Editor's Note: This story has been updated since its original reporting to include a statement from New Day Financial.
WASHINGTON—The Consumer Financial Protection Bureau has taken action against New Day Financial (aka NewDay USA) for allegedly “deceiving” active duty servicemembers and veterans seeking cash-out refinance loans.
The CFPB alleged it found that NewDay USA gave misleading and incomplete cost comparisons to borrowers refinancing in North Carolina, Maine, and Minnesota, which made the company’s loans appear less expensive relative to their existing mortgages.
The company has responded by saying the CFPB did not show that any consumers were harmed. its full statement appears below.
The CFPB is ordering NewDay USA to pay a $2.25 million civil penalty to the CFPB’s victims relief fund.
According to the Bureau, New Day Financial, LLC is a non-bank direct mortgage lender headquartered in West Palm Beach, Fla., and specializes in offering mortgage loans guaranteed by the United States Department of Veterans Affairs (VA). The company currently operates under the brand NewDay USA, and uses patriotic imagery and other marketing tactics to build trust with military-connected families. Since at least 2015, NewDay USA has provided cash-out refinance loans to consumers, including veterans and active-duty servicemembers, the CFPB stated.
‘Misleading Information’
“NewDay USA gave borrowers misleading information about the costs of its cash-out refinances. Specifically, for the ‘new loan’ payment amount listed on disclosures provided to consumers, NewDay USA included only the principal and interest payments,” the CFPB said. “It then presented a side-by-side comparison of the ‘new loan’ payment amount with that of the ‘previous loan’ payment amount, which included principal, interest, taxes, and insurance. This made NewDay USA cash-out refinance loans appear less expensive relative to consumers’ original mortgages, but for many consumers the refinanced loans were more expensive.”
The CFPB said NewDay USA originated at least 3,000 cash-out refinances in North Carolina and Maine through 2020 and Minnesota through 2018, “most of which included the misleading comparisons.”
VA, Ginnie Mae Also Take Action
The CFPB said that it, the VA, and Ginnie Mae – which guarantees mortgage loans made through VA home loan programs and other governmental mortgage programs – “have long been concerned about the practice known as loan ‘churning,’ where lenders aggressively push veterans to repeatedly refinance their VA home loans, often unnecessarily.
“In some cases, after a veteran had obtained a cash-out refinance loan with a high rate and bad terms, they would quickly be inundated with refinance offers advertising a lower rate at an additional cost,” the CFPB continued. “As a result, while mortgage lenders profited from refinancing VA home loans through fees and selling the loans on the secondary market, borrowers may have faced higher overall costs.”
Earlier Actions
The Bureau further noted Ginnie Mae has previously taken action against a number of lenders – including NewDay USA – over concerns about alleged loan churning. Ginnie Mae limited the lenders’ ability to package and sell these loans to investors. Both Ginnie Mae and the VA have taken significant steps to rein in churning activity, the CFPB said.
The CFPB previously took action against New Day Financial in 2015 for paying illegal kickbacks and deceiving borrowers about a veterans’ organization’s endorsement of NewDay USA products.
What’s Been Ordered
The CFPB’s order requires NewDay USA to:
- Pay a $2.25 million fine. NewDay USA will pay a $2.25 million penalty to the CFPB’s victims relief fund
- Stop misrepresenting loan costs to borrowers. The CFPB’s order prohibits NewDay USA from misrepresenting facts about its mortgage loan products, including the monthly payment amount of any mortgage loan product or with misleading side-by-side comparison worksheets
Company Responds
Following the agreement witht he CFPB, NewDay USA CEO Rob Posner issued a statement saying, "NewDay USA has been under CFPB scrutiny for nearly a decade, beginning with a 2015 inquiry, when the agency decided to create new law questioning our marketing partnership with the Veterans of Foreign Wars. It was unprecedented. Today, after yet another exhaustive, government-funded investigation, the CFPB has unearthed nothing more than clerical errors that caused no financial harm to Veteran borrowers.
"This outcome highlights an environment of regulatory overreach that further underscores why so many lenders have left the VA mortgage industry. While lenders like NewDay are working diligently to make it easier for Veterans and their families to manage their finances and achieve the American dream of homeownership,the CFPB is creating obstacles. Veteran families should expect more and deserve better.”
In its statement, NewDay noted it operates in 44 states and the District of Columbia and that the CFPB claims involved only three of those states and focused on a single type of disclosure that was "accurately provided to these consumers on a half-dozen other federally mandated disclosures and closing documents."