West Capital Lending (WCL) sued loanDepotaccuses a California mortgage lender of engaging in a long-running compensation scheme that violates the Truth in Lending Act (TILA).
The case was filed on Friday in Court US District Court for the Central District of Californiamarks the latest escalation in a bitter legal battle between the two companies.
In October, loanDepot sued WCL for allegedly poaching hundreds of employees and misappropriating trade secrets. The lawsuit also accused WCL of mistaking about 600 loan officers as independent contractors for 1099 payments, thereby avoiding the costs associated with full-time employees.
WCL strikes back. According to its complaint, loanDepot’s direct consumer division engaged in a “combined role in illegal and unfair business practices.”
A spokesperson for loanDepot declined to comment when reached HousingWire. National Mortgage Professional first reported the case.
The filing alleges that loanDepot overpaid loan originators who steered borrowers to loans with higher interest rates and fees, while penalizing those who offered different pricing. The “excess profits” earned on these loans allowed the lender to offer discounts by reducing compensation to certain employees, ultimately giving loanDepot an unfair competitive advantage, the court said.
Allegations of violations have focused mainly on production managers. According to the compensation plan linked to the lawsuit, managers receive a monthly “team bonus” based on loan terms closed by them or their reporting LOs. When executives approve pricing exceptions, their bonuses become more influential — property plaintiffs challenge the TILA Loan Officer Compensation Act system-wide.
“The more discounts are approved/demanded by Production Managers, and the more often those deals are offered, the less the Production Manager profits from the loans closed by his group, creating a powerful incentive to maintain high rates of consumer loans in violation of the Loan Officer Compensation Act,” the lawsuit states.
The appeal is bolstered by declarations from former Depot loan employees.
WCL says these practices remove any incentive for competitors “to offer anything but the lowest price to buyers up front,” and no “ability for other lenders to reduce discounts on loan terms and lower wages for production workers.”
“This gave Depot the illegal and unfair ability to prepay loans in order to increase profitability and flexibility when competing with other lenders,” the lawsuit said.
WCL is represented by Stearns and Ryan, Attorneys again Mitchell Sandler, a financial services law firm that is also leading a separate class action lawsuit against Depot Loan.
Filed in July in Maryland, that lawsuit alleges the lender engaged in a “complex, multi-year scheme” to target high-cost loan customers in order to increase efficiency ahead of its 2021 initial offering.
The plaintiffs in the WCL case are seeking a mistrial.
