Loan Company Financer Enforcement Action Highlights Consumer Financial Services Law Compliance and Due Diligence

3 min

The New York Attorney General (NY AG) and Superintendent of Financial Services have entered into a settlement with an investor over financing and assistance to a rent-to-own home company alleged to have engaged in illegal, unlicensed mortgage-lending activity.

Details: Under the settlement, the investor will pay $2.4 million in consumer restitution ($20,000 for each identified property), a civil penalty of $250,000, and additional relief of about $123,800, and will cooperate with DFS and the NY AG's Office in their litigation against the rent-to-own company, its affiliates, and its CEO.

The bigger picture: The regulators alleged violation of the federal Consumer Financial Protection Act, and state consumer protection and lending laws. Besides restitution and penalties, the settlement also prohibits the investor from engaging in any unfair, deceptive, or abusive acts or practices, or repeated fraud, and requires the company to perform due diligence before "funding, participating in or providing assistance to any project, venture or investment by a company, or upon developing reason to believe that any such existing project, venture or investment may be in Violation of Law." All documents and materials related to such diligence must be kept for 3 years.

DFS and NY AG filed a lawsuit in August 2019 against the rent-to-own company, its affiliates, and its CEO, alleging that the company engaged in deceptive, unlawful, unfair and abusive practices, including offering disguised seller-financed loans as lease-with-option-to-purchase agreements and engaging in unlicensed mortgage lending.

An investigation by DFS and the NY AG's Office found that investor had knowledge of the terms of seller-financed loans, and other iterations of the agreements, and how they were priced, accounted for, and represented to consumers, according to the settlement. In addition, the investor knew or should have known that the lender was not providing consumers with all legally required disclosures designed to help them understand the terms of their transactions and that lender was not licensed to make and originate loans in New York. By funding lenders' operations and helping to structure the consumer agreement, the investor also enabled the lender to allegedly carry out its deceptive abusive and fraudulent acts and practices.

The NY DFS announced in late April 2019 the creation of a new Consumer Protection and Financial Enforcement Division.

More details:

A copy of the settlement agreement can be found on the DFS website.

A copy of the NY DFS press release is available at:
https://www.dfs.ny.gov/reports_and_publications/press_releases/pr1908271

A copy of the NY AG's press release is available at:
https://ag.ny.gov/press-release/attorney-general-james-and-superintendent-lacewell-hold-hedge-fund-responsible-more-25


Related articles:

Issues To Avoid In Fintech, Consumer Financial Services M&A

New York DFS Calls for Increased Regulation of Online Lending in Industry Report

New York DFS Announces New Consumer Protection and Financial Enforcement Division

"Navigating CFPB, FTC, and State Attorneys General Consumer Protection Investigations" for LeadsCouncil