CFPB Sues Home Financing Company for Lending to Buyers with Bad Credit

The CFPB charged a non-bank mobile-home-financing company for issuing loans without a reasonable belief that borrowers would be able to repay.

In a Complaint filed in the US District Court for the Eastern District of Tennessee, the CFPB alleged that the company, before originating a mortgage loan, "purports to make a reasonable and good faith determination at or before consummation that the consumer has the ability to repay the loan according to its terms." The CFPB charged the company with using unrealistic estimates of borrowers' living expenses to justify loan approvals. The CFPB claimed that the company's estimates significantly underestimated borrowers' essential costs, such as food, transportation and childcare, particularly for larger families. The CFPB alleged that the company's models projected low monthly living expenses—often half the average amounts reported by its own customers.

The CFPB also alleged that the company disregarded clear indicators of financial instability, such as a borrower having numerous debts in collection and no substantial assets. The CFPB cited examples where the company approved loans even when its own models showed borrowers had negative residual income after accounting for living expenses and debt payments. The CFPB stated that these practices led to delinquencies, defaults and home repossessions.

The CFPB charged the company with violating "minimum underwriting standards for consumer-credit transactions secured by a dwelling" under the Truth in Lending Act and Regulation Z as well as providing a "financial product or service not in conformity with Federal consumer financial law,” under the Consumer Financial Protection Act Section 1036(a)(1)(A).

In its Demand for Relief, the CFPB is seeking (i) a permanent injunction against the company's practices, (ii) restitution or disgorgement for harmed borrowers and (iii) civil money penalties.