The October 2022 DFPI Bulletin focuses on consumer protection, enforcement actions and escrow reports, among other topics.

Editor’s note — The California Department of Financial Protection and Innovation (DFPI, formerly the Department of Business Oversight) supervises, licenses, and regulates a variety of financial institutions, including some real estate mortgage loan originators (MLOs) holding a Nationwide Multistate (or Mortgage) Licensing System and Registry (NMLS) license. Alongside the California Department of Real Estate (DRE), the DFPI shares the responsibility for overseeing MLOs depending on their license use.

Scroll ahead for a digest of October’s most important developments affecting your license use.

DFPI and FTC MARS enforcement action

For the first time under the powers granted by the California Consumer Financial Protection Law (CCFPL), the DFPI and Federal Trade Commission (FTC) have filed a joint action to enforce the Mortgage Assistance Relief Services (MARS) rule.

The MARS rule, enacted by Regulation O, protects consumers by banning potentially deceptive practices by mortgage assistance relief service providers. It went into effect in 2010 in response to widespread abuse of consumers in mortgage distress.

Related article:

Mortgage Concepts: What is the MARS Rule?

The DFPI and FTC have unsealed a joint complaint against Roger Scott Dyer and Dominic Ahiga, alleging the two falsely promised to reduce homeowners’ mortgage payments and avert foreclosure using multiple Los Angeles area businesses since 2018.

The complaint claims the defendants guaranteed these outcomes in exchange for unlawful and exorbitant up-front monthly fees, but instead pocketed the borrowers’ payments — totaling an estimated $6.3 million according to the filing.

In response to the DFPI complaint, the court issued a temporary restraining order meant to stop the scheme and freeze assets while the court decides the case. In the meantime, an appointed receiver will assist in taking over the defendants’ businesses and administer potential relief.

Review the DFPI’s full press release on the complaint.

Related video:

Do the practices in the above firsttuesday NMLS course video sound familiar? The DFPI encourages consumers who have experienced deceptive practices from a financial service provider to file a complaint online.

DFPI consumer advisory on crypto assets

Despite the DFPI’s regular warnings regarding cryptocurrency investments, California investors are still falling for brazen crypto scams.

In September 2022, the DFPI announced desist and refrain orders against 11 different entities for violating California securities laws. These entities offered high yield investment programs (HYIPs) which promised crypto asset investors consistently high returns with low risk. To fool and entice investors, these programs often used vague language to describe the scheme, offered referral bonuses, facilitated crypto exchanges and leveraged social media hype.

Social media financial influencers — or finfluencers — attract significant attention from younger Millennial and Gen Z investors. These demographics often consume more financial literature from social media than traditional sources like brokerages or investment advisory firms. In fact, a third of all new investors use social media to research investments, according to a TIAA study.

Thanks to this growing trend, real estate professionals often find themselves correcting outrageous investment information spouted online. To back up your industry knowledge, point your clients to the DFPI’s finfluencer advisory, which encourages consumers to ask for financial certifications. Your real estate license, while not as exciting as a flashy YouTube channel, is your hard-earned mark of expertise.

The DFPI issued a consumer advisory on HYIPs to help consumers identify the red flags of this new form of Ponzi scheme. As crypto assets creep into the real estate space, real estate professionals are quickly becoming the first line of defense for consumers eager to turn their crypto assets into real estate assets.

Related article:

The future of cryptocurrency in real estate transactions

CLA Outstanding Achievement in Public Law

The California Lawyers Association (CLA) recognized the DFPI’s Real Estate Educational Services (REES) task force this month for Outstanding Achievement in Public Law. This is in response to an historic 45-state agency task force that uncovered over 600 MLO qualifications frauds across the country.

In December 2021, the California DRE withdrew the qualification of Danny Yen, owner and sponsor of REES, an approved continuing education (CE) provider operating out of Carlsbad, California.

When subpoenaed by the DRE, Yen failed to provide enrollment agreements, completed final exams or final exam grades. Further, the course materials themselves had been “inadvertently lost or misplaced.”

Thanks to cross-agency resource sharing, the DFPI’s investigative task force determined Yen had been running an education fraud scheme in which he distributed course completion certificates to licensees for courses they did not actually attend or complete.

The investigation culminated in a nationwide settlement process of over 500 settlements with implicated MLOs that included monetary penalties and license surrenders. Read the full details of the REES case below.

Related article:

DRE Hot Seat: Danny Yen, owner of Real Estate Educational Services (REES), reprimanded by DRE and DFPI for conducting massive education fraud scheme

Escrow reports due

The DFPI reminds escrow agents to submit their annual report to the Commissioner within 105 days of the close of their fiscal year. For instance, if your fiscal year ended on June 30, 2022, then your annual report is due by email at on October 13, 2022.

The report needs to be prepared by an independent public accountant and sent using a secured, encrypted delivery system or secured dropbox. Reports may also be mailed to:

Sultanna Wan
Senior Financial Institutions Examiner, Escrow Law, Department of Financial Protection and Innovation
320 West Fourth Street, Suite 750, Los Angeles, CA 90013

Note that the penalty for failure to file a completed report by the deadline is $100 per day for the first 5 days, and $500 per day after that point. Violations may also result in suspension or revocation of your escrow agent license or trigger an immediate examination.

That’s a wrap on October 2022’s MLO news from the DFPI. Subscribe to Quilix, the firsttuesday newsletter, to receive next month’s MLO news digest in your inbox.