SAN FRANCISCO (CN) – A consumer watchdog can’t claw back $107 million from a mortgage payment company and its CEO for misleading borrowers, but the company must pay a $7.3 million fine for its misconduct, a federal judge has ruled.
In a ruling issued Friday night, U.S. District Judge Richard Seeborg found the Consumer Financial Protection Bureau failed to prove it would be “appropriate” to make Nationwide Biweekly Administration return $73.9 million in “hidden” setup fees it charged 126,500 borrowers from 2011 to 2015. The judge also found it unwarranted to strip the company’s CEO Daniel Lipsky of $33 million he gained in shareholder profits.
During a six-day bench trial held in May 2017, the bureau presented a dozen witnesses to prove that Nationwide misled borrowers about the fees and benefits of its Interest Minimizer program for mortgage payments.
The bureau claimed the Ohio-based company lied about how quickly borrowers would save money, misrepresented its relationships with lenders, failed to disclose a hidden setup fee, and instructed employees to be dishonest during sales calls.
Seeborg found Nationwide misled some consumers about its relationships with lenders and savings they would achieve through Nationwide versus biweekly payment programs offered by some lenders. However, because the bureau failed to show precisely how many consumers were affected by those misrepresentations, the judge found it would be inappropriate to strip Nationwide of every dollar it charged in setup fees.
“CFPB has not offered a basis for any restitution that might be limited in some way so as to make it a just result,” Seeborg wrote in his 24-page ruling.
However, the judge did grant the bureau’s request to impose the maximum statutory penalty on Nationwide for violating consumer protection laws. The company must pay $7.3 million for misconduct that occurred from July 2011 through November 2015. Nationwide, its subsidiary Loan Payment Administration, and Lipsky are jointly and severally liable for the fine.
Seeborg found the company’s promotional mailers were designed to mislead borrowers into thinking they had an obligation to respond to the letters. Some of the mailers were marked with “Second Notice” and contained statements including, “If you waive the biweekly option, you will be asked to confirm that you understand you are voluntarily waiving the interest saving and loan term reduction achieved with the biweekly option.”
But the judge rejected claims that Nationwide failed to disclose a setup fee capped at $995 for its program, finding consumers were informed the deferred fee would equal one biweekly debit and be withdrawn the first time a debit occurred more than twice in one month.
“CFPB’s insistence that it is too much to ask the consumer to ‘cross-reference’ the set-up fee amount to the known amount of the bi-weekly payment is not persuasive,” Seeborg wrote.
The judge also rejected Nationwide’s counterclaims accusing the bureau of using a Justice Department initiative called Operation Chokepoint to pressure banks to stop working with the company, even though it had not been found guilty of any wrongdoing.
The judge found Nationwide presented no evidence that the bureau used “extra-judicial pressure” on banks, and that Lipsky’s testimony showed the CEO had “drawn his own conclusion that the banks terminated the relationships because CFPB’s mere identity as the plaintiff in this action.”
Seeborg ordered both parties to work together to draft the language for an injunction that will allow Nationwide to continue promoting its Interest Minimizer program but eliminate deceptive elements from its promotional materials. If the parties can’t agree on one version, the judge said they can submit separate proposals for the injunction.
Nationwide’s attorney Helen Mac Murray said in an email Monday that her client was glad the court rejected the bureau’s “outrageous monetary requests totaling over $100 million.”
“Although NBA doesn’t agree with the court on the claims it took issue with and the significantly smaller than demanded penalty awarded by the court, it is grateful that someone finally told the CFPB they have limits,” Mac Murray said.
Although the judge denied the bureau’s request for more than $100 million in restitution and disgorgement, the bureau said it still views the ruling as a victory for consumer protection.
“We are pleased the court found we had proven that the defendants engaged in unlawful practices that harmed tens of thousands of consumers, and rejected the counterclaims against the bureau,” a spokesman said in an email. “We are continuing to review the order, and because the case is still pending, we have no additional comments at this time.”