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Wednesday, April 26, 2017

Bi-Weekly Baloney

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.