Judge Rejects LoanDepot Bid to Dismiss LO Comp Lawsuit

A federal judge in Maryland has denied loanDepot's attempt to dismiss a proposed class-action lawsuit that accuses the mortgage lender of violating federal loan officer compensation rules and allegedly steering borrowers toward mortgages with higher interest rates. U.S. District Court Judge Julie R. Rubin rejected loanDepot's motion to dismiss the case for failure to state a claim and for lack of jurisdiction on Friday, ordering the company to formally respond to an amended complaint filed by the plaintiffs. The core of the lawsuit centers on allegations that loanDepot violated the Truth in Lending Act (TILA)'s loan originator compensation rule. This federal regulation explicitly prohibits paying loan officers based on the specific terms or interest rate of a loan. In her memorandum opinion, Judge Rubin determined that the plaintiffs had sufficiently alleged a concrete financial injury. They claimed to have paid higher interest rates and fees as a direct result of the lender's alleged steering practices and compensation structures. Rubin noted that while there is limited case law specifically addressing higher interest rates as an injury stemming from steering due to violations of the LO Comp Rule, federal courts generally accept allegations of higher interest rates caused by lender misconduct as sufficient to establish an injury in fact at the pleading stage. She further explained that, at this early stage of litigation, establishing traceability requires only allegations that demonstrate a causal connection between the alleged injury and the conduct in question, provided this connection is not "highly attenuated." Representatives for both the plaintiffs and loanDepot did not immediately provide comments when contacted by HousingWire. The initial lawsuit was filed in July 2025, with an amended complaint being filed in October 2025 by the named plaintiffs: Nathan Johnson, Rachel DeBaun, Nathan Moore, and Shawn Derrick. The amended complaint outlines a single count of TILA violation, specifically tied to an alleged rate-based compensation system. This system purportedly rewarded loan officers for directing borrowers into more expensive loan products. The plaintiffs contend that this compensation structure incentivized loanDepot's loan officers to steer them into mortgages with higher interest rates and/or fees than they might have otherwise qualified for or been offered. The lawsuit seeks to represent a class of borrowers who may have been similarly affected by these alleged practices.