On August 12, the CFPB announced that it has issued a Consent Order under which Atlanta-based Amerisave Mortgage Corporation, its affiliate appraisal management company, Nova Appraisal Management Company, and a principal and indirect owner of both companies, Patrick Markert, agreed to pay nearly $21 million for deceiving and overcharging consumers in a bait-and-switch mortgage-lending scheme. The companies and principal did not admit or deny the CFPB’s findings of fact or conclusions of law.
According to the CFPB’s press release, “Amerisave lured consumers by advertising misleading interest rates, locked them in with costly up-front fees, failed to honor its advertised rates, and then illegally overcharged them for [undisclosed] affiliated “third-party” services.”
Between mid-2011 and 2014, the CFPB said, Amerisave advertised its interest rates and terms in all 50 states and the District of Columbia using banner ads and rate tables on third-party websites. According to the CFPB, these advertisements were inaccurate, and when consumers were directed to Amerisave’s own website, the company advertised interest rates based on an 800 credit score quote, even when the majority of consumers had already entered their own lower credit scores on the third-party websites that led them to Amerisave. The fact that the mortgage quote was actually based on an 800 credit score was not disclosed to consumers until after they began a mortgage application.
In addition, the Consent Order states that from at least January 2009 to May 2011, Amerisave charged consumers a $35 fee at the outset of a mortgage application, before Amerisave provided them with a GFE and the consumer indicated an intent to proceed. Although the CFPB cited the upfront fee restrictions under Regulation X and Regulation Z that apply to residential mortgage loans, the CFPB did not note that the Regulation X restriction applies to applications received on or after January 1, 2010 and the Regulation Z restriction applies to applications received on or after July 30, 2009. It appears that in referring to a “GFE” the CFPB is referring to the Good Faith Estimate under Regulation X and the initial TILA disclosure under Regulation Z. But in certain cases the CFPB is not clear regarding what conduct in its view violated which specific restriction under the Regulations.
The CFPB alleges that before the Regulation Z prohibition on imposing upfront fees beyond a bona fide and reasonable credit report fee became effective, the upfront $35 fee charged by Amerisave was an application fee. Then, around the time the prohibition became effective, the $35 fee was charged as a credit report deposit fee. The CFPB asserts that during this time, individual and joint credit reports actually cost Amerisave only $7.50 and $12, respectively.
The CFPB asserts that Amerisave also required consumers to order and authorize a $375 to $500 payment for an appraisal from Novo before receiving a GFE. The Consent Order states that Amerisave did not disclose Novo’s affiliation or that there was a 24 hour cancellation fee of 50% until after the consumer had authorized payment and at Amerisave’s encouragement, scheduled the appraisal for “as soon as possible.”
Addressing the effect on consumers, the CFPB states in the press release that “By leading customers to believe that they were already obligated to pay such costly fees, often $400 or more, Amerisave restricted consumers’ ability to shop for alternative products and better prices.” In the Consent Order, the CFPB asserts that “By marking up the cost of credit reports and requiring appraisal fee credit or debit card authorizations before giving consumers their first GFE and receiving an indication of the consumer’s intent to proceed with a loan covered by the GFE, Amerisave violated RESPA, Regulation X and TILA, Regulation Z.”
As we have previously covered, in Freeman, et al. v. Quicken Loans, Inc., the United States Supreme Court ruled that RESPA section 8 does not prohibit a single service provider from marking up the cost of a settlement service, such as a credit report. Potentially, the CFPB markup position is based on the upfront fee restrictions in Regulation X and Regulation Z. In particular, the Regulation Z restriction expressly requires that an upfront credit report fee be bona fide and reasonable. While HUD added an upfront fee restriction to Regulation X, RESPA does not provide for such a restriction or limit the amount of fees charged. If the CFPB were to assert that the Regulation X upfront fee restriction prohibits markups, we are not sure that a court would find that approach to be acceptable.
Finally, the CFPB asserted that Amerisave charged consumers $100 at closing for “appraisal validation” reports without disclosing that the service was provided by Novo, and that the reports were marked up by as much as 900%. Apparently based on its assertion that Amerisave referred appraisal-related business to Novo without disclosing the nature of its relationship with Novo to consumers, the CFPB concluded that the companies were not entitled to rely on the affiliated business arrangement exception to the RESPA referral fee prohibition.
Amerisave and Novo consented to refund $14.8 million to consumers and pay $4.5 million in civil money penalties. In addition, Markert agreed to pay a $1.5 million civil money penalty. However, Markert is jointly and severally liable with the companies to pay the full amount of the damages and civil money penalties. In connection with any redress to affected consumers, the Consent Order prohibits a redress payment from being conditioned on a consumer’s waiver of any rights.
Additionally, among other provisions, the Consent Order (1) bars Amerisave from advertising unavailable mortgage rates and requires various procedures to provide for accurate advertisements, (2) requires that Amerisave provide an affiliated business arrangement disclosure before making referrals, or requiring the use (when permitted), of an affiliate, (3) prohibits Amerisave from charging any fee other than the actual cost of a credit report before providing a GFE and affiliated business arrangement disclosure and the consumer has indicated an intent to proceed, and (4) prohibits Amerisave from scheduling an appraisal or otherwise making any referral of third party services (other than for a credit report) until it has provided a GFE and, in the case of referrals to or a permitted required use of an affiliate, an affiliated business arrangement disclosure.
The prohibition on the ordering of an appraisal may be viewed with concern by the industry. While the upfront fee restrictions bar charging a consumer for an appraisal before the consumer has received initial disclosures and indicated an intent to proceed, they do not expressly prohibit the ordering of an appraisal (although care must be taken to avoid suggesting to a consumer that they would be responsible for the cost even if they do not proceed with the transaction).