Our financial services litigation team is examining the latest efforts by the Office of Consumer Financial Protection to crack down on deceptive and unfair acts and practices – is this a harbinger of things to come under the Biden administration?
- A panoply of allegedly violated acts
- Accusation that the lender’s business model is misleading
- How can this show what’s on the horizon?
The number of enforcement actions taken by the Consumer Financial Protection Bureau (CFPB) more than doubled from 2019 to 2020. The CFPB has made it clear that the crackdown on deceptive and unfair acts and practices under the Consumer Financial Protection Act of 2010 (CFPA) remains a focus, with 11 out of 15 complaints filed last year alleging such violations.
Earlier this month, the CFPB filed yet another complaint alleging unfair and deceptive acts or practices in violation of the CFPA. As a new year and a new administration dawn, this litigation may be the proverbial canary in the coal mine for others in the financial services industry. As the case progresses and information is tabled, the tone and direction of the new administration can be brought to light.
CFPB c. 1st Alliance Lending LLC
On January 15, 2021, the CFPB filed a complaint in U.S. District Court for the District of Connecticut against 1st Alliance Lending LLC and its executive members. CFPB alleged in its complaint that 1st Alliance and managing members violated CFPA, Equal Credit Opportunity Act, Fair Credit Reporting Act, Mortgage Laws and Practices – Disclosure Rule and the Law on Truth in Loans.
According to the complaint, from 2015 to August 2019, 1st Alliance engaged in various illegal practices in connection with its mortgage lending business. Specifically, the CFPB alleges that unauthorized employees of the 1st Alliance engaged in mortgage origination activities and other interactions with consumers that required these employees to be licensed under Federal and Federal Laws on the secure and fair application of mortgage licenses (SAFE). These unlicensed employees reached out to potential clients via email, text, and phone and conducted intake calls with potential borrowers, during which they discussed interest rates and other loan terms, taken credit decisions and sometimes disqualified consumers. Company employees regularly asked consumers to submit verification documents before issuing a loan estimate, denied credit to consumers without written notice, and made false claims and misrepresentations to consumers. These statements included assuring consumers that they would be eligible for a mortgage when 1st Alliance had already received disqualifying consumer information. Employees also repeatedly made representations to consumers about the availability and terms of FHA Streamline refinance loans when they had no way of knowing the truth or falsity of their statements.
The CFPB further alleged that 1st Alliance’s business model was based on deceptive and unfair acts or practices. Its unlicensed employees have presented themselves to the public as approved loan initiators in consumer solicitations and on social media, all to the knowledge of the executive members. According to the CFPB, 1st Alliance’s use of unqualified and unlicensed employees deprived consumers of important, accurate and timely information on loan terms, resulting in wasted time and money.
The CFPB seeks an injunction, as well as damages, consumer redress, restitution, civil fines and costs.
The CFPB is expected to pursue an even more aggressive agenda under the leadership of President Biden Rohit Chopra’s candidate. This litigation should be seen as a potential barometer of the new administration’s approach to enforcement and the statutes involved in the litigation.