Since late July, the CFPB has issued seven consent orders against mortgage companies in which the CFPB asserts that the companies engaged in false and misleading advertising to service members and veterans. This advertising focus is familiar and similar to a series of enforcement actions by the CFPB in December 2016 in which it asserted companies engaged in deceptive advertising of reverse mortgage terms. The recent focus on alleged false and misleading advertising related to VA mortgages may be the result of efforts by the CFPB to fulfill its statutory obligation to “coordinate efforts among Federal and State agencies, as appropriate, regarding consumer protection measures relating to consumer financial products and services offered to, or used by, service members and their families.”
In November 2017, the CFPB and VA issued a joint warning order to veterans regarding unsolicited refinance offers that “appear official” and sound “too good to be true.” The CFPB and VA warned about several issues ultimately found by the CFPB in the seven consent orders issued since July 24, 2020, including offers to skip one or two payments, to receive an escrow refund, and to receive low interest rates without specific terms. Additionally, following the passage of The Protecting Veterans From Predatory Lending Act of 2018 (the “Act”), which was designed to protect veterans from “loan churning” or “serial refinancing,” the VA published policy guidance to advise lenders of program changes as a result of the Act in Circular 26-18-13. Most recently, the VA published Circular 26-20-16 to advise lenders of VA’s expectations of self-identification, review, cure and quarterly reporting of Interest Rate Reduction Refinancing Loans (“IRRRL”) loans that did not comply with the Act and VA policy.
On September 2, 2020, the CFPB announced the issuance of a consent order against Accelerate Mortgage, LLC (Accelerate), immediately following two announcements on September 1, 2020 regarding consent orders against Service 1st Mortgage, Inc. (Service 1st) and Hypotec, Inc. (Hypotec). Just one week prior, the fourth related consent order was announced by the CFPB on August 26, 2020 against PHLoans.com, Inc. (PHLoans), previously known as Pacific Home Loans, Inc.
These follow consent orders discussed in previous blog posts against Go Direct Lenders, Inc. (Go Direct), and against Sovereign Lending Group, Inc. (Sovereign) and Prime Choice Funding, Inc. (Prime Choice).
The CFPB indicated in all of its announcements that the consent orders originated from a number of CFPB investigations into companies allegedly using deceptive direct mail campaigns to advertise VA-guaranteed mortgages. Like the companies involved in the first four consent orders, Accelerate, Service 1st, Hypotec, and PHLoans were all ordered to pay civil money penalties. Hypotec was assessed the smallest civil money penalty of all seven orders, at $50,000, while the amounts for Accelerate, Service 1st, and PHLoans are $225,000, $230,000, and $260,000, respectively.
The CFPB continues to find violations of Regulation Z and the Mortgage Acts and Practices—Advertising Rule (the “MAP Rule” or Regulation N), and Title X of the Dodd-Frank Act (the Consumer Financial Protection Act) in the advertising of VA-guaranteed mortgages to service members and veterans across this new series of consent orders. Its findings include “false, misleading and inaccurate representations” about credit terms and inadequate disclosures, the inability of consumers to obtain the advertised terms, and falsely representing an affiliation with the federal government.
The findings regarding actually available or false and misleading loan terms in advertisements cite the use of similar practices by the companies entering into the latest consent orders. For example, the CFPB found that Service 1st advertised mortgages with an interest rate and APR combination that it was not actually prepared to offer in 134,000 advertisements during 2018. Hypotec was found to have sent millions of advertisements with interest rate and APR combinations that on the date of the advertisement, and in the preceding 60 days, Hypotec was not prepared to offer. Similar to a finding in the Sovereign consent order, the CFPB found that PHLoans and Accelerate misled consumers regarding cash-out loans and corresponding payment amounts. The CFPB found that PHLoans advertised that a consumer could take $20,000 cash-out for “ONLY $95.68 PER MONTH” which the CFPB pointed out only accounted for the payment on the $20,000 and did not consider the payment amount of the existing loan that would be refinanced. The CFPB similarly found that Accelerate’s advertisement stated that a consumer could “access $20,000 for only $95.05 per month” with a VA mortgage.
New to the latest series of consent orders was a finding against Service 1st, Hypotec, and Accelerate that advertisements made false representations to consumers that their eligibility for VA-guaranteed mortgage loans was time limited. Service 1st and Hypotec were cited for identical false statements that implied a time limitation on the availability of VA loan programs. Over one million of Service 1st’s advertisements and 450,000 of Hypotec’s stated that “the Economic Stimulus Program will end soon. There is currently no plan to extend the Stimulus Program.” In over 56,000 advertisements, Accelerate was found to have misled consumers as to the expiration of VA refinance programs by stating “This VA Cash-Out program is available to Veterans like you! This offer is available to you through July 15, 2019.”
Additional new findings involved false or misleading statements about skipped payments and escrow refunds by Service 1st and Hypotec. Service 1st and Hypotec both distributed large numbers of advertisements with a statement that read “EST. ESCROW REFUND AMOUNT” along with a specific dollar amount. The CFPB found that the amount was calculated using a methodology that had no relationship to the actual escrow refund a consumer would get, and that the lenders frequently required consumers to fund a new escrow account when a new loan was originated. Service 1st sent almost one million advertisements claiming consumers could “skip” or “miss” two payments, but did not disclose specific timing requirements or that those two payments would be financed into the new mortgage loan.
As it did in the first four consent orders, the CFPB found in the Service 1st, Accelerate, and Hypotec consent orders that advertisements either “directly or by implication” represented that the company was affiliated with the federal government. In the Service 1st and Hypotec consent orders, the CFPB found that, through the use of formatting and phrases, the advertisements were made to resemble something that came from, or was endorsed by, the VA. Hypotec and Service 1st were cited for using phrases like “IRRRL – Benefit Allotment,” “VA-1211 Benefit Allotment Notice,” “Form 21-0760 Eligibility Notification” or “Understanding your VA Benefit Statement.” Many of Service 1st’s advertisements notably included a disclaimer that Service 1st was not affiliated with the government, but because it was in fine print or did not appear on the first page, the disclaimer was found to be inadequate. In addition to misrepresentations that implied or made it appear that advertisements were originating from or on behalf of the VA, Accelerate’s advertisements were also found to have used formats, symbols, QR codes, or logos resembling those used by the Federal Deposit Insurance Corporation and the Internal Revenue Service.
The CFPB focus in this area reinforces the need for lenders to carefully review their advertisements to avoid a violation of the MAP Rule’s prohibition of lender misrepresentations about a government affiliation, and to also review their advertisements for potential violations that have been the basis of the CFPB consent orders. The characteristics of the advertisements cited by the CFPB in the seven consent orders issued over the past seven weeks as the basis for its findings that the advertisements misrepresented a government affiliation deserve close attention because they indicate that the CFPB takes an expansive view of what constitutes such a misrepresentation. In addition, lenders may want to consider avoiding the use of the various terms that the Hypotec consent order prohibits the lender from using in advertisements, such as “VA loan specialist.”
The full content of all seven consent orders can be viewed via the links below.
Accelerate Consent Order
Service 1st Consent Order
Hypotec Consent Order
PHLoans Consent Order
Go Direct Consent Order
Sovereign Consent Order
Prime Choice Consent Order
