The Consumer Financial
Protection Bureau (CFPB) has been on a two-month
enforcement tear aimed at mortgage lenders employing deceptive practices in the
VA mortgage lending area. The Bureau has issued consent orders against six
companies since late July in what it terms a “sweep” in response to
concerns about potentially unlawful advertising in the market that the VA
found the companies had sent direct-mail advertisements primarily to military
servicemembers and veterans that contained false, misleading, and inaccurate
statements or lacked required disclosures. The complaints set forth similar instances
of violations of the Consumer Financial
Protection Act’s (CFPA) prohibition against deceptive
acts and practices, the Mortgage Acts and Practices – Advertising Rule (MAP
Rule), and Regulation Z.
The companies are variously accused of using advertisements that misrepresented
advertised loans by stating credit terms that the company was not actually
prepared to offer to the consumer such as describing an introductory interest
rate as fixed when it was instead adjustable. Advertisements also created the
false impression that the companies were affiliated with the government by
using words, phrases, images, or designs that are associated with the VA or the
Internal Revenue Service. Some advertisements also conveyed the false impression
that the company was affiliated with the borrowers existing lender or made
false claims about those existing loans while claiming the loans they offered
would cure the deficiencies.
In addition to various civil penalties, the consent orders also impose
injunctive relief to prevent future violations, including requiring the
companies to designate an advertising compliance official to review their advertisements
for compliance with mortgage advertising laws prior to their use; prohibiting
misrepresentations similar to those identified by the Bureau; and requiring the
companies to comply with certain enhanced disclosure requirements to prevent
them from making future misrepresentations.
is a summary of the companies affected, their alleged violations, and penalties
first orders were issued on July 24 against two California Corporations,
Sovereign Lending Group and Prime Choice Funding. Prime Choice is licensed as a
broker or lender in 35 states and Sovereign in 44 states. Both are also
licensed in Washington DC. The consent order against Sovereign
requires it to pay a civil penalty of $460,000. The Prime Choice penalty is
The third consent order was
issued on August 21 against Go Direct Lenders, Inc. a California corporation
that is licensed as a mortgage broker or lender in about 11 states. Go Direct
will be required to pay a civil penalty of $150,000.
Number four, on August 26 was PHLoans.com, Inc.,
formerly known as Pacific Home Loans. This is another California-based lender,
licensed in 11 states. The civil penalty assessed is $260,000.
Consent orders five and six were announced on
September 1, breaking the California string. Hypotec, Inc. is a mortgage broker based in
Miami, Florida and licensed in 8 states. Service 1st Mortgage, Inc. is based in Glen Burnie,
Maryland and licensed in about 12 states. Hypotec will pay a civil penalty of
$50,000. The Service 1st penalty will be $230,000.
CFPB has not indicated if the last two orders
will complete the sweep.