• CFPB Takes Enforcement Action against Mortgage Lender for Deceptive Practices
  • August 26, 2014 | Authors: Peter L. Cockrell; Brett M. Kitt; J. Scott Sheehan
  • Law Firms: Greenberg Traurig, LLP - McLean Office ; Greenberg Traurig, LLP - Washington Office ; Greenberg Traurig, LLP - McLean Office ; Greenberg Traurig, LLP - Houston Office
  • On August 12th, the CFPB announced that it had entered a consent order with a mortgage lender. According to the CFPB, the mortgage company "lured consumers by advertising misleading interest rates, locked them in with costly up-front fees, failed to honor its advertised rates, and then illegally overcharged them for affiliated 'third-party' services." Specifically, the CFPB alleged that the mortgage lender engaged in the following improper conduct:

    • Deceptive advertisement of unavailable interest rates. The mortgage lender advertised interest rates on its website or in banner ads that were either not available or that were lower than rates available to the typical borrower. The CFPB found this conduct to be deceptive in violation of both the Mortgage Acts and Practices Rule and the Consumer Financial Protection Act's prohibition against deceptive acts or practices.
    • Use of initial fees. The mortgage lender required applicants to provide payment authorization for an appraisal before the lender provided the applicant with a Good Faith Estimate. The CFPB alleged this was a violation of both the Truth in Lending Act and the Real Estate Settlement Procedures Act. According to the consent order, the mortgage lender led applicants to believe that they were obligated to pay these fees and that they were thus deterred from shopping for a mortgage from other lenders.
    • Failure to properly disclose affiliate relationships. The lender referred applicants to an affiliate of the lender for obtaining appraisals, but failed to disclose the affiliate relationship. According to the consent order, the lender also led consumers to believe that the affiliate had no relation to the lender and that its fees were reasonable third-party charges. The CFPB alleged these were violations of the Real Estate Settlement Procedures Act.

    Under the terms of the consent order, the mortgage lender and its affiliate must provide $14.8 million in refunds to consumers and pay a $4.5 million civil money penalty. The owner of the company is subject to an additional $1.5 million penalty.