SAN FRANCISCO (CN) – The president of a mortgage payment company on Wednesday denied using misleading sales tactics to bilk homeowners out of money during a bench trial that is expected to test the power of the Consumer Financial Protection Bureau.
Daniel Lipsky, president and owner of Ohio-based Nationwide Biweekly Administration, testified that his company’s telemarketing scripts and mailers were designed to educate borrowers about its “Interest Minimizer” program, not deceive consumers.
“Lenders want to sustain debt for profit and make money off interest,” Lipsky said. “Our program’s about the success of interest saved.”
The Consumer Financial Protection Bureau claims Nationwide lied about how quickly customers would achieve savings, misrepresented its relationships with lenders, failed to disclose a hidden setup fee, and instructed employees not to be truthful during sales calls.
The company collected more than $73 million in “improperly disclosed, nonrefundable setup fees” for more than 126,000 customers nationwide from 2011 to 2015, bureau attorney Patrick Gushue said during opening arguments this week. During those four years, Lipsky earned more than $33 million in shareholder proceeds, according to the bureau.
In court filings, Nationwide accused the bureau of using a Justice Department initiative called Operation Choke Point to unfairly disrupt its business relationships without due process. The company claims the initiative, launched in 2013, “seeks to eliminate certain lawful businesses disfavored by CFPB and other federal agencies” by using their power to “quietly coerce banks to terminate their relationships with the disfavored business.”
Nationwide says it had to terminate or suspend its program for 130,000 customers after the bureau named four of its banking partners in a public court filing in June 2015.
The bureau has come under fire from Republican lawmakers, including Sen. Ted Cruz, R-Texas, who co-sponsored a bill in February that would eliminate the consumer watchdog. The bureau was created in 2011 by the Dodd-Frank Wall Street Reform and Consumer Protection Act, passed in 2010 as a response to the financial crisis of 2007-2008.
Before Lipsky took the stand Wednesday, the bureau’s expert witness Neil Librock testified it would take the average Nationwide customer nine years for the amount of interest saved to surpass the fees charged by Nationwide.
Nationwide attorney Lisa Messner attempted to poke holes in that finding, questioning why Librock based his analysis on only one loan sample that failed to factor in typical costs like escrow accounts and homeowner’s insurance.
The company’s Interest Minimizer program is designed to reduce borrower’s interest over time by collecting weekly or biweekly payments for mortgage payments due each month, creating extra payments to pay down interest every few months.
When Lipsky took the stand, bureau attorney Gushue showed the company president a copy of a “Q&A” document that instructed sales reps “Do NOT SAY ‘No'” when asked if Nationwide works with a homeowner’s mortgage lender.
“My instruction was don’t give a one word answer because it might confuse the customer,” Lipsky said.
The Nationwide president also defended the company’s decision to feature the name of a specific homeowner’s lender on direct mail marketing letters and envelopes. Nationwide was accused of misleading consumers to believe it had an official relationship with those lenders when it did not.
“It helped them to make a connection that it was a valid service for that loan with that specific lender,” Lipsky said, adding the company also included a disclosure in those mailers stating that Nationwide was not affiliated with the lender.
Lipsky’s company was also accused of failing to disclose a hidden setup fee of up to $995, which it did not charge consumers until several months after they signed up for the service.
That fee was clearly disclosed in customer contracts, Lipsky said, adding that just like in TV ads for Coca Cola and attorneys, his company is not legally required to quote the exact price of its service in advertising and marketing materials.
Throughout his testimony, Lipsky tried to evade taking full responsibility for approving the scripts, Q&A documents and mailers used by Nationwide.
“I was part of the approval process,” Lipsky said, adding it was often his company’s legal team that had the final say on those materials.
In his last direct question to Lipsky, Gushue named each top lawyer for Nationwide, asking if those individuals run the company.
Lipskey replied those employees “are part of the running of Nationwide,” and that he is “part of the decision-making process.”
U.S. District Judge Richard Seeborg then interjected.
“Let me try to cut this short,” Seeborg said. “You have ultimate responsibility for the decisions that are made by the company. Isn’t that right?”
After Lipsky answered affirmatively, Seeborg replied, “I think that’s been established.”
Nationwide, its subsidiary Loan Payment Administration and Lipsky are accused of violating the Consumer Financial Protection Act of 2010, the Telemarketing and Consumer Fraud and Abuse Prevention Act, and its implementing regulation, the Telemarketing Sales Rule.
The trial is expected to continue through May 9.