Consumer Financial Protection Bureau took action against NewDay Financial for deceptive mortgage advertising and kickbacks, making the lender pay a $2 million civil money penalty for its actions.
NewDay is a Maryland-based, nonbank mortgage lender owned by Chrysalis Holdings, a private company. Its primary business is originating refinance mortgage loans guaranteed by the Veterans Administration, which is mainly advertises for through direct mail campaigns. Between July 2011 and July 2014, NewDay sent consumers over 50 million mortgage solicitations by postal and electronic mail.
According to the action, NewDay deceived consumers about a veterans’ organization’s endorsement of NewDay products and participated in a scheme to pay kickbacks for customer referrals.
Beginning in 2010, NewDay entered into a marketing arrangement with a veterans’ organization that was facilitated by a broker company.
As part of that agreement, NewDay paid “lead generation fees” to the veterans’ organization and the broker company, in addition to paying a $15,000 monthly licensing fee to the broker company.
As part of this arrangement, NewDay was named the “exclusive lender” of the veterans’ organization.
However, at no point did NewDay disclose to consumers that the veterans’ organization had a financial relationship with NewDay.
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.
"We are pleased to resolve these technical legal issues with the CFPB. 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,” NewDay said.
NewDay is required by the CFPB to:
- End deceptive marketing: NewDay may not engage in deceptive marketing related to mortgage credit products and may not assist others in making misrepresentations.
- Cease deceptive endorsement relationships: NewDay may not enter into any business relationship that would involve third-party endorsements inconsistent with the Federal Trade Commission’s guidance on endorsements and any subsequent guidance issued by the FTC or the Bureau concerning endorsements.
- End kickbacks: The consent order requires that NewDay fully comply with the law and make no payments for referrals.
- Pay $2 million in civil penalties: For its conduct, NewDay will make a $2 million penalty payment to the CFPB’s Civil Penalty Fund.
The CFPB recently took action against took action against two of the top mega banks, Wells Fargo (WFC) and JPMorgan Chase (JPM), for an illegal marketing services kickback scheme they participated in with Genuine Title, a now-defunct title company.