FTC AND CFPB SENDS WARNING LETTERS ABOUT MISLEADING ADVERTISING
A sample of the warning letter you may have received or may receive in the near future is:
To: Company XYZ
Re: Your Mortgage Credit Product Advertisements
Date: November 19, 2012
This letter is to advise you that you may have advertised a mortgage credit product or service in a misleading manner in violation of federal law.
The CFPB enforces federal consumer financial laws, including laws that prohibit material misrepresentations in advertisements for mortgage credit products. The Mortgage Acts and Practices – Advertising rule,1 or “MAP Rule,” provides that it is a violation of federal law for any person to make a “material misrepresentation, expressly or by implication, in any commercial communication, regarding any term of any mortgage credit product.”2 A mortgage credit product is “any form of credit that is secured by real property or a dwelling and that is offered or extended to a consumer primarily for personal, family, or household purposes.”3 The CFPB also enforces 12 U.S.C. § 5536(a)(1), which prohibits unfair, deceptive, or abusive acts or practices in connection with consumer financial products or services, including in the marketing or sale of mortgage credit products.
1 See 12 C.F.R. Part 1014.
2 Id. at § 1014.3.
3 Id. at § 1014.2.
We have reviewed one or more of your mortgage advertisements and it appears that they may violate federal law to the extent that they: (1) suggest, through the use of a logo very similar to that of the United States Department of Veterans Affairs, the prominent display of a website address that includes the acronym “VA,” and the use of language stating “the VA is offering you” the advertised product, that your company is affiliated with a government agency or government-sponsored program; (2) indicate that a specific “fixed” rate is available for a “30 year” loan when, in fact, the stated rate is for an adjustable rate loan; and (3) suggest that the rate being offered is part of an “economic stimulus plan” that will expire shortly, notwithstanding that the Department of Veterans Affairs’ loan guarantee programs do not have an expiration date. Copies of the advertisements referred to in this letter are attached hereto for your reference. While this letter refers specifically only to the attached advertisements, you should also consider whether other advertising you disseminate in any form, including internet advertisements, may require modification in order to comply with federal laws.
While we have not made a determination at this time regarding whether your advertisements violate the law, we urge you to review your marketing materials to ensure that you comply with the laws identified above. To assist you in this process, you may find it helpful to review the full text of the MAP Rule, available at http://www.gpo.gov/fdsys/pkg/CFR-2012-title12-vol8/pdf/CFR-2012-title12-vol8-part1014.pdf.
BY SENDING YOU THIS NOTICE, THE CFPB DOES NOT WAIVE ITS RIGHT TO TAKE ANY ACTION AGAINST YOU BASED ON PAST OR FUTURE VIOLATIONS OF FEDERAL LAW, including violations contained in, or relating to, the attached advertisement(s). Please direct any questions concerning this letter to [CFPB Enforcement attorney name] at [phone number].
Did you get the letter? Have you reviewed your advertising in Facebook? Website? Direct mail? Newspapers? Have you had us review it for compliance with Regulation N? It probably is less expensive to have us do it then it would be to respond to one of these letters. Think about it.
THE 12 DISCLOSURES THAT THE CFPB HAS EXEMPTED TEMPORARILY FROM IMPLEMENTATION
The temporary exemption applies to the following disclosures (the first is under RESPA and the remaining ones are under TILA):
1-Appraisal management fee optional disclosure
2-Negative amortization feature warning
3-State anti-deficiency protection disclosure
4-Partial payment acceptance policy disclosure
5-Mandatory escrow account disclosure
6-Waiver of escrow at consummation disclosure
7-Monthly payment disclosure for a variable rate loan with an escrow account
8-Repayment analysis disclosure of monthly payment (with escrow payment)
9-Settlement charges disclosure
10-Mortgage originator fees disclosure
11-Wholesale rate disclosure
12-Total interest as a percentage of principal disclosure
The disclosures are reflected in the proposed Loan Estimate and/or proposed Closing Disclosure that are the main part of the integrated mortgage disclosure proposal. Based on consumer testing, however, the CFPB is considering not adopting the last two of the listed disclosures, and it requested comment on this consideration.
What used to be a loan package of about 60 pages is now about 600 pages and that is without considering the 12 disclosures discussed above nor the state disclosures that are required notwithstanding the CFPB proposal. Does Mr. Cordray seriously expect a consumer to read 600 pages about 50 of which are disclosures? To read the 600 pages is like reading a novel in one day! But at least the consumer enjoys the novel. I am very curious as to what statistics the CFPB has that indicate any one consumer has read everything signed and every disclosure put before him and/or her. I actually defy him to produce statistics to prove at least one consumer has read all the data in the loan file, let alone 10 of the thousands of loans funded.