The Consumer Financial Protection Bureau recently tackled deceptive advertising by issuing a report and a consumer advisory based on a study that found reverse mortgage ads frequently deceive consumers—particularly older Americans—about the risks associated with such loans.
“We want older Americans to be aware of certain factors when they see these ads,” CFPB Director Richard Cordray said in a statement emphasizing the importance of the issue given the “graying of America.”
The Bureau reviewed 97 unique TV, radio, Internet, and print ads for reverse mortgages—a type of loan that allows older homeowners to access equity in their homes and defer payment until they pass away, sell, or move out. In addition, the CFPB interviewed 60 homeowners aged 62 and older in focus groups and one-on-one settings in Chicago, Los Angeles, and Washington, D.C.
Based on the study, the Bureau found that many of the ads were incomplete or contained inaccurate information. It concluded that since the ads don’t always provide every detail about a product, “the incompleteness of reverse mortgage ads raises heightened concerns because reverse mortgages are complicated and often expensive loans intended for older, and frequently vulnerable, homeowners.”
The study found that ads failed to list interest rates or hide rates in fine print. Some consumers misunderstood that reverse mortgages are actually loans with fees and compounding interest. Others believed that because the money they received was based on their equity in the house, it was not a loan they were required to satisfy.
The CFPB study found that some advertisements implied a government affiliation, which left homeowners with the mistaken impression that they would receive consumer protections that were not applicable. In prepared remarks about the consumer alert and report, Cordray noted that the Bureau brought a joint enforcement action with the Federal Trade Commission in February against three mortgage companies that featured an eagle similar to the Great Seal of the United States in their ads with language reading, “GOVERNMENT LENDING DIVISION.” More than $300,000 in total civil penalties was assessed.
Other ads featured celebrity spokespeople who sang the praises of reverse mortgages without disclosing the risks, the Bureau said. In one focus group, a consumer told the Bureau: “When it’s a former Congressman endorsing it, it makes it sound like a good idea.”
False impressions about financial security among the elderly and their ability to stay in their homes for the rest of their lives also raised concerns for the Bureau. According to the study results, many of the ads suggested that a reverse mortgage provides financial security for the remainder of a consumer’s life. But additional requirements are often not mentioned in reverse mortgage ads, including the costs of property taxes and homeowners insurance, which could jeopardize a homeowner’s financial security—or even lead to foreclosure, the CFPB cautioned.
To read the CFPB’s study, click here.
To read the consumer advisory, click here.
Why it matters: The CFPB noted that the reverse mortgage market is only about 1 percent of the size of the traditional mortgage market (with roughly 628,000 outstanding loans), but is expected to grow in the coming years with the aging “baby boom” generation. The Bureau stopped short of indicating that additional regulation was necessary, but in prepared remarks, Director Cordray promised that the agency “will continue to exercise appropriate oversight and we will pursue enforcement actions as justified by the facts as we understand them.”