The Consumer Federal Protection Bureau is suing a Xenia mortgage payment processing company, a subsidiary and their owner, charging the companies with “misrepresenting” savings customers could achieve by increasing the frequency of mortgage payments.
The bureau’s complaint alleges that the company, Nationwide Biweekly Administration Inc., with subsidiary Loan Payment Administration LLC, made misrepresentations about Nationwide’s mortgage payment program to consumers, and collected some $49 million in “setup fees” from more than 100,000 consumers nationwide between 2011 and 2014.
The CFPB said it is seeking to stop what it called the “alleged unlawful practices” of the companies. It also wants a court to impose penalties and have consumers compensated.
In a written response to the newspaper Wednesday, however, Nationwide disputes the allegations and says its services save customers money.
“We genuinely respect the Consumer Financial Protection Bureau (CFPB) and its mission, so we are puzzled by the allegations in this suit,” Nationwide said in its statement. “We wish the agency attorneys had worked with us to discuss these issues before taking this action.”
Loan Payment Administration is a wholly owned subsidiary of Nationwide Biweekly Administration, the bureau said. The agency identified Daniel Lipsky as the sole owner of Nationwide, with management responsibility for both companies.
“These companies and their owner, Daniel Lipsky, took advantage of consumers with false promises of savings on their mortgage,” CFPB Director Richard Cordray said in a statement. “Homeowners deserve accurate information in the financial marketplace. Today we are taking action to end these illegal and deceptive practices, and to hold these companies accountable for their actions.”
The bureau said the company “transmits funds from consumers to their mortgage servicers.”
How it works
A spokesman on a video on Nationwide’s website — www.interestminimizer.com — invites viewers to understand that by switching to weekly or bi-weekly mortgage debit amounts — instead of the more typical monthly mortgage payments — they “will eliminate over six years of payments and $50,000 in interest charges.”
“That’s a lot of money,” the spokesman in the video says.
A chart — titled “sample comparison” — in the video says the number of “years to pay” is cut from 30 years to “23.8” years with a switch to bi-weekly payments, and a chart puts the amount of interest saved at $50,405.”
The chart shows a switch to weekly payments reduces the “years to pay” to “23.7” and the amount of interest saved to $50,934.”
Nationwide calls the service an “interest minimizer.”
According to the CFPB, consumers who enroll in the program send Nationwide half their monthly mortgage payment every two weeks, “effectively making one additional monthly payment per year. Nationwide charges consumers a setup fee of up to $995 to enroll in the program and charges consumers between $84 and $101 in payment processing fees each year they remain enrolled.”
The bureau said in a statement released Monday: “Many of the company’s marketing materials promise that consumers who enroll will save money, with language such as ‘Am I guaranteed to save money? Yes!’ Other documents contained statements like ‘soon you will be … saving thousands of dollars in unnecessary payments.’”
The bureau contends that Nationwide consumers will “pay more in fees than they save in interest for the first several years in the program, and that many consumers will leave the program without saving any money at all.”
Defend their program
In response, Nationwide said in its own statement that customers who use its program even for a single year “will save more over the term of their mortgage than they have paid to our company.”
“We recently analyzed our 100 oldest active customers and found that as of mid-April 2015, they had saved a combined $3,500,000 with only a combined $128,000 in fees (only 3.6 percent of the savings),” Nationwide said in written response to questions from the Dayton Daily News.
The CFPB alleges that these practices violate the Telemarketing Sales Rule and the Consumer Financial Protection Act’s prohibition against “unfair, deceptive or abusive acts or practices.”
The bureau added that its complaint “is not a finding or ruling that the defendants have actually violated the law.”
The lawsuit was filed Monday in the U.S. District Court for the Northern District of California. The CFPB says that 10,000 of the 100,000 consumers nationwide enrolled in the “interest minimizer” program are from California.
“We have a very thorough response that I believe we are going to be putting out later today,” Lipsky said when reached by phone Wednesday. He declined to answer questions, referring them to an attorney, who also declined to comment.
In their written statement, the company said:
“For more than a dozen years, Nationwide Biweekly Administration has been helping consumers save money by more quickly paying off their mortgages. We serve customers and are licensed in more than 40 states, one of the largest and most experienced payment processors for biweekly programs remitting payments to over 5,000 lenders for over a decade, and has a 97.3 percent customer satisfaction rating.
“Moreover, 98.4 percent of customers consider us to be their consumer advocate and 99.4 percent would recommend NBA’s Interest Minimizer program to someone else,” the statement added.
The Better Business Bureau gives Nationwide a rating of “A,” its second highest letter rating. The BBB’s website says it closed 127 complaints against Nationwide in the last three years and 27 complaints closed in the last year.
The CFPB said its charges against Nationwide include allegations that the companies “falsely promise” that consumers will see savings without paying more or they “falsely promise” immediate savings that in fact will take years to achieve. The CFPB’s complaint also alleges that the companies misled customers about the cost of their services and about claimed affiliation with mortgage lenders or servicers.
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