West Capital Lending Inc. has filed a federal lawsuit accusing its cross-town rival, loanDepot.com LLC, of operating an unlawful compensation structure that allegedly incentivized employees to steer borrowers into higher-priced mortgages.
The complaint, filed March 6 in the U.S. District Court for the Central District of California, claims loanDepot’s compensation plan tied certain employees’ pay to the profitability and pricing of loans, which the plaintiff argues allows loanDepot to gain an unfair competitive advantage over rival lenders.
West Capital alleges the practices were part of a “years-long” pattern of conduct within loanDepot’s Consumer Direct division that systematically violated federal mortgage compensation rules.
The lawsuit focuses on alleged violations of the Truth in Lending Act (TILA), the Loan Originator Compensation Rule under Regulation Z, and California’s Unfair Competition Law.
The defendant, loanDepot.com LLC, headquartered in Irvine, California, is a retail mortgage lender operating on a consumer-direct model. The plaintiff, West Capital Lending, is also based in Orange County and operates a call-center-driven origination model similar to loanDepot’s Consumer Direct division.
The lawsuit comes amid ongoing litigation between the companies. In October 2025, loanDepot filed a separate lawsuit in California Superior Court accusing West Capital of misappropriating trade secrets and orchestrating a large-scale employee raid, allegations West Capital has denied.
The Alleged Comp Plan
The lawsuit centers on loanDepot’s compensation structure for employees known as “Production Managers” in the company’s Consumer Direct division.
West Capital alleges those managers were actively involved in loan origination activities, such as negotiating rates and terms with customers, structuring deals with customers, and recommending products to customers.
Because of those activities, the plaintiff argues the managers functioned as mortgage originators under federal law. According to the complaint, the Loan Originator Compensation Rule applies to anyone who “takes an application, offers, arranges, assists a consumer in obtaining or applying to obtain, negotiates, or otherwise obtains or makes an extension of consumer credit for another person.”
The complaint references loanDepot’s Production Manager Compensation Plan, attached to the lawsuit as Exhibit A.
Production Managers allegedly received incentive pay in addition to base salary through several mechanisms, including a monthly “Team Bonus.” According to the filing, managers “earn monthly incentive compensation — above their base salary — based upon the terms of the loans they close directly or through their subordinate loan officers.”
The lawsuit claims the Team Bonus calculation incorporates “Pricing Exceptions,” defined in the plan as “a reduced price offered to the customer that is less than the base price in our system.”
West Capital alleges tying incentive compensation to pricing concessions effectively links pay to loan pricing and profitability. The plaintiff argues that such compensation structures violate federal mortgage rules governing loan originator pay, even when compensation is calculated at the team level rather than tied to individual transactions.
Federal law generally prohibits paying mortgage originators based on loan terms such as interest rates or fees. Under the Truth in Lending Act, “no mortgage originator shall receive … compensation that varies based on the terms of the loan.” 15 U.S.C. § 1639b(c)(1).
The complaint cites regulatory commentary stating that team-based compensation structures tied to loan terms can create the same steering risks that federal mortgage compensation rules were designed to prevent.
Alleged Sales Strategy
The lawsuit also describes what it claims was a structured sales process inside loanDepot’s Consumer Direct channel.
According to the complaint, borrowers were allegedly first presented with loan pricing that was higher than competing lenders. If a borrower raised concerns or presented a competing loan estimate, the loan would allegedly be escalated to a Production Manager.
In those cases, the lawsuit claims managers would step in as a “second voice” in the sales process to negotiate terms with borrowers and attempt to close the loan with minimal pricing concessions.
The plaintiff alleges that Production Managers were financially discouraged from offering larger discounts. According to the filing, “the more discounts are approved/sought by Production Managers, and the more frequent those concessions are provided, the less a Production Manager earns.”
The complaint argues the incentives encouraged employees to steer borrowers toward higher-priced loans unless concessions were needed to compete.
Declarations from several former loanDepot employees cited in the complaint allegedly describe a system in which managers attempted to convince borrowers to accept higher-priced loans or grant only limited concessions when competing offers were presented.
The lawsuit further alleges that loanDepot used the compensation structure to selectively match or undercut competing lenders’ pricing, including offers made by West Capital Lending.
According to the complaint, former employees stated that Production Managers were sometimes instructed to grant pricing exceptions — even if a loan lost money — in order to beat competing offers from West Capital Lending and prevent borrowers from moving forward with that lender.
Relief Requested
West Capital is asking the court for a declaratory judgment that loanDepot’s compensation structure violates federal mortgage compensation rules and to order the company to stop linking employee pay to loan terms or pricing concessions.
The lawsuit also seeks an injunction blocking loanDepot from maintaining similar compensation practices and requests restitution of profits allegedly obtained through the practices.
loanDepot declined to respond to National Mortgage Professional's request for comment on the lawsuit and its allegations.
