The NewDay Deception
CFPB File No. 2024-CFPB-0008
TL;DR: The Receipts
- WHO: New Day Financial, LLC, a national mortgage originator specializing in VA loans for veterans.
- WHAT: The company created deceptive worksheets that made their cash-out refinance loans look cheaper than they really were. They compared a “new” monthly payment including only principal and interest against the “old” payment that also included taxes and insurance.
- SCALE: This happened on at least 3,000 loans in North Carolina, Maine, and Minnesota.
- VICTIMS: Primarily U.S. veterans and active-duty service members, many with lower credit scores.
- OUTCOME: NewDay was ordered to pay a $2,250,000 civil money penalty by the Consumer Financial Protection Bureau (CFPB).
The Non-Financial Ledger
New Day Financial, LLC, a non-bank lender, targeted a specific, vulnerable population: veterans and active-duty members of the armed forces. Many of these customers had lower credit scores and were already carrying significant consumer debt. NewDay offered them VA-guaranteed cash-out refinance loans, a financial product that allows homeowners to borrow up to 100% of their home’s value.
The company’s misconduct was a calculated deception embedded in state-required paperwork. In at least three states (North Carolina, Maine, and Minnesota), NewDay was required to provide borrowers with a “Net Benefit Worksheet.” This document was supposed to show the clear financial benefit of refinancing. Instead, NewDay used it to mislead.
The company compared two unequal figures. For the borrower’s “previous” payment, they listed the full amount: Principal, Interest, Taxes, and Insurance (PITI). For the “new” payment with NewDay, they listed only Principal and Interest (PI). By omitting taxes and insurance from their “new” payment calculation, NewDay’s loans appeared artificially cheaper, tricking veterans into believing they were getting a better deal when the new loan was often more expensive. The company did this on at least 3,000 loans.
Legal Receipts
“Specifically, in the Net Benefit Worksheets that NewDay completed in these three states, the company included a side-by-side comparison of a new monthly mortgage payment after a NewDay cash-out refinance that included only principal and interest (PI) and omitted taxes and insurance with a previous monthly mortgage payment that included principal, interest, taxes, and insurance (PITI).”
“NewDay omitted taxes and insurance payments from the new monthly payment calculation in the Net Benefit Worksheets, which made its cash-out refinance loans appear less expensive relative to consumers’ original mortgages on those worksheets when they were often more expensive.”
“Respondent’s representations to consumers, which misrepresented payment terms in state-required borrower Net Benefit Worksheets as described in Paragraphs 4 through 16, constitute deceptive acts or practices in violation of §§ 1031(a) and 1036(a)(1)(B) of the CFPA…”
Societal Impact Mapping
Targeted Population
The primary targets were U.S. military veterans and active-duty service members. The source material notes many of these individuals had “lower than average credit scores and carry substantial consumer debt,” indicating a strategy focused on financially precarious consumers who served their country.
The Deception’s Harm
By making their loans look cheaper, NewDay created a false sense of security. A veteran, seeing a lower “new loan payment amount” on an official-looking worksheet, could be induced into taking on a loan that was actually more expensive overall. This could worsen their debt situation and put their home, their primary asset, at greater risk.
The “Price of Deception” Metric
The Consumer Financial Protection Bureau levied a civil money penalty of $2,250,000 against NewDay. The investigation found this deceptive practice was used for at least 3,000 cash-out refinances. This allows us to calculate the penalty per documented instance of deception. This is not restitution for victims; it’s the price the company paid to the government for getting caught.
What Now? (The Watchlist)
The Consent Order forces NewDay into a period of strict oversight. While the company consented “without admitting or denying any of the findings,” it is now legally bound to these terms. The public and regulators must watch to ensure compliance.
- No More Misrepresentation: NewDay is explicitly prohibited from misrepresenting monthly payment amounts, especially by comparing unequal components like PI vs. PITI.
- Executive Responsibility: The company’s “Executive Officers” are assigned “ultimate responsibility” for ensuring compliance. They must personally review and sign off on compliance reports under penalty of perjury.
- Compliance Plan Mandate: Within 30 days, NewDay must create and implement a comprehensive plan to ensure its lending practices follow the law and the terms of this order.
- Record Everything: The company must now create and retain extensive records, including sales scripts, training materials, all consumer complaints, and recordings of all consumer phone calls.
- Forced Cooperation: NewDay must cooperate fully with any future Bureau investigations, provide truthful testimony, and make its employees available for interviews.
The CFPB has a press release about New Day Financial’s corporate misconduct: https://www.consumerfinance.gov/about-us/newsroom/cfpb-orders-newday-usa-to-pay-2-25-million-for-illegally-luring-veterans-and-military-families-into-cash-out-refinance-loans
If you don’t want to do as much reading, here’s a much more condensed version of this story from the CFPB’s website: https://www.consumerfinance.gov/enforcement/actions/new-day-financial-2024/
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