A mortgage payment program that bills itself as “one of the greatest financial secrets of our time” is in hot water with the Consumer Financial Protection Bureau, which on May 11 filed a lawsuit in federal court alleging the program misled consumers and made false promises they could save thousands of dollars in mortgage interest.
The lawsuit takes aim at the “Interest Minimizer” (IM) mortgage program, a biweekly mortgage payment program offered by Nationwide Biweekly Administration Inc., a company based in Xenia, Ohio, that transmits consumer funds to their mortgage lenders or servicers.
Also named in the lawsuit are Loan Payment Administration LLC (LPA), a wholly owned subsidiary of Nationwide, and Daniel S. Lipsky, the founder, president, sole officer and sole owner of Nationwide who has managerial responsibility for both companies.
Consumers who enroll in the program send half their monthly mortgage payment every two weeks, effectively making one additional monthly payment per year. Nationwide charges the program’s participants a setup fee of up to $995, then a processing fee of $3.50 with each biweekly payment.
Nationwide primarily advertises the IM program by sending direct-mail solicitations to consumers who have recently purchased homes or refinanced their mortgage loans. Using its name and LPA’s, Nationwide also advertises via several websites, including interestminimizer.com, which feature numerous videos of Lipsky explaining Nationwide’s IM program.
In the videos, Lipsky invites consumers to learn about “one of the greatest financial secrets of our time — one you can use to save thousands of dollars in interest charges.”
“Each year, millions of Americans pay billions of dollars in unnecessary interest charges, and lose out on growing their home equity much faster. How much money in home equity are you losing to interest payments? Chances are, it’s a lot more than you realize. For most of us, it’s thousands of dollars every year. It doesn’t have to be that way.
“Most of us, we budget wisely, we shop for items on sale and then we make sure we can get a good deal for our hard-earned money. But when it comes to paying interest, most of us are needlessly giving away our money — actually losing it, and we don’t know it. Fortunately, there is something you can do about it,” Lipsky says, calling the IM program “a safe, convenient and proven way to cut tens of thousands of dollars in interest charges.”
The companies also ran a paid infomercial about the program on the Lifetime television network in September 2014.
But although the companies promised consumers they would save thousands of dollars on their mortgages, the CFPB alleges that consumers will actually pay more in fees than they save in interest for the first several years — and some consumers may leave the program without having saved any money at all. Only about a quarter of consumers enrolled in the program in 2014 had been enrolled for longer than four years, the CFPB alleges.
The CFPB’s lawsuit gives one example of a consumer’s potential experience: “According to Nationwide, in 2013 the median consumer using the IM program for a 30-year fixed-rate mortgage had a mortgage loan of $160,204 and an interest rate of 4.125 percent. A biweekly consumer in the IM program with those loan terms will not save enough to recoup the fees she has paid Nationwide until she is nine years into the program.
“By that point, she will have paid more than $1,200 in fees to Nationwide. A biweekly consumer in the IM program with those loan terms will not realize ‘monthly interest savings’ of the type advertised by Nationwide until she has been enrolled in the program for approximately 14 years. She will not realize half of the total savings defendants promise until she has been enrolled for more than 20 years.”
According to the lawsuit, approximately 10,000 California residents are enrolled in the program, and from 2011 to 2014, Nationwide collected about $49 million in setup fees.
The CFPB alleges the companies falsely promised consumers they could achieve savings without paying more, told consumers they would see “immediate” savings when this would actually take years to achieve, and misled consumers about the costs of the program, specifically the setup fees.
The lawsuit also claims Nationwide falsely claimed to be affiliated with mortgage lenders or servicers. On its website, the company says it “administers the biweekly program on behalf of its customers to over 5,000 national and local lenders, banks and credit unions across the United States.” According to the website, those affiliates include top mortgage lenders like JPMorgan Chase, Quicken Loans, U.S. Bank, Wells Fargo Bank NA and CitiMortgage Inc.
The bureau’s lawsuit seeks relief under the Consumer Financial Protection Act of 2010, and the Telemarketing and Consumer Fraud and Abuse Prevention Act and its implementing regulation, the Telemarketing Sales Rule. The CFPB is asking the court for a permanent injunction, restitution, civil money penalties and court costs.
The lawsuit was filed in the U.S. District Court for the Northern District of California. According to the CFPB, the lawsuit was filed in this court and should be assigned to its San Francisco or Oakland divisions because “a substantial part of events or omissions giving rise to the claims occurred here. Defendants have advertised and sold their products and services to consumers who reside in the counties in these divisions, as well as consumers nationwide.”
The CFPB’s complaint is not a finding or ruling that the defendants have actually violated the law. The named defendants have not yet responded to the lawsuit.
Lawsuits filed in federal district court are one of the types of enforcement actions the CFPB may take. The bureau also has the authority to bring actions in administrative proceedings and settlements. To date, the CFPB has used these different enforcement authorities equally. A number of factors, including the size of the defendant company, often play a factor in its choice of forum.