CFPB Issues $19 Million Penalty for ‘Bait and Switch’ Mortgage Scheme

The Consumer Financial Protection Bureau (CFPB) has ordered Amerisave Mortgage Corporation and its affiliate Novo Appraisal Management Company to pay $19.3 million for allegedly engaging in a deceptive “bait and switch” mortgage lending scheme that harmed tens of thousands of consumers, the bureau says.

In its allegation, CFPB says Atlanta-based online mortgage lender Amerisave lured consumers by advertising misleading interest rates, locked them in with costly upfront fees, failed to honor its advertised rates and then illegally overcharged them for affiliated third-party services.

Amerisave and Novo have been ordered to provide $14.8 million in refunds to harmed customers and to pay a $4.5 million penalty, according to the CFPB claim. Patrick Markert, the owner of both companies, is ordered to pay an additional $1.5 million penalty.

“By the time consumers could have discovered the advertised low rates were too good to be true, they had already committed to pay hundreds of dollars to Amerisave,” CFPB Director Richard Cordray in a statement released Tuesday. “Today’s action puts an end to Amerisave’s unacceptable bait and switch scheme and holds Patrick Markert personally responsible for his illegal actions.”

Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFPB has the authority to take action against institutions engaging in “unfair, deceptive or abusive practices,” which gives the bureau discretion in its claim, a power not before held by any other oversight agency of its kind.

According to the CFPB’s recent complaint, between 2011 and 2014, Amerisave advertised misleading interest rates and terms for its mortgage products, using online banner ads and searchable rate tables on third-party websites, inducing consumers to pursue a mortgage with Amerisave.

Amerisave allegedly required consumers to order and give payment authorization information for an appraisal before it would provide a good faith estimate for the mortgage, and did not tell consumers until later that the appraisal orders were being referred to its own affiliated company, Novo, violating the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA), the CFPB claim states.

“By leading customers to believe they were already obligated to pay such costly fees, often $400 or more, Amerisave restricted consumers’ ability to shop for alternative products and better prices,” the bureau says.

At closing, Amerisave allegedly charged consumers for “appraisal validation” reports, without disclosing that the service was provided by its affiliate Novo, and that Novo had marked up the reports by as much as 900%.

In addition to ordering consumer refunds and penalty payments totaling more than $19 million, the CFPB claim also requires Amerisave to stop advertising unavailable mortgage rates and charging fees or making referrals to its affiliates without proper disclosure.

Access the bureau’s consent order.

Written by Emily Study

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