Paymap Inc., a Colorado-based payment processing company, and LoanCare, a Virginia-based residential mortgage servicer, have been fined by the Consumer Financial Protection Bureau (CFPB) for alleged false advertising in connection with a mortgage payment program.
Specifically, Paymap will return $33.4 million in fees to consumers and pay a $5 million civil penalty to the CFPB, and LoanCare will pay a $100,000 civil penalty.
According to a CFPB press release, LoanCare entered into an agreement with Paymap in 2011 to offer the Equity Accelerator Program, an electronic payment system that was supposed to help borrowers pay down their mortgages faster. The mortgage payment program promised to help homeowners save tens of thousands of dollars in interest by making more frequent mortgage payments.
Consumers were typically charged an enrollment fee of $295 when signing up for the program, the CFPB says. In addition, they paid a transaction fee for each automatic debit that Paymap made, typically $2.50. Since July 21, 2011, approximately 125,000 consumers enrolled in the program, yielding Paymap about $33.4 million in fees, the bureau says in its release.
In 2012, LoanCare and Paymap marketed the Equity Accelerator to LoanCare's customers, sending them solicitations on LoanCare's letterhead. Like the other servicers it partnered with, Paymap shared a portion of consumers' fees with LoanCare.
In the ads, the companies claimed that consumers who enrolled in the program would have a new, biweekly payoff schedule that would help them payoff the interest on their loans much faster. However, the program did not make more frequent payments on consumers' mortgages – instead they were paid off on the original schedule, despite the fact that withdrawals from consumers' accounts were made more frequently, the bureau says.
What's more, Paymap's prominent claims of tens of thousands of dollars in interest savings were made without any supporting evidence, the CFPB says.
Consumers were ‘lured’ into the program with claims that they could save as much as $33,000 in interest, the bureau says. Paymap and LoanCare, however, had no factual basis to support this claim. Only a tiny percentage of consumers who signed up for the program realized this level of savings, the CFPB says.
The two companies also misled consumers about when their payments would be applied, the bureau says. Although consumers were told that the program would change their payoff schedule to every two weeks, payments were not made more frequently. Paymap instead held payments in custodial accounts and paid the mortgages on their original monthly schedule. Meanwhile, consumers were charged a transaction fee for every withdrawal.
It is unclear from the CFPB's release whether the other servicers that partnered with Paymap will also face fines.
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