A federal regulator has taken action against NewDay Financial, a nonbank mortgage lender specializing in VA loans, alleging that the company engaged in deceptive advertising and paid kickbacks to a major veterans group and a broker company for customer referrals.

The Consumer Financial Protection Bureau declined to name the veterans organization or the broker company, but Military Times has learned it was the Veterans of Foreign Wars that had an arrangement with NewDay.

The bureau said it does not intend to take any action against the VFW.

But NewDay, headquartered in Fulton, Maryland, will pay a $2 million penalty, according to the CFPB, which said the company had revenues of more than $100 million in 2013.

"NewDay profited from the trust that veterans place in their veteran service organization," said CFPB Director Richard Cordray, in announcing the action. "Veterans, and any consumers getting a mortgage, deserve honest information about lender endorsements."

Officials from both the CFPB and NewDay declined to identify the veterans organization involved. "As a general matter, the CFPB does not name third parties who have not been the subject of enforcement action," said bureau spokesman Sam Gilford. The CFPB also did not name the broker company involved in setting up the arrangement between NewDay and the VFW.

However, NewDay issued press releases in 2010 announcing its selection as the exclusive mortgage lender to the VFW. When contacted by Military Times, VFW officials confirmed that theirs is the unnamed group in the CFPB announcement and that they had received a letter from the CFPB dated Feb. 10, stating that the investigation is complete and no further action is planned against the group.

"Bottom line is, because of the complexities of the industry, we relied on our broker to make sure that everything was in full compliance with the law," said Jerry Newberry, VFW assistant adjutant general for operations.

"As soon as we discovered that there was one scintilla of evidence to suggest that all statutory and regulatory requirements were not being met, we subsequently began taking the steps needed to sever the relationship with NewDay."

In a statement, NewDay officials said they are pleased to resolve "these technical legal issues" with the CFPB.

"There has never been any allegation or suggestion that the company's actions ever directly harmed our borrowers. We will continue our tireless efforts to serve veterans in the dignified manner they deserve," the statement said.

According to the CFPB consent order that does not name the veterans group involved, beginning in 2010, an arrangement was made between NewDay and the VFW through a broker company. The broker company contracted directly with NewDay and paid the VFW a portion of the fees it received from NewDay.

Based on agreements among the three entities, NewDay was designated the group's exclusive lender, and the group gave NewDay approval to send advertising communications to VFW members by Postal Service and e-mail.

One emailed advertisement touted NewDay USA as VFW's "exclusive provider of home loan programs based on their high standards for service and the excellent value of their programs," according to the CFPB documents.

Such advertising communications "promoted the relationship" between NewDay and the VFW and "encouraged and recommended the use of NewDay's mortgage products to the group's members," the CFPB stated. NewDay representatives made similar statements to VFW members during phone conversations.

NewDay paid the broker company a monthly "licensing fee" of $15,000. For each referred VFW member who contacted NewDay about a 100 percent loan-to-value mortgage refinancing and had his or her credit report pulled, NewDay paid the VFW a $15 "lead generation fee," and paid the company a $20 "lead generation fee."

For each referred member who contacted NewDay about a reverse mortgage and completed mandatory counseling, NewDay paid the VFW a $75 "lead generation fee" and the broker company a $100 fee.

Newberry said his group sought to add mortgage services to its roster of benefits in response to requests from members, and engaged a broker company to help find a company that could fit the bill.

"We were assured by this broker that all statutory and regulatory requirements would be met," Newberry said.

In September 2013, the VFW met with CFPB officials and learned of possible problems, provided information and cooperated fully, Newberry said.

Karen has covered military families, quality of life and consumer issues for Military Times for more than 30 years, and is co-author of a chapter on media coverage of military families in the book "A Battle Plan for Supporting Military Families." She previously worked for newspapers in Guam, Norfolk, Jacksonville, Fla., and Athens, Ga.

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