A lawsuit recently filed against Castle & Cook illustrates the dangers companies face in the wake of compliance problems. Although most focus on the Consumer Financial Protection Bureau in assessing compliance risks, the agency is only part of the concern. Castle & Cook, which paid millions in connection with a consent decree pertaining to violations of the loan officer compensation rules, has now been sued civilly in a class action pertaining to the same activity. Plaintiffs can seek return of all interest and fees over the first three years of their loans, as well as statutory penalties and attorneys' fees on a class-wide basis. Worse, because the government already investigated the case and a consent decree was entered into it will be difficult to defend such a case.
While I have no specific information concerning this particular case or company, one could also see the potential for similar CFPB violations in other cases to impact recruiting. Since originators (if paid improperly) are potentially liable for liability under some LO comp laws, for example, it reasons that recruiting and retention could be challenged by this type of lawsuit in other circumstances. Similarly, attracting and maintaining warehouse lines could be complicated in the case of some CFPB violations. Again, while I have no knowledge of this particular situation, it illustrates that compliance problems in general can have impacts broader then regulatory fines. As companies set priorities and evaluate risks, they need to look beyond the mere possibility of regulatory action. It must be realized that regulatory action can be the beginning of the problem as opposed to the totality of the risk.
