Compliance Blog

Last week, the Consumer Financial Protection Bureau (CFPB) announced the filing of a complaint and proposed judgment against American Advisors Group (AAG) in the U.S. District Court for the Central District of California for violations of the Consumer Financial Protection Act (CFPA) and a 2016 administrative consent order. According to the complaint, AAG “offers and provides reverse mortgages, products marketed toward consumers 62 years and older that allow homeowners to borrow money using their home’s value as security for the loans.”

This is not the first time the CFPB has taken action against AAG. In 2016, the CFPB filed a Consent Order against AAG alleging that AAG made misrepresentations in the marketing of its reverse mortgage products.

Alleged Conduct

In its complaint, the CFPB alleges the following conduct:

·       Solicited costumers to open reverse mortgages with AAG using inflated estimated home values;

·       Made false assertions regarding the accuracy and reliability of the provided estimated home values;

·       Inflated estimated home values by an average of 18% where an appraisal occurred, and by an average of 28% where no appraisal occurred; and

·       Violated a 2016 consent order by making deceptive statements in its marketing materials; specifically, “[t]he 2016 Consent Order prohibited AAG from violating the CFPA for five years, or until December 2021.”

Credit unions can find the text to the CFPA that discusses the CFPB’s authority over the above violations here.

Proposed Judgment

If entered, the proposed judgment would require AAG and its staff to take the following actions:

·       Refrain from violating sections 1031 or 1036(a)(1)(B) of the CFPA;

·       Refrain from misrepresenting or assisting others in misrepresenting any material fact to a consumer in connection with any advertising, marketing, promotion, offering for sale, sale, or performance of any consumer financial product or service;

o   This requirement is not limited to estimated home values.

·       Have all executive officers, market, and compliance personnel attend mandatory training covering legal requirements related to mortgage advertising;

·       Within 90 days of the effective date of the consent order, AAG’s advertising compliance official must ensure that a URL link to “CFPB’s Reverse Mortgage: A Discussion Guide” is included on all direct-mail solicitations to prospective borrowers;

·       Ensure that a URL link to “CFPB’s Guide, You have a reverse mortgage: Know your rights and responsibilities” is included in a welcome communication to new borrowers;

·       Within 60 days of the effective date of the consent order, AAG must submit a comprehensive compliance plan designed to ensure that AAG’s reverse mortgage advertising complies with the consent order;

·       The plan must include, at a minimum:

o   Steps for addressing the actions required by the consent order;

o   Compliance policies and procedures for evaluating advertisements for compliance with the CFPA;

o   Explanation of AAG’s consumer-compliance organization and reporting structure;

o   Description of job duties of employees with duties under the advertising compliance policy;

o   Requirement that AAG allocate resources to compliance;

o   Requirement to provide ongoing education and training in compliance;

o   Requirement that the plan is regularly reviewed and updated;

o   Requirement of timely and appropriate corrective action; and

o   Timeframes and deadlines for implementation of the plan.

·       Reserve $174,400 in order to provide redress to the affected consumers;

·       Pay a civil money penalty of $1,100,000; and

·       Maintain certain business records for a period of at least five years from the effective date of the consent order.

While many credit unions do not offer reverse mortgages, credit unions can still learn from this action. Especially if the credit union offers other real-estate backed products, such as mortgages, refinancings, and HELOCs. Generally, most real-estate backed products require an appraisal of the real-estate securing the loan. As such, credit unions may want to take care if they make any claims towards an estimated value of a member’s real estate. Specifically, credit unions may want to take note that the CFPB took issue with the following:

“AAG stated in marketing materials to consumers that it ‘makes every attempt to ensure the home value information provided is reliable.’ In fact, AAG made no real attempt to ensure that the home valuations it provided to consumers were reliable.” (Emphasis added).

If a credit union provides its members with an estimated home valuation, it may want to document the steps it takes to ensure reliable valuations, as an examiner may very well want to understand the credit union’s process for providing home valuations.

For general appraisal guidance, members of NAFCU can review this 2020 Compliance Monitor article.

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NAFCU Members: NAFCU needs your help. NAFCU's Research team periodically surveys our members about how exams are going. This helps us track where the industry has seen improvements in exams, and where there is still room for progress. Member credit unions are encouraged to share their insights and perspective on issues related to NCUA exam reform via this month's Economic & CU Monitor survey. Responses to the survey are due today, October 15, 2021; the survey can be filled out online.