CFPB fines NewDay Financial for deceptive mortgage advertising, kickbacks

by MPA11 Feb 2015
The Consumer Financial Protection Bureau (CFPB) has taken action against NewDay Financial LLC for deceptive mortgage advertising and kickbacks.

According to the agency, NewDay deceived consumers about a veterans' organization’s endorsement of NewDay products and participated in a scheme to pay kickbacks for customer referrals. NewDay will pay a $2 million civil money penalty for its actions.

“NewDay profited from the trust that veterans place in their veteran service organization,” said CFPB Director Richard Cordray. “Veterans, and any consumers getting a mortgage, deserve honest information about lender endorsements.”

NewDay is a Maryland-based, nonbank mortgage lender owned by the private company Chrysalis Holdings. Its primary business is originating refinance mortgage loans guaranteed by the Veterans Benefits Administration. These loans are available exclusively to servicemembers, veterans and their surviving spouses.

NewDay mainly advertises its mortgage products to consumers through direct mail campaigns. Between July 2011 and July 2014, NewDay sent consumers more than 50 million mortgage solicitations by postal and electronic mail.

In 2010, NewDay entered into a marketing arrangement with a veterans’ organization. The arrangement was facilitated by a broker company. As part of that agreement, NewDay paid “lead generation fees” to the veterans’ organization and the broker company.

The company also paid a $15,000 monthly licensing fee to the broker company. As part of this arrangement, NewDay was named the “exclusive lender” of the veterans’ organization.  The agreement violated the Real Estate Settlement Procedures Act (RESPA), according to the CFPB.

In targeted marketing to members of this veterans’ organization, NewDay stated that this title was based on its high standards for service and excellent value. At no point did NewDay disclose to consumers that the veterans’ organization had a financial relationship with NewDay.

Under the circumstances, this failure to disclose the relationship constituted a deceptive act or practice, which violates the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act).

The direct mail that NewDay sent contained a recommendation from the veterans’ organization to its members, according to the CFPB. The recommendation urged members to use NewDay’s products, which, together with other telephone and Web-based referral activities, constituted a referral of settlement service business.

Click here to read more about the CFPB’s consent order.


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