Donald Trump’s new head of the Consumer Financial Protection Bureau (CFPB) is undermining his predecessors’ work.
Last week, Mick Mulvaney, who is also a top budget adviser, took control of the agency he has long criticized for its aggressive regulatory enforcement. This week, CFPB lawyers abruptly reversed course on one nearly-concluded case, saying a company that misled its customers didn’t need to put up a bond for $8 million civil penalty.
Nationwide Biweekly Administration, Inc. is the kind of project the CFPB was designed to investigate under a mandate to enforce fair disclosure to consumers. Nationwide used aggressive telemarketing and infomercial campaigns to convince home owners with mortgages to enroll in a program called the “Interest Minimizer.” Nationwide promised “immediate savings” if it could act as a middle-man between the home owner and their lender, collecting payments every two weeks rather than monthly.
According to the CFPB, this was not, in fact, true. Though paying biweekly instead of monthly does mean effectively making an extra payment each year, Nationwide kept the first payment as fee and charged additional fees per payment. Per the CFPB’s calculations, it would take nine years in the program for a customer to recoup the fees paid, and 20 years before she realizes half the savings promised by Nationwide. Only 25% of borrowers remained in the program more than four years.
As the CFPB put it in its complaint, “in Nationwide’s Lifetime infomercial aired in 2014, [owner Daniel Lipsky] claimed, ‘last year alone we helped our customers eliminate over $161 million in interest charges.’…Nationwide’s customers did not save $161 million in interest charges in 2013.” But the company did collect $49 million in fees between 2011 and 2014.
A federal judge in California didn’t agree with all of the CFPB’s charges and said that it had adequately disclosed the first annual fee, writing that “the ‘distinctive, eye-catching bold text’ stating ‘NO UPFRONT FEE’ serves as an implied warning that there likely were some fees, rather than deception.” He declined to order Nationwide to repay its customers directly, or force Lipsky to give up his profits.
On three other counts, the company was found to be acting in a misleading manner: It labeled mailers to appear as though they were from the customer’s mortgage lender, adding phrases like “Second Notice” to make them appear official. It said its program was the only way to cut mortgage interest costs over time, though some consumers could pay bi-weekly instead of monthly directly to their lender.
And, they used math to imply that decades of savings would be available to consumers up front. The judge writes that, “upon being told, for example, that there will be $1500 in interest savings the first year, a reasonable consumer can be misled into believing that his or her actual interest payments to the lender that year will be $1500 less than if he or she elects not to buy the IM program.”
Ultimately, the court ordered the company pay a civil penalty of nearly $8 million and issued a lengthy order specifically prohibiting the actions Nationwide was taking to mislead potential customers.
Nationwide has been fighting a requirement that it put up a bond for the cost of its fine while it appeals the judge’s decision. Attorneys for Lipsky, who earned $33 million from Nationwide, say neither he nor his company can afford to pay for the bond. Instead, they proposed to re-open the business.
On Nov. 27, as Mulvaney walked into the office, the CFPB’s attorneys filed a motion arguing that the bond was necessary. The CFPB was skeptical about the company’s plan to re-open and pay them back, since it was prohibited from “making the widespread deceptive misrepresentations underlying those earlier profits.” They also worried that Lipsky might hide his gains or move them offshore. A bond was the only way to secure a real penalty for taking advantage of the public.
Two days later, the CFPB abruptly withdrew the motion. Absent opposition, the court ruled that Lipsky and Nationwide would not need to put up a bond. The decision could allow Lipsky to re-open Nationwide, which still has more than 100,000 customers. If the new-look CFPB takes the same approach to his appeals, he may face no penalty at all.
Thus, the more genteel treatment of white-collar wrongdoers that the president promised—consumer protection, Trump style.