The Consumer Financial Protection Bureau (CFPB) has taken action against former top-15 reverse mortgage lender NewDay Financial, LLC, for deceptive forward mortgage advertising and kickbacks.
NewDay, whose primary business is originating refinance mortgage loans guaranteed by the Veterans Administration (VA), is expected to pay $2 million in civil penalties for its actions, according to the CFPB, which recently nailed Wells Fargo and JPMorgan Chase for an illegal kickback scheme that took place several years ago.
“NewDay profited from the trust that veterans place in their veteran service organization,” said CFPB Director Richard Cordray, in a statement. “Veterans, and any consumers getting a mortgage, deserve honest information about lender endorsements.”
Previously, NewDay operated as a lender in the reverse mortgage space, but exited in 2013 in the wake of then-upcoming changes to the home equity conversion mortgage (HECM) program.
Now, the forward lender mainly advertises its mortgage products to consumers through direct mail campaigns. Between July 2011 and July 2014, NewDay sent consumers more than 50 million mortgage solicitations by postal and electronic mail, according to the bureau.
Beginning in 2010, NewDay entered into a marketing arrangement with a veterans’ organization — an arrangement that was facilitated by a broker company. As part of the agreement, NewDay paid “lead generation fees” to the veterans’ organization and the broker company, the CFPB says.
Additionally, NewDay allegedly paid a $15,000 monthly licensing fee to the broker company and was named the “exclusive lender” of the veterans’ organization, the CFPB says.
In its targeted marketing to members of the veterans’ organization, NewDay did not disclose to consumers that the veterans’ organization had a financial relationship with NewDay, allegations show. Under the circumstances, this failure to disclose the relationship constituted a deceptive act or practice, which violates the Dodd-Frank Wall Street Reform and Consumer Protection Act.
The direct mail the lender sent also contained a recommendation from the veterans’ organization, which urged members to use NewDay’s products, constituting a referral of settlement service business. NewDay’s payments to the veterans’ organization and the coordinating company for these referral activities constituted illegal kickbacks in violation of the Real Estate Settlement Procedures Act (RESPA).
In accordance with the CFPB’s authority under the Dodd-Frank Act, the bureau requires that NewDay end its deceptive marketing practices and kickbacks, cease its endorsement relationships and pay $2 million in civil penalties.
“We are pleased to resolve these technical legal issues with the CFPB,” NewDay says in a statement sent to RMD. “As the consent order makes clear, there has never been any allegation or suggestion that the company’s actions ever directly harmed our borrowers. We will continue our tireless efforts to serve Veterans in the dignified manner they deserve. We are proud that our loans are among the best performing in the industry and remain committed to providing financial solutions that improve the lives of the men and women who have sacrificed so much for our nation.”
Written by Emily Study