On February 27, 2023, the Consumer Financial Protection Bureau (CFPB) entered into a consent order against RMK Financial Corporation d/b/a Majestic Home Loan (RMK), a California-based mortgage lender, based on allegations that it falsely implied government endorsement of its home loans in its marketing. The consent order, which addressed numerous alleged statutory and regulatory violations and a failure to comply with an earlier consent order, prohibits RMK from engaging in any mortgage lending activities (or from receiving remuneration from mortgage lending) going forward, effectively shutting it down. RMK also agreed to pay a $1 million civil money penalty.
The severity of the order is a result of the CFPB finding that RMK’s alleged actions occurred despite a 2015 Consent Order specifically prohibiting specific practices. In that earlier consent order, the CFPB alleged that RMK sent direct mail advertisements to military servicemembers and veterans containing the names and logos of the Department of Veterans Affairs (VA) and the Federal Housing Administration (FHA) in a way that falsely implied that the advertisements were sent by the VA or FHA, or that the advertised mortgage products were endorsed or sponsored by the VA or FHA.
The Bureau also alleged that RMK’s advertisements failed to satisfy requirements under the Truth In Lending Act (TILA) and Regulation Z for advertising variable rate loans and misrepresented interest rates and estimated monthly payments, such as by misleading consumers to believe advertisements were for fixed-rate rather than variable-rate loans. In addition to the alleged TILA/Regulation Z violations, the CFPB asserted that these acts were in violation of the Consumer Financial Protection Act of 2010 (CFPA) and Regulation N (the Mortgage Acts and Practices Advertising Rule). Regulation N bars material misrepresentations about the terms of a mortgage product in a commercial communication, including misrepresentations regarding the relationship between a credit provider and a government. RMK settled the 2015 action by paying a $250,000 civil money penalty, agreeing to cease the alleged unlawful practices, and consenting to reporting and recordkeeping requirements.
The CFPB alleged that, despite the earlier consent order, the prohibited acts continued. For example, RMK allegedly disseminated over seven million advertisements between 2015 and 2019 that made false or misleading representations or contained inadequate or impermissible disclosures, in violation of the 2015 consent order, the CFPA, Regulation N, and Regulation Z. The Bureau stated that “[m]any of the advertisements reflected the same types of deceptive and other unlawful advertising practices” that were expressly prohibited by the earlier consent order. It further found that “many, if not all, of these unlawful practices occurred at the direction of [RMK’s] late Chief Executive Officer and sole owner or, at a minimum, with his knowledge, despite concerns and objections expressed by [RMK’s] compliance vendor and compliance officer that the advertisements were deceptive or otherwise violated Federal consumer financial laws.”
The CFPB alleged that many of the actions took place shortly after the 2015 consent order. For example, the Bureau alleged that RMK sent advertisements to about 10,000 consumers in May 2016 that featured a fake VA seal with design elements similar to the official VA seal. The fake seal below (on the left, next to the real VA seal on the right), included the name of the VA’s Interest Rate Reduction Refinance Loan product.
It is unclear why the new consent order was issued close to eight years after the first consent order, when the CFPB alleged that conduct prohibited by the 2015 consent order began occurring within months after that consent order, including during the period in which RMK was obligated to report its consent order compliance to the CFPB.
The CFPB issued a series of consent orders in 2020 against other lenders as part of “an ongoing sweep” of investigations into companies allegedly using false and misleading advertising to servicemembers and veterans. Similarly, the FDIC has more recently focused on the use and misuse of the FDIC name and logo and the misrepresentation of insured status by non-bank entities. (A podcast on the use of the FDIC name and logo can be found here.)