CFPB sues Nationwide Biweekly for deceptive mortgage practices

Accused of misrepresenting savings potential

The Consumer Financial Protection Bureau filed a lawsuit in federal district court against Nationwide Biweekly Administration, Loan Payment Administration, and Daniel Lipsky, the owner of both companies, accusing the companies of deceptive mortgage practices.

According to the CFPB, Nationwide and Loan Payment Administration transmit money from consumers to their mortgage servicers. The CFPB alleges that the companies misrepresent the savings that customers will achieve by using the companies’ biweekly mortgage payment program and mislead consumers about the costs associated with the program.

The CFPB alleges that Nationwide, Loan Payment Administration, Daniel Lipsky falsely promise consumers they can achieve savings without increasing their payments, falsely promise immediate savings that actually took years to achieve, mislead consumers about the costs associated with the program, and falsely claim to be affiliated with mortgage lenders and servicers.

According to the CFPB, Nationwide offers a product called the “Interest Minimizer,” and advertises the product online and via direct mail. The CFPB said that Nationwide also aired an infomercial about the Interest Minimizer on Lifetime television in 2014.

Most consumers who enroll in the Interest Minimizer program send Nationwide half their monthly mortgage payment every two weeks, instead of twice per month. 

This means homeowners are effectively making two additional payments per year, the CFPB said.

In other words, homeowners will make 26 payments a year, instead of the traditional 24.

Nationwide also charges consumers a setup fee that can reach $995 to enroll in the program and charges consumers between $84 and $101 in payment processing fees each year they remain enrolled.

The CFPB’s complaint collected approximately $49 million in setup fees between 2011 and 2014.

Consumers enrolled in the program after being promised “substantial and immediate savings” on their mortgages, the CFPB said.

The CFPB alleges the Nationwide is fully aware that consumers will pay more in fees than they save in interest for the first several years in the program, and that many consumers will leave the program without saving any money at all.

The CFPB listed several violations in its complaint against Nationwide, Loan Payment Administration and Lipsky, including:

Falsely promising consumers they could achieve savings without increasing their payment:

In its marketing materials, Nationwide claims that consumers enrolled in the Interest Minimizer program will save money without increasing their mortgage payments. In a video on Nationwide’s website, Lipsky states, “you’re not increasing your payment. You’re just switching to a smaller biweekly or weekly amount.”

The CFPB said that consumers in the program are actually paying processing fees for each biweekly payment and the initial setup fee to Nationwide, plus the equivalent of one additional monthly payment each year.

Falsely promising immediate savings that actually take years to achieve:

Despite promises of immediate savings, a consumer would have to stay enrolled for many years to recoup the fees that Nationwide charges.

Nationwide claims that the median consumer in its Interest Minimizer program in 2013 had a 30-year mortgage for approximately $160,000 with an interest rate of 4.125%.

A consumer with those loan terms would have to stay in the program for nine years to recoup her fees – at which point she would have paid more than $1,200 in fees to Nationwide. Only 25% of the consumers enrolled at the end of 2014 had been enrolled for longer than four years, the CFPB said.

Misleading consumers about the cost of the program: 

Nationwide’s marketing materials falsely claim that consumers’ extra payments “are directed 100% to the principal of the loan.”

However, Nationwide keeps the first extra biweekly payment (up to $995) as the setup fee, the CFPB said. When consumers ask Nationwide sales representatives how much the program costs, some of the company’s sales scripts instruct the representative to redirect the consumer, and other scripts say representatives should only mention the fee if consumers “persist to ask about fees.” None of the scripts states the dollar amount of the setup fee.

Falsely claiming to be associated with mortgage lenders or servicers:

Nationwide’s marketing materials misrepresent that it is affiliated with consumers’ mortgage lenders or servicers.

For example, in one telemarketing sales script, when consumers ask, “Do you work with/affiliated with my lender?” sales representatives were instructed, “Do NOT say ‘No’” – when the accurate answer is “No.”

The CFPB alleges that these practices violate the Telemarketing Sales Rule and the Consumer Financial Protection Act’s prohibition against unfair, deceptive or abusive acts or practice.

“These companies and their owner, Daniel Lipsky, took advantage of consumers with false promises of savings on their mortgage,” said CFPB Director Richard Cordray. “Homeowners deserve accurate information in the financial marketplace. Today we are taking action to end these illegal and deceptive practices, and to hold these companies accountable for their actions.”

The CFPB said that it is seeking compensation for any harmed consumers, a civil penalty, and an injunction against the companies and their owner.

“Through this lawsuit, the Bureau seeks to stop the alleged unlawful practices of the two companies and Daniel Lipsky,” the CFPB said in a release. “The Bureau has also requested that the court impose penalties on defendants for their conduct and require that compensation be paid to consumers who have been harmed.”

Click here to see the CFPB's lawsuit in full.

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