.

What is the Regulation Z Loan Originator Rule?

The Regulation Z loan originator rule prohibits compensation that varies from loan terms and bans originators from being paid more if, for example, the consumer agrees to buy title insurance from the lender’s affiliate, according to the American Bankers Association (ABA). Under this rule, originators cannot be paid by both the consumer and the creditor and they must meet certain qualification and screening standards such as character and financial responsibility reviews, criminal background checks and training requirements, according to the ABA article. The CFPB, in 2013, also provisions from the Dodd-Frank Act related to mortgage and home equity loans.

Those provisions prohibited mandatory arbitration of disputes involving mortgage loans and the practice of increasing loan amounts to cover credit insurance premiums.

Castle & Cooke Mortgage sought to dismiss two counts of an amended class action complaint filed against the mortgage company by a consumer who received compensation under the consent order that Castle & Cooke entered into with the CFPB. Nevertheless, the federal judge allows the consumers’ class action to continue and rebuked the mortgage company’s dismissal motion. The consumers’ amended complaint alleges violations of TILA (i.e. the Truth in Lending Act), and multiple violations of state mortgage laws including unfair competition statutes.

The federal judge rejected the mortgage company’s argument that the consumer was prohibited from pursuing equitable relief because the TILA claim provided the consumer with an adequate legal remedy. Basically, the mortgage company was trying to say that the consumer should not be able to pursue two claims providing for compensation when one claim would do. The judge was not buying this argument. In fact, the court stated that the consumer could plead unjust enrichment as an alternative theory of recovery because it was too early in the case to determine whether the consumer’s TILA claim was valid.

The mortgage company also argued that because the Unfair Competition Law only provides for equitable relief in the form of restitution or an injunction, the consumer’s claim was precluded by his TILA claim, according to In addition, the mortgage company argued that the consumer failed to show any ongoing TILA violation that an injunction would prevent on a prospective basis or that restitution was available to force the mortgage company to give up something it was not entitled to and that plaintiff should have been allowed to keep, according to the aforementioned JDSupra article.

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