While a report earlier this year suggested that consumers don’t spend nearly enough time shopping for the right mortgage, that doesn’t mean lenders are off the hook for purposefully steering potential homeowners into costlier mortgages. Because doing so will land a company in hot water with federal regulators. Just ask RPM Mortgage and its top executive, who must now pay $20 million for their allegedly deceptive practices.

The Consumer Financial Protection Bureau announced today that it filed a complaint [PDF] against RPM and its CEO Erwin Robert Hirt for a scheme that awarded employees with bonuses and higher commission if they steered consumers into more expensive mortgages – a violation of a 2011 federal rule prohibiting incentivizing loan originators.

According to the complaint, California-based RPM Mortgage instituted a compensation plan in April 2011 that gave loan officers financial incentives to drive consumers into higher-rate mortgage loans.

RPM provided its loan officers with different forms of compensation that were derived in part from the interest rates of the loans they closed.

The company allegedly worked to mask the compensation plan by filtering it through so-called “employee-expense accounts.” To do so, RPM deposited profits from an originator’s closed loans – profits that were directly tied to the loans’ interest rates – into an expense account set up for the originator.

The accounts were used to pay bonuses and higher commissions to its loan originators. The company also allowed loan originators to tap their expense accounts to offset interest-rate reductions or give credits to certain customers to avoid losing the transactions to competitors.

The CFPB alleges that through this scheme, RPM paid or financed millions of dollars in unlawful bonuses, pricing concessions, and supplemental commissions.

In all, the complaint claims RPM paid 511 bonuses to its loan originators from their individual employee-expense accounts.

Under the proposed consent order [PDF] related to the complaint, RPM would pay $18 million in redress to consumers affected by the company’s unlawful compensation practices, while the accompany and Hirt would pay a combined $2 million fine to the CFPB’s Civil Penalty Fund.

In a statement about the CFPB’s filing, RPM maintains that the complaint does not allege that the way the company paid its employees actually harmed its customers in the form of higher interest rates or otherwise.

“The company has always taken great care to provide outstanding service and highly competitive rates while complying with the rules governing loan originator compensation, despite the limited and sometimes confusing guidance provided by regulators,” RPM CEO, Rob Hirt, said in a statement.

CFPB Orders RPM Mortgage to Pay $19 Million for Steering Consumers Into Costlier Mortgages [CFPB]

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