The Consumer Financial Protection Bureau (CFPB) has fined NewDay Financial, a Maryland-based, private, non-bank mortgage lender owned by Chrysalis Holdings, for $2 million for allegedly engaging in deceptive mortgage advertising and kickbacks.
The lender, which primarily originates refinance loans guaranteed by the Veterans Benefits Administration, deceived consumers about a veterans' organization's endorsement of NewDay products and participated in a scheme to pay kickbacks for customer referrals, the bureau says in a press release.
‘NewDay profited from the trust that veterans place in their veteran service organization,’ says Richard Cordray, director of the CFPB. ‘Veterans, and any consumers getting a mortgage, deserve honest information about lender endorsements.’
The CFPB alleges that, starting in 2010, NewDay entered into a marketing arrangement with a veterans' organization that was facilitated by a broker company. As part of that agreement, NewDay paid ‘lead generation fees’ to the veterans' organization and the broker company. NewDay 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.
In targeted marketing campaigns delivered between July 2011 and July 2014, NewDay sent consumers more than 50 million mortgage solicitations by postal and electronic mail claiming that the endorsement by the veteran's organization was based on NewDay's high standards for service and excellent value. The company, however, failed to disclose that the veterans' organization had a financial relationship with NewDay. This, the CFPB says, constituted a deceptive act or practice and, thus, was a violation of the Dodd-Frank Act.
What's more, these direct mails contained a recommendation from the veterans' organization to its members, urging members to use NewDay's products. This, when combined with other telephone and Web-based referral activities, constituted a referral of settlement service business (i.e. kickbacks) – which is a violation of the Real Estate Settlement Procedures Act.
In addition to the fine, the CFPB has ordered NewDay to end its deceptive marketing practices. What's more, the lender is prohibited from entering into any business relationship that would involve third-party endorsements inconsistent with the Federal Trade Commission's guidance on endorsements.
The bureau reports that NewDay is ending its relationship with the veterans' organization and the broker company.