Five borrowers filed the complaint Tuesday in a Maryland federal court, accusing the major lender and servicer of violating the Truth in Lending Act. They're seeking damages including the sum of finance charges and fees paid by certain impacted borrowers, a figure which could skyrocket based on Loandepot's hundreds of billions of dollars of loan origination volume in recent years. 

According to the suit, Loandepot punished LOs who couldn't secure higher rates from borrowers by forcing them to transfer the loan to an "internal loan consultant." Although the original LO still performed the work, the company allegedly cut their compensation from an average of 100 basis points, to a drastically lower figure such as 30 basis points. 

The suit accuses Loandepot of using false justifications for the transfers to IRCs, and punishing LOs who didn't supply false excuses by giving them no compensation on the loan. The filing claims the scheme therefore incentivized LOs to offer inflated rates, in violation of TILA's Regulation Z. 

"What is being alleged in the lawsuit is not merely a technical violation or garden variety imperfection in compliance with the rule," said Ari Karen, partner and head of litigation, labor and employment at Mitchell Sandler, who filed the lawsuit. "The allegations assert a designed effort to circumvent the rule in its entirety to obtain an advantage over the industry at the expense of borrowers and competitors alike." 

A spokesperson for Loandepot declined to comment Wednesday. 

Loandepot's alleged violations of loan officer compensation rules

The lawsuit claims Loandepot "electronically robosigned" the purported internal loan consultant's signature on federally mandated loan disclosure forms and did not require customers to sign the transfer form. If the company believed the transfers were legitimate, it would have investigated the moves and disciplined or terminated loan officers subject to repeated transfer requests, counsel for the plaintiffs wrote.

"Instead, loan officers who routinely and systemically certified that customers did not want to work with them were rewarded by the company with substantial bonuses and lavish trips based on their overall volume of loan originations, including those loans allegedly "transferred" to ILCs," the suit said. 

The scheme allegedly further incentivized mid-level managers to drive profitability and volume at the expense of LO compensation, the plaintiffs argue. 

The lawsuit describes Regulation Z's loan officer compensation rule, created in the Dodd-Frank Act to prevent instances of steering. Mortgage lenders have long-scrutinized aspects of the rule, which the Consumer Financial Protection Bureau has asked the government to axe. 

Plaintiffs seek to cover a class of Loandepot mortgage customers who from January 1, 2019 to the present purchased the higher-rate loans which weren't transferred to internal loan consultants. It exempts borrowers who paid lower rates via an LO whose compensation was reduced, and the company's employees. 

The complaint doesn't allege how many loans were transferred to IRCs, or how many LOs or borrowers were involved. It does however make reference to over $300 billion in loan origination volume the company has recorded since 2019, and suggests the steering practices could have violated criminal fraud statutes.

Loandepot's growth into a leading lender and servicer

The company, founded by current executive chairman, president and interim CEO Anthony Hsieh, blossomed during the recent low-rate era and had its initial public offering in February 2021. It reported nine-figure origination volume at the beginning of the decade, but was hit hard by the sharp rise in mortgage rates in 2022 and cut its workforce significantly.

Recent earnings reports have been in the red, but the company remains a top-20 lender and servicer and held a book of approximately $166.6 billion in unpaid principal balance at the end of the first quarter this year. 

Loandepot has been previously accused of inflating its loan production via dubious means, although those claims didn't survive in lengthy, ultimately unsuccessful lawsuit from a former executive.