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The Consumer Financial Protection Bureau (CFPB) announced on Tuesday it has levied a $2 million civil penalty against Maryland-based nonbank mortgage lender NewDay Financial for deceptive mortgage advertising and kickbacks.
According to CFPB, NewDay deceived consumers by failing to disclose its financial relationship with a veterans' organization in direct mail advertising materials.
"We are pleased to resolve these technical legal issues with the CFPB," NewDay said in a statement. "As the consent order makes clear, there has never been any allegation or suggestion that the company's actions ever directly harmed our borrowers. We will continue our tireless efforts to serve veterans in the dignified manner they deserve. We are proud that our loans are among the best performing in the industry and remain committed to providing financial solutions that improve the lives of the men and women who have sacrificed so much for our nation."
The primary business of NewDay, which is owned by a private company, Chrysalis Holdings, is originating refinance mortgage loans guaranteed by the Veterans' Administration (VA) made available exclusively to service members, veterans, and their surviving spouses.
NewDay advertises primarily through direct mail campaigns, having solicited approximately 50 million consumers through the mail in a three-year period from 2011 to 2014. According to CFPB, NewDay entered into a marketing agreement with a veterans' association facilitated by a broker company and agreed to pay "lead generation fees" to both organizations, as well as a licensing fee to the broker company.
This marketing agreement earned NewDay the title of "exclusive lender" for that particular veterans' association, but NewDay stated in its advertising materials that the title was based on high service standards and excellent value without disclosing its financial relationship with the veterans' organization. According to CFPB, NewDay's failure to disclose this financial relationship constituted a deceptive act or practice, which is a violation of the Dodd-Frank Wall Street Reform Act of 2010.
"NewDay profited from the trust that veterans place in their veteran service organization," CFPB Director Richard Cordray said. "Veterans, and any consumers getting a mortgage, deserve honest information about lender endorsements."
Also according to CFPB, NewDay's direct mail advertisements contained recommendations from the veterans' organization urging its members to use NewDay's products. These recommendations by the veterans' organization as well as referral activities through the telephone and the Web constituted a referral of settlement business, according to CFBP. The payments NewDay made to the veterans' organization and the broker company for these activities constituted illegal kickbacks, a violation of the Real Estate Settlement Procedures Act (RESPA).
As a result of the violations of the Dodd-Frank Act, NewDay will terminate its relationships with both the broker company and the veterans' organization. In addition to paying a $2 million civil penalty to the CFPB's Civil Penalty Fund, NewDay will also end deceptive marketing practices, end deceptive endorsement relationships, and cease making payments for referrals.
