In November 2012 the Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB) announced a joint investigation into allegedly misleading mortgage-related advertisements.(1) This is the first time that the two agencies have announced a joint enforcement action. The FTC and the CFPB share enforcement authority over non-bank mortgage advertisers such as mortgage lenders, brokers, servicers and advertising agencies under the Mortgage Acts and Practices Rule, 12 CFR Part 1014.(2) Potentially affected companies should review their practices in light of this regulatory activity and with an eye to possible follow-on private consumer protection litigation.
The agencies issued a total of 32 warning letters to companies regarding potentially misleading mortgage advertisements. The FTC issued 20 warning letters to real estate agents, home builders and lead generators, and the CFPB issued 12 warning letters to mortgage lenders and brokers. Nineteen investigations were also opened into more serious alleged violations – 13 by the FTC and six by the CFPB. The targeted advertisers were selected based on a random survey that was jointly conducted by the two agencies of 800 mortgage-related advertisements in newspapers, emails, direct mailers and websites.
The FTC stated that the joint investigation is intended to "spur compliance" with the Mortgage Acts and Practices Rule, which imposes civil penalties for material misrepresentations in any commercial communication regarding mortgage financing. It covers mortgage lenders, brokers and servicers, real estate agents and brokers, advertising agencies, lead generators and others. The rule, however, does not cover banks, savings and loan associations and federal credit unions.
The agencies identified four recurring potential violations:(3)
- Misrepresentation about government affiliations – these would include official-looking seals or logos, statements, abbreviations, symbols or images implying affiliation with or approval of a government agency. The CFPB stated that it is misleading to:
"suggest, through the incorporation of 'Government Loan Department' in your company's return address at the top of the advertisement, the use of a logo very similar to that of the United States Department of Housing and Urban Development, and the prominent display of a website address that includes the initials of the Federal Housing Administration, that your company is affiliated with a government agency or government-sponsored program".
- Inaccurate information about interest rates – these would include statements of 'fixed rate' or very low interest rates that in fact apply only for an initial period of the loan, where the terms are not provided in the advertisement, and claims of guaranteed approval of low monthly payments and interest rates without reference to the conditions or terms of the offer. The CFPB stated that it is misleading to "indicate that a consumer is pre-approved for, or guaranteed, specific loan rates or terms".
- Misleading information about reverse mortgages – these would include claims that reverse mortgages allow borrowers to stay in their homes without payments or penalties. The CFPB stated that it is misleading to:
"suggest that consumers who enter into a reverse mortgage will have 'no payments,' notwithstanding that such consumers may continue to be responsible for tax and insurance payments [and to] indicate that a consumer entering into a reverse mortgage will have the opportunity to receive a discount on existing credit card debt in connection with the loan".
- Misrepresentations about the amount of cash or credit – these would include mock checks and claims that the consumer would be pre-approved to receive cash or credit when in fact additional steps had to be taken.
The CFPB expressed particular concern that the targeted communities appear to be veterans and older people. Holly Petraeus and Skip Humphrey of the CFPB warned veterans and older people about advertisements regarding "historically low rates" and "no-payment" reverse mortgages.(4)
The Mortgage Acts and Practices Rule was initially published by the FTC under the authority of the Omnibus Appropriations Act of 2009 and took effect on August 19 2011.(5) The Dodd-Frank Act transferred rulemaking authority for this provision to the CFPB. In December 2011 the CFPB republished the rule without substantive changes.(6) Both agencies retain authority to enforce the rule. The FTC also notified companies of its authority to enforce Section 5 of the FTC Act, 15 USC § 45, which the agency stated "prohibits unfair or deceptive practices, including claims about mortgage financing, be truthful and not misleading".(7)
The FTC and CFPB warning letters recommended a thorough review of the company's advertisements to ensure compliance with the law.(8) Neither agency provided best practices to comply with regulations, though the FTC provided 'mock ads' found to exemplify certain recurring violations of the Mortgage Acts and Practices Rule.(9)
For further information on this topic please contact Alan Raul, Ed McNicholas, John K Van De Weert or Andrew J Strenio Jr at Sidley Austin LLP's Washington DC office by telephone (+1 202 736 8000), fax (+1 202 736 8711) or email ([email protected], [email protected], [email protected] or [email protected]).
(1) Federal Trade Commission, "FTC Warns Mortgage Advertisers that Their Ads May Violate Federal Law" (November 19 2012), available at ftc.gov/opa/2012/11/mortgageadvertise.shtm (FTC statement); Consumer Financial Protection Bureau, "Consumer Financial Protection Bureau Warns Companies Against Misleading Consumers with False Mortgage Advertisements" (November 19 2012), available at www.consumerfinance.gov/pressreleases/consumer-financial-protection-bureau-warns-companies-against-misleading-consumers-with-false-mortgage-advertisements/ (CFPB statement).
(2) The text of the regulation is available at www.gpo.gov/fdsys/pkg/CFR-2012-title12-vol8/pdf/CFR-2012-title12-vol8-part1014.pdf.
(3) See FTC statement, supra note 1; CFPB statement; Consumer Financial Protection Bureau, example warning letters (November 19 2012), available at files.consumerfinance.gov/f/201211_cfpb_generic_warning_letter_older_Americans.pdf and files.consumerfinance.gov/f/201211_cfpb_generic_warning_letter_veterans.pdf (CFPB warning letters).
(4) Assistant Director for the Office of Servicemember Affairs Holly Petraeus and Assistant Director for the Office for Older Americans Skip Humphrey, "Buyer beware – Potentially deceptive mortgage ads are targeting veterans and older Americans, Consumer Financial Protection Bureau" (November 19 2012), available at www.consumerfinance.gov/blog/buyer-beware-potentially-deceptive-mortgage-ads-are-targeting_veterans-and-older-americans/.
(5) Mortgage Acts and Practices – Advertising, Final Rule, 76 Fed Reg 43826 (July 22 2011), available at www.ftc.gov/opa/2011/07/mortgageads.shtm.
(6) See Regulation N, 12 CFR Parts 1014, 76 Fed Reg 78,130 (December 16 2011), available at www.gpo.gov/fdsys/pkg/FR-2011-12-16/pdf/2011-31731.pdf.
(8) FTC warning letter (November 19 2012), available at ftc.gov/os/2012/11/121119mortgageadletter.pdf; CFPB warning letters, supra note 3.
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