The Consumer Financial Protection Bureau entered into consent orders with three reverse mortgage companies alleging each committed deceptive advertising in connection with the marketing of their products.

What happened

According to the CFPB, American Advisors Group, Reverse Mortgage Solutions, and Aegean Financial misled consumers with claims about the alleged benefits and advantages of reverse mortgages while failing to disclose the risks of such arrangements.

The three lenders entered into consent orders alleging that they violated the Mortgage Acts and Practices Advertising Rule—which bans misleading claims in mortgage advertising—as well as the Dodd-Frank Wall Street Reform and Consumer Protection Act’s prohibition on deceptive acts or practices, according to the Bureau.

The consent orders note that the largest reverse mortgage lender in the United States, California-based American Advisors Group, ran television ads almost daily and disseminated its information kit—containing a DVD and brochures about its products—to approximately 1 million consumers. Despite all of that information, the Bureau said the ads misrepresented that consumers could not lose their home under a reverse mortgage agreement and that they would have the right to remain in their home for the rest of their lives. The ads also informed consumers that they would have no monthly payments and would be able to pay off all their debts with a reverse mortgage.

But reverse mortgages still require payments and can result in default, the CFPB noted, with borrowers losing their homes if they fail to comply with loan terms and payment of property taxes, homeowners insurance, and property maintenance.

To settle the charges, American Advisors must make clear and prominent disclosures in its reverse mortgage advertisements of these facts and implement a program to ensure compliance with all applicable laws. The CFPB also charged the company a $400,000 civil penalty.

The CFPB alleges that similarly deceptive claims were made by Reverse Mortgage Solutions (RMS) of Texas, which marketed its products via television, radio, print, direct mail and the Internet, misrepresenting since 2012 that consumers would not lose their homes, could remain in their homes for the rest of their lives, would “always retain ownership,” and could not “be forced to leave.” Consumers were also promised that their heirs would inherit the home without the disclosure of any material conditions (such as a requirement that the heir repay the reverse mortgage or pay 95 percent of the assessed value).

RMS used other deceptive tactics to sell its reverse mortgages, the CFPB said, creating a false sense of urgency for borrowers. Potential customers were told that if they didn’t sign the agreement by the end of the day, their file would be turned down and “you will miss out on a tremendous money-saving opportunity.”

Pursuant to the consent order with the CFPB, RMS will pay a $325,000 civil penalty, implement a program to ensure compliance with all applicable laws, and make clear and prominent disclosures in its reverse mortgage advertisements.

In the final action, the Bureau alleged Aegean Financial also led consumers astray with deceptive marketing claims (in print, direct mail, radio, and the Internet) that consumers could not lose their homes, would have the right to stay in their homes for the rest of their lives, would have no payments with a reverse mortgage, and would not be subject to costs associated with refinancing a reverse mortgage.

Aegean also falsely affiliated itself with the government in Spanish-language advertisements, making statements such as, “if you are 62 years old or older and you own a house, we have good news for you; you qualify for a reverse mortgage from the United States Housing Department.” Any disclosures provided by Aegean were in “small type” or “rapidly recited” at the end of commercials, the CFPB added.

On top of a ban on implying affiliations with the government and payment of a $65,000 civil penalty, Aegean must maintain complete and accurate records of its advertisements, make clear and prominent disclosures in its reverse mortgage advertisements, and implement a program to ensure compliance with all applicable laws.

To read the consent order in In the Matter of American Advisors Group, click here.

To read the consent order in In the Matter of Reverse Mortgage Solutions, click here.

To read the consent order in In the Matter of Aegean Financial, click here.

Why it matters

The CFPB is paying close attention to reverse mortgage products and is increasingly dubious of reverse mortgage product claims despite their many advantages for elder Americans seeking to tap into their home equity. “These companies tricked consumers into believing they could not lose their homes with a reverse mortgage,” Bureau Director Richard Cordray said in a statement about the actions. “All mortgage brokers and lenders need to abide by federal advertising disclosure requirements in promoting their products.” The CFPB noted that it has warned of the dangers of misleading and deceptive advertising for reverse mortgages since 2012, followed up by a 2015 study and Consumer Advisory warning. The actions also underscore the CFPB’s focus on the protection of the elderly from financial abuse, including through its Office of Older Americans.