Working with the Consumer Financial Protection Bureau, the Federal Trade Commission announced a collaborative effort targeting deceptive and misleading mortgage advertisements.
The agencies – which have concurrent jurisdiction over financial services companies – sent more than 30 warning letters to real estate agents, home builders, mortgage brokers, lenders, and lead generators, cautioning recipients that their ads may violate the Federal Trade Commission Act and the recently promulgated Mortgage Acts and Practices Advertising Rule (MAP Rule).
The MAP Rule, promulgated in 2011, prohibits misleading claims about government affiliation, interest rates, fees, costs, payments associated with the loan, and the amount of cash or credit available to the consumer. Violations of the Rule can result in injunction relief and civil penalties.
At a joint press conference, Thomas B. Pahl, Assistant Director in the FTC's Division of Financial Practices, said that in addition to the warning letters, the FTC has also opened investigations into 13 companies that could lead to enforcement actions. Kent Markus, CFPB Assistant Director of Enforcement, said his agency is looking into another six possible cases.
The agencies reviewed more than 800 ads, some in response to consumer complaints, Pahl said, which appeared in newspapers, direct mail, on websites, and on Facebook. Examples of the misleading claims include ads with images, symbols, and abbreviations suggesting that the advertiser is affiliated with the government, such as calling itself the "FHA" or the "Government Loan Department" or that include pictures of eagles, American flags, and President Barack Obama.
Other ads offered guaranteed loan approval and very low monthly payments without fully disclosing the conditions placed upon the offers, or offer very low "fixed" mortgage rates without a discussion of the loan terms.
The enforcement activity was "particularly important at this time," Pahl said. With lending down, the agencies "wanted to conduct a sweep to make sure that when mortgage advertisers start disseminating claims again, they are aware of the obligation that their ads don't contain deceptive claims."
The agencies declined to name the recipients of the letters and said that going forward the investigations will be conducted separately by the CFPB and FTC.
To read a model warning letter from the FTC, click here.
To see an example of a mock ad created by the FTC, click here.
Why it matters: For advertisers in the financial services industry, the first collaborative effort between the agencies serves notice that both the CFPB and the FTC are monitoring compliance with the MAP Rule and the FTC Act. At the press conference, the agency representatives spoke about the "spectrum" of law enforcement, that range from warning letters to investigations and enforcement action. How many claims are made, how clearly false they are, and the extent to which they may cause consumer harm, will all be considered by the agencies when deciding whether to send a warning letter or open an investigation, Markus explained. For example, an advertisement that implied a government affiliation with an asterisk and a small disclaimer at the bottom that denied any affiliation would more likely receive a warning letter than be the target of an investigation, Pahl said. "It's more of an art than a science," he concluded.