MD Federal Court Denies Motion to Dismiss Class Action Complaint Alleging LO Comp Violations

The U.S. District Court for the District of Maryland denied a national mortgage lender’s motion to dismiss a class action complaint alleging that the lender violated TILA and Regulation Z’s prohibition on compensating loan originators (LOs) based on loan terms and disguised this conduct through fabricated internal loan transfers.

Five consumers sued the mortgage lender, alleging that the lender violated TILA and Regulation Z’s Loan Originator Compensation Rule by compensating LOs based on loan terms.  According to the complaint, the lender required LOs to offer borrowers reduced rates and fees only if they could not first upsell borrowers on loans with higher rates and fees.  If an LO could not upsell a borrower, the lender allegedly reduced the LO’s compensation to correspond with the loan’s lowered pricing.  To conceal that the original LO continued to perform the same role with respect to the loan file for a reduced commission, the complaint maintains, the lender allegedly used “sham” transfers of loan files to a fictitious “Internal Loan Consultant.”  WBK covered the complaint here.

After the lender filed a motion to dismiss, the consumers filed an amended complaint with substantially similar allegations.  The lender again moved to dismiss the amended complaint.  The Maryland federal court denied the lender’s motion to dismiss in its entirety.  At the outset, the court ruled that the plaintiffs had alleged harm sufficient to confer standing in the form of higher interest rates and fees.  As to the merits, the court concluded that, based on the above-described allegations, the plaintiffs had adequately pleaded that the lender’s LOs steered them toward higher priced loans in violation of TILA and Regulation Z.