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Two Mortgage Companies Hit With Over $1M In Fines By CFPB

Keith Griffin
Jul 25, 2020
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The Consumer Financial Protection Bureau issued consent orders against Sovereign Lending Group Inc. and Prime Choice Funding Inc. The bureau found that the companies mailed consumers advertisements for VA-guaranteed mortgages that contained false, misleading, and inaccurate statements or lacked required disclosures
According to a CFPB announcement, the consent order against Sovereign requires it to pay a civil penalty of $460,000. The consent order against Prime Choice requires Prime Choice to pay a civil penalty of $645,000.
The bureau found that Sovereign and Prime disseminated advertisements that contained false, misleading, and inaccurate statements or that failed to include required disclosures. For example, Sovereign and Prime Choice advertisements misrepresented the credit terms of the advertised mortgage loan by stating credit terms that the company was not actually prepared to offer to the consumer.
Sovereign and Prime Choice advertisements misleadingly described an advertised introductory interest rate as a “fixed” rate, when in fact the rate was adjustable and could increase over time. Sovereign and Prime Choice advertisements also created the false impression that they were affiliated with the government by using words, phrases, images, or designs that are associated with the VA or the Internal Revenue Service.
Sovereign is a California corporation that is licensed as a mortgage broker or lender in about 44 states and the District of Columbia. Prime Choice is a California corporation that is licensed as a mortgage broker or lender in about 35 states and the District of Columbia. Both companies offer and provide mortgage loans guaranteed by the U.S. Department of Veterans Affairs. Their principal means of advertising VA-guaranteed loans is through direct-mail advertisements sent primarily to United States military servicemembers and veterans.
The actions stem from a bureau sweep of investigations of multiple mortgage companies that use deceptive mailers to advertise VA-guaranteed mortgages. The bureau commenced this sweep in response to concerns about potentially unlawful advertising in the market that the Department of Veterans Affairs identified.
The bureau also found that both Sovereign and Prime Choice advertisements used the name of the consumer’s lender in a misleading way by not adequately disclosing their own names and the fact that they were not associated with, or acting on behalf of, the consumer’s current lender, as required by Regulation Z. Sovereign advertisements made false claims about consumer’s existing loans, and falsely implied that the consumer could address these problems by obtaining a loan from Sovereign.
Sovereign and Prime Choice advertisements also failed to properly disclose, when required by Regulation Z, credit terms for the advertised mortgage, such as the consumer’s repayment obligations over the full term of the loan and the period during which certain interest rates would apply. Further, Prime Choice advertisements created the false impression that they contained a property assessment as well as misleading comparisons between hypothetical credit terms and the terms of the advertised product.
The consent orders also impose injunctive relief to prevent future violations, including requiring the companies to bolster their compliance functions by designating an advertising compliance official who must review their mortgage advertisements for compliance with mortgage advertising laws prior to their use; prohibiting misrepresentations similar to those identified by the Bureau; and requiring the companies to comply with certain enhanced disclosure requirements to prevent them from making future misrepresentations.
By consenting to the orders, neither Sovereign or Prime Choice admit or deny any of the findings of fact or conclusions of law, except that they the facts necessary to establish the Bureau’s jurisdiction over them and the subject matter of this action.
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