CFPB Issues Series of Consent Orders over Direct Mail Mortgage Advertising

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The CFPB has announced seven separate settlements with mortgage lenders and brokers over the past six weeks, for alleged advertising violations arising out of the direct mail marketing of VA-guaranteed mortgage loans.

This series of CFPB consent orders, in connection with which the respondent mortgage companies have not admitted any wrongdoing, cites alleged violations of Regulation Z’s advertising requirements, the Mortgage Acts and Practices (MAP) Rule, and of the deceptive prong of the Consumer Financial Protection Act’s (CFPA) prohibition on unfair, deceptive, and abusive acts and practices (UDAAP).

Among other things, the CFPB found that one or more of the mortgage companies sent advertisements that: (i) stated credit terms that the companies were not actually prepared to offer; (ii) described loans as “fixed,” when in fact, the loans had “variable-rates”; (iii) falsely implied affiliation with the government; and (iv) failed to make all of the disclosures required by Regulation Z.

Some or all of the consent orders also included the following allegations:

  • APRs were not accurate, including failure to reflect current pricing.
  • One or more mortgage companies advertised the additional monthly cost of taking cash out on a refinance, without clearly disclosing that the consumer would need to refinance their existing mortgage in order to obtain cash out, which would cost more per month in total than the figure listed.
  • Companies used words, phrases, images, or designs that are associated with the VA, Internal Revenue Service, or Federal Deposit Insurance Corporation in order to make the advertising look more official at first glance.  For instance, the CFPB asserted that certain advertisements sent by one company to consumers were published on light green paper that is similar to light green paper that the VA has used for Certificates of Eligibility, along with eight digit reference numbers that were similar to those used on Certificates of Eligibility.
  • One company’s advertisements represented that it had “records” showing that the value of the consumer’s property had increased over the past year by 21% to 22%, creating equity that the consumer could cash out by refinancing with the company, but that representation did not have factual support.
  • One company’s flyers advertised that “the Economic Stimulus Program will end soon. There is currently no plan to extend the Stimulus Program.”  The CFPB considered that to be an unsupported claim regarding the purported time-limited availability of the VA loan program or the offer in question.

The consent orders generally prohibit future advertising violations similar to those identified by the CFPB, require the companies to designate a compliance official to review mortgage advertisements for compliance with consumer protection laws, require compliance with enhanced disclosure requirements, and prohibit the use of specific phrases (which are specific to each respondent).  The consent orders also require the mortgage companies to pay civil penalties ranging between $50,000 and $645,000.

Copies of the consent orders can be found here.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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