In a complaint filed yesterday in a California federal court, the CFPB alleges that two related companies offering a biweekly mortgage payment program and their individual owner engaged in deceptive telemarketing acts or practices that violated the Telemarketing Sales Rule and abusive and deceptive acts or practices that violated the Consumer Financial Protection Act.  The complaint seeks redress for harmed consumers, civil money penalties, and injunctive relief.

One of the defendants, Nationwide Biweekly Administration, Inc., is described in the complaint as offering a program called the “Interest Minimizer” under which most consumers who enroll divide their monthly payments in half and remit their payments to Nationwide every two weeks.  Nationwide holds the funds and promises to send the consumer’s monthly payment to the lender or servicer before the monthly due date.  The other defendant company, Loan Payment Administration LLC, is described in the complaint as offering Nationwide’s services to consumers.

The complaint alleges that (1) because most mortgages require 12 monthly payments but consumers making biweekly payments send Nationwide 26 payments each year, the program results in the equivalent of an extra monthly payment each year, (2) the program also results in three biweekly payments every six months, (3) consumers are charged a setup fee of up to $995 to enroll in the program and per payment processing fees totaling approximately $84 to $101 annually, and (4) defendants advertised the program online and through direct mail and a television infomercial.

According to the complaint, the defendants’ unlawful conduct included:

  • Falsely representing that consumers could achieve savings without paying more when, in fact, consumers enrolled in the program increased their monthly payment through payment of the initial setup fee and processing fees, plus the equivalent of one additional monthly payment each year.
  • Falsely representing immediate savings that in fact would take many years to achieve and when most consumers would leave the program before realizing any savings.
  • Misleading consumers about the cost of the program by stating in marketing materials that consumers’ extra payments are fully directed to loan principal when, in fact, the company keeps the first extra biweekly payment as the setup fee.
  • Falsely representing that consumers could not achieve similar savings without the defendants’ program.