West Capital Lending (WCL) has sued loanDepot, accusing the California-based mortgage lender of engaging in a long-running compensation scheme that violates the Truth in Lending Act (TILA).
The lawsuit, filed Friday in the U.S. District Court for the Central District of California, marks the latest escalation in a bitter legal feud between the two companies.
In October, loanDepot sued WCL for allegedly poaching hundreds of employees and misappropriating trade secrets. The suit also accused WCL of misclassifying about 600 loan officers as independent contractors to pay them on a 1099 basis, thereby avoiding the overhead costs associated with full-time employees.
WCL is firing back. According to its complaint, loanDepot’s consumer direct division engaged in a “coordinated set of unlawful and unfair business practices.”
A spokesperson for loanDepot declined to comment when reached by HousingWire. National Mortgage Professional first reported the case.
The filing alleges that loanDepot paid more to production staff who steered borrowers into loans with higher interest rates and fees, while penalizing those who granted pricing exceptions. The “excess profit” generated from these loans allowed the lender to provide discounts by reducing compensation to certain employees, ultimately giving loanDepot an unfair competitive edge, court filings state.
The alleged violations center heavily on production managers. According to the compensation plan attached to the lawsuit, managers received a monthly “team bonus” based on the terms of the loans closed by them or their reporting LOs. If managers approved pricing exceptions, their bonuses took a hit — a structure plaintiffs argue violates TILA’s Loan Officer Compensation Rule on a systemwide basis.
“The more discounts are approved/sought by Production Managers, and the more frequent those concessions are provided, the less a Production Manager earns from the loans closed by his team, creating a powerful incentive to maintain the highest pricing on loans offered to consumers in violation of the Loan Officer Compensation Rule,” the lawsuit states.
The complaint is bolstered by declarations from former loanDepot employees.
WCL argues that these practices eliminated any incentive for competitors “to offer anything but the lowest price to consumers up-front,” as well as no “ability for other lenders to offset discounts in loan terms with reductions in pay to production staff.
“This provided loanDepot the unlawful and unfair ability to price loans higher upfront to maximize profits and greater flexibility when competing against other lenders,” the lawsuit states.
WCL is being represented by Stearns & Ryan, Lawyers and Mitchell Sandler, a financial services law firm that is also spearheading a separate class-action lawsuit against loanDepot.
Filed in July in Maryland, that suit claims the lender engaged in a “sophisticated, years-long scheme” to steer customers into higher-rate loans to artificially inflate performance ahead of its 2021 initial public offering.
The plaintiffs in the WCL case are demanding a jury trial.
