CFPB and Justice Department Sue Developer and Lender for Bait-and-Switch Land Sales and Predatory Financing

The Consumer Financial Protection Bureau (CFPB) and the U.S. Department of Justice have sued Colony Ridge, a Texas-based developer and lender, for operating an illegal land sales scheme and targeting thousands of Hispanic borrowers with false statements and predatory loans. Colony Ridge allegedly sells unsuspecting families flood-prone land without water, sewer, or electrical infrastructure, and that the company sets borrowers up to fail with loans they cannot afford. Roughly 1-in-4 Colony Ridge loans ends in foreclosure, after which the company repurchases the properties and sells them to new borrowers. The CFPB and Justice Department are seeking redress for borrowers harmed by Colony Ridge and an immediate end to its illegal practices. This is the CFPB’s first federal court lawsuit charging a defendant with violations of the Interstate Land Sales Full Disclosure Act.

The lawsuit names as defendants three Texas-based Colony Ridge affiliate companies, as well as Loan Originator Services, a nonbank mortgage company licensed to originate loans in Texas. Colony Ridge has developed more than 40,000 lots spread across an unincorporated area of Liberty County, Texas, approximately 30 miles northeast of Houston. Colony Ridge markets these subdivisions using the names “Terrenos Houston” and “Terrenos Santa Fe.”

Colony Ridge targets Spanish-speaking borrowers: it advertises almost exclusively in Spanish, often in social media posts featuring, for example, national flags and regional music from Latin America. In these advertisements, Colony Ridge promises consumers the dream of home ownership with its own seller financing: an easy-to-obtain loan product that requires no credit check and only a small deposit. The complaint alleges that Colony Ridge has lured thousands of Hispanic consumers into their predatory loan products. Foreclosure and property deed records from September 2019 through September 2022 show that Colony Ridge initiated foreclosures on at least 30% of seller-financed lots within just three years of the purchase date, with most loan failures occurring even sooner. Records also confirm that Colony Ridge accounted for more than 92% of all foreclosures recorded in Liberty County between 2017 and 2022.

Specifically, the complaint filed today alleges that Colony Ridge:

• Misleads borrowers about infrastructure on the lots it sells: Colony Ridge has falsely represented that lots in the Terrenos Houston subdivisions were sold with water, sewer, and electrical infrastructure already in place. The complaint cites numerous advertisements, including TikTok videos where the company makes claims like “Terrenos Houston tiene todos los servicios de ciudad por cada terreno” (“Terrenos Houston has all city services for each lot.”). After applicants pay a non-refundable deposit, Colony Ridge discloses the properties may not provide those services and says it only in English.
• Sells lots that flood with rain and raw sewage: The complaint alleges that Colony Ridge employees fail to inform borrowers of flood risk when lots have repeatedly flooded in the past, or falsely tells them the lots have not flooded. In fact, in parts of the Terrenos Houston subdivision, rain causes significant flooding, causing raw sewage to run through or around borrowers’ property, and damaging their personal belongings.
• Churns through borrowers in a cycle of foreclosure: When families fall behind on payments and enter foreclosure, it allows Colony Ridge to “flip” the properties by repurchasing and reselling them, often at higher prices. Foreclosure and property deed records show that Colony Ridge flipped at least 40% of all the properties it sold between September 2019 and September 2022, selling approximately 8,237 properties twice, 3,267 properties three times, and 2,067 properties four or more times in three years.
• Targets Hispanic consumers with predatory loans: Through direct-to-consumer marketing on websites, social media engagement, and telemarketing, Colony Ridge targets Hispanic consumers. Colony Ridge then exploits language barriers during its sales process and uses high-pressure sales tactics to push borrowers to obtain their loan products quickly. The loans have exorbitant interest rates. Between 2017 and 2021, interest rates on Colony Ridge’s loans ranged from between 10.9% to 12.9%, while a standard 20-year fixed rate loan averaged 2.35% to 4.05% during the same timeframe. And in extending the loan, Colony Ridge and Loan Originator Services did not collect information needed to determine if applicants can afford the loan.
• Exploits language barriers at borrowers’ expense: While Colony Ridge conducts most of its marketing activities in Spanish, when it comes to the actual transaction, it offers important documents only in English. Failing to offer borrowers accurate translations of contracts, deeds, and other documents in the language in which it conducts the sales and exploiting borrowers’ limited English proficiency violates federal law.

The CFPB alleges that defendants unlawfully discriminated against applicants on the basis of their race or national origin in violation of the Equal Credit Opportunity Act and its implementing regulation. The CFPB separately alleges that Colony Ridge engaged in unlawful deception and violated the Interstate Land Sales Full Disclosure Act and its implementing regulations. The Justice Department joined the CFPB’s claim of a violation of the Equal Credit Opportunity Act and its implementing regulation, and separately alleges that Colony Ridge violated the Fair Housing Act. The complaint seeks to stop Colony Ridge’s alleged unlawful conduct, provide redress for affected consumers, and impose a civil penalty payable to the CFPB victims relief fund. If the defendants are found liable, the amount of any restitution will be determined in the litigation in federal court.

Read today’s complaint.

The CFPB’s website has resources about credit discrimination and mortgages. Consumers can submit complaints about financial products or services by visiting the CFPB’s website or by calling (855) 411-CFPB (2372).

Employees of companies who believe their company has violated federal consumer financial protection laws are encouraged to send information about what they know to whistleblower@cfpb.gov.

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Read the December 20, 2023 CFPB article.

Read the December 20, 2023 Justice Department release.

 Community Reinvestment Act

Advocates Urge FinWise Bank FDIC Downgrade for Predatory Lending

 A coalition of consumer advocates have submitted a letter to the Federal Deposit Insurance Corporation (FDIC) calling for the downgrade of the Bank because of Community Reinvestment Act (CRA) violations. They argue that FinWise Bank’s lending through American First Finance, Elevate, and Opportunity Financial (OppFi), offering loans at up to 160% APR, "raises serious consumer protection issues and fails to meet the convenience and needs of the communities it serves." Under FDIC rules, banks are responsible for risks arising from third-party relationships to the same extent as if the activity were handled by the bank.

The advocates’ comments pointed out that American First Finance has twice as many complaints to the Consumer Financial Protection Bureau (CFPB) as EasyPay, whose partner Transportation Alliance Bank was downgraded by the FDIC in early 2023 because or deceptive acts/practices by a partner, probably EasyPay Finance. FinWise Bank’s partner American First Finance operates similar to EasyPay Finance, providing predatory puppy loans and other deceptive, high-cost loans through retail stores for pets, furniture, auto repairs, and appliances.

Two of FinWise Bank’s other rent-a-bank lenders, Elevate and OppFi, have rates significantly over 50% for charge-offs, a measure of debts unlikely to be collected, showing high-rates of default and the predatory nature of their loans. FinWise Bank, chartered in Utah and FDIC supervised, is one of only a few rogue banks that front for predatory lenders. Most states have interest rate limits to stop predatory lending, but predatory lenders try to evade state laws by laundering their loans through banks, which are exempt from state rate caps.

The advocates submitted public comments evidenced how FinWise Bank partners American First Finance, Elevate, and OppFi have generated hundreds if not thousands of complaints to the Consumer Financial Protection Bureau (CFPB) about: (1) Deception and unaffordable interest rates on loans that borrowers are unable to repay; (2) Receiving loans that they never applied for and identity theft; (3) Improper debt collection tactics, including collecting debt not owed, failure to validate debts, harassment, and abuse; and (4) Credit reporting problems, including incorrect information and failure to respond to disputes and errors.

The letter was signed by Accountable.US, Americans for Financial Reform, Center for Responsible Lending, Consumer Action, Consumer Federation of America, National Community Reinvestment Coalition, NCLC (on behalf of our low-income clients), Public Citizen, U.S. PIRG, and Woodstock Institute.

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Read the March 15, 2023 Consumer Federation of America release.

 Mariner Finance Accused of Predatory Lending Practices by Five States & D.C.

Mariner Finance, a loan company controlled by a large private-equity firm, is engaged in a nationwide scheme that takes advantage of low- and moderate-income consumers, according to a lawsuit filed by the attorney generals of five states: Pennsylvania, New Jersey, Utah, Washington, Oregon, and the District of Columbia. The lawsuit alleges that the company: (1) adds expensive insurance policies and other products to loans without the borrowers' knowledge, and (2) deceptively gets them to refinance their debts to produce even more fees for the company. Mariner Finance is owned by an investment fund managed by Warburg Pincus, a Wall Street private-equity firm. Its president is Timothy F. Geithner, who, as President Obama's treasury secretary, condemned predatory lenders. Executives at Warburg Pincus and the lender denied any wrongdoing. Mariner has over 480 branches in 27 states and manages $2 billion in loans every year, according to the lawsuit.

State officials began investigating Mariner Finance after the Washington Post published a 2018 story on the company and private-equity firms' roles in consumer lending. The article detailed the company’s practice of mass-mailing live checks to consumers who, if they cashed them, were obligated to repay the money at interest rates of over 30%. The lawsuit said that Mariner’s targets “are often in financial crisis, decidedly unfamiliar with receiving unsolicited checks in the mail, and in desperate need of economic relief.” “Mariner uses live checks as an entrée to the most vulnerable portion of the targeted population.”

According to a 2018 Washington Post article, the company "enables some of the nation’s wealthiest investors and investment funds to make money offering high-interest loans to cash-strapped Americans."

Read the August 17, 2022, Washington Post article.

Read a July 18, 2018 Washington Post article on how equity firms exploit desperate households.