Managing Director
Lenders Compliance Group
Almost two years ago, the Consumer Financial Protection Bureau (CFPB)
filed a lawsuit in federal district court against Nationwide Biweekly Administration,
Inc., Loan Payment Administration LLC (collectively, “Nationwide”), and the
companies’ owner, Daniel Lipsky, alleging that Nationwide misrepresented the
interest savings consumers would achieve through a bi-weekly mortgage payment
program and also misled consumers about the cost of the program. The CFPB was
seeking compensation for harmed consumers, a civil penalty, and an injunction
against the companies and their owner.
An interesting feature of this lawsuit is the role that teaser ads, in
general, and telemarketing sales scripts, in particular, have on exposure to
regulatory violations.
This past Monday, after some haggling back and forth in the usual mix
and bantering of legal procedures, the two entities found themselves in court
at a bench trial.[*]
The CFPB told a California federal judge at the beginning of the trial that
Nationwide violated consumer protection laws by suggesting it was affiliated
with the homeowners’ mortgage providers and hiding its fee structure in
deceptive mailers and sales calls.
The CFPB argued during opening arguments that Nationwide sent deceptive
mailers to potential customers that included the name of the bank holding their
mortgage and stated the loan amount. These mailers allegedly told the customers
that if they declined the bi-weekly program, they were “waiving” loan savings.
When potential customers called in, sales representatives supposedly would say
that Nationwide “has a working relationship with your bank.” According to the
CFPB, these were misrepresentations that violated the Consumer Financial
Protection Act and the Telemarketing Sales Rule.
The violations can be grouped into the following four categories, each
of which I will explicate briefly.
1) Falsely promising consumers
they could achieve savings without paying more:
In direct mail, online, and other marketing materials, Nationwide
claimed that consumers who enrolled in its “Interest Minimizer” program would
save money without increasing their mortgage payments. In a video on Nationwide’s
website, Lipsky stated, “you’re not increasing your payment. You’re just
switching to a smaller bi-weekly or weekly amount.” The CFPB alleged that, in
fact, consumers in the program paid processing fees for each bi-weekly payment
on top of the initial set-up fee to Nationwide, plus the equivalent of one
additional monthly payment each year.
