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Financial Services Law Insights and Observations

CFPB Fines Online Mortgage Company And Its Owner For Alleged Deceptive Rate Advertising

CFPB TILA RESPA UDAAP Enforcement Mortgage Advertising Appraisal Management Companies


On August 12, the CFPB announced a consent order with a nonbank mortgage lender, its affiliated appraisal management company (AMC), and the individual owner of both companies to resolve allegations that the lender deceptively advertised mortgage rates to consumers, improperly charged fees before providing consumers with Good Faith Estimates (GFE), and failed to disclose its affiliation with the AMC while allowing the AMC to charge inflated fees.


As explained in the consent order, the lender primarily conducts business online through its own website, and also advertises its mortgages through display ads on independent websites and the website of an unaffiliated third-party rate publisher. The CFPB asserts that, over a roughly two-year period, a “systemic problem” caused the lender to list on the rate publisher’s website lower rates for certain mortgages than the lender was willing to honor, and that the lender supplied other rates to the rate publisher that were unlikely to be locked for the majority of the lender’s borrowers. The CFPB claims that the lender failed to perform systematic due diligence or quality control to ensure the accuracy of listed rates, even though the lender was made aware through consumer complaints that certain rates were inaccurate.

The CFPB also claims that, over a period of more than two years, the lender advertised in its display ads on independent websites rates that were based on (i) a consumer profile that included an 800 credit score, although most of the lender’s borrowers had scores below 800; and (ii) payment of high discount points, without adequate disclosure of the bases for the rates. In addition, the CFPB asserts that, over a nearly four-year period, the lender generated inaccurate personal loan quotes for certain consumers because the design of the lender’s website prevented those consumers from changing the model’s credit score from 800 to a more applicable lower score. The CFPB asserts these practices violated the Mortgage Advertising and Practices (MAP) Rule by misleading consumers.

The CFPB also alleges that the lender violated RESPA and TILA by overcharging for credit reports and by requiring consumers to schedule and give payment authorization information for appraisals before providing a GFE and receiving indication that the consumers intended to proceed with a loan from the lender, thereby restricting consumers’ ability to shop for alternatives. In addition, the CFPB claims that the lender violated RESPA by failing to properly disclose its affiliate relationship with the AMC and making numerous deceptive statements that led consumers to believe that the lender had no relationship with the AMC and that the AMC’s fees were reasonable third-party fees, and violated the MAP Rule by inflating prices for certain of the AMC’s services, including “appraisal validations.”

According to the CFPB, much of the alleged conduct was directed by, and provided a financial benefit to, the companies’ individual owner.

Redress, Penalties, and Corrective Actions

The consent order requires the lender to pay nearly $14.9 million to the CFPB, which will distribute the funds to consumers who: (i) viewed the lender’s misleading rates on the rate publisher’s website on or after July 21, 2011 and then took out a mortgage with the lender with higher than advertised rates; (ii) received misleading mortgage quotes on the lender’s website based on an inapplicable 800 FICO score on or after July 21, 2011 and then took out a mortgage with the lender at a rate higher than that quoted; (iii) on or after November 1, 2009 paid more than the actual costs of credit reports before the lender provided a GFE; (iv) paid an appraisal fee on or after January 1, 2011 without receiving a proper affiliated business disclosure; and (v) closed loans during or after December 2010 and paid for appraisal review fees.

The order also: (i) requires the lender to pay a $4.5 million penalty; (ii) regulates the way the lender is permitted to advertise interest rates; (iii) mandates numerous other corrective actions related to the alleged activity; and (iv) requires the lender to hire an independent consultant to assess the lender’s advertising and disclosure practices and report to the CFPB’s Enforcement Director.

Under the consent order, the individual owner is jointly and severally liable for the nearly $14.9 million redress judgment, and must pay a $1.5 million civil money penalty.

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