Regulators are focusing on what an executive with the Compliance Group termed “misleading and deceptive advertising,” but what that exactly means is left up to the interpretation of the enforcement agency.
Annemaria Allen said there had been a brief lull, but over the past year once again they are starting to carefully look at mortgage advertising. “The lender may not consider it to be misleading or deceptive but you never know what the regulator might consider to be misleading or deceptive,” she warned.
Also a lot of things fell under the radar or the fines were not significant. But she said that is changing and besides the monetary hit, the company or originator’s license is in jeopardy and there is reputational risk as well.
Recently the Consumer Financial Protection Bureau and the Federal Trade Commission sent out warning letters to a number of mortgage lenders about their practices. While she hasn’t had any clients receive notices from these agencies, there has been notices sent out by the Department of Housing and Urban Development involving such things as the ads looking like they come from a government agency.
Besides the activity on the federal level, state regulators have also targeted advertising practices. Allen specifically pointed to Georgia as one state where regulators have been particularly active. New Jersey regulators are also honed in on misleading or deceptive advertising and New York has been reprimanding originators for not having their Nationwide Mortgage Licensing System number prominent in the ad.
Some of it is warranted while in other cases, she said it can be “ticky-tacky. Financial institutions just really need to educate themselves on the various state law requirements and federal law requirements.” They should have a couple of reviews performed on the advertising before it is sent out.
Nor can originators say that someone else is doing their ads that way so why can’t we, Allen warned. The originator has to trust what their compliance and legal staff is telling them.
Improper advertising is the first way for an originator to be subject to a regulatory audit, she added. “If you are not high on somebody’s radar for an examination, you will be if you send out bad advertising.”
In the examination process, regulators have been asking to see 90 days’ worth of advertising. But in a lot of cases, they already have copies of the advertising, either sent by consumer or it is something they came across.
So if the lender doesn’t give them everything, the regulator already has a copy, she warned.
Reverse mortgage lenders have been particularly put under the microscope for improper advertising practices. Allen’s firm has two lenders who do the reverse product.
Both have been in the field for quite some time and have been “through their trials and tribulations,” she said, but right now do not have any problems.
In general, companies really don’t want to take action regarding bad advertising practices until it hits them in the wallet, she said. What is now happening is the states are starting to hit lenders harder from a monetary perspective, as well as issue cease-and-desist orders.
Regulators want to know that the lender has clear policies and procedures in place and that those are being followed.
Social media marketing is another area that needs to be reviewed for compliance, Allen said. Like traditional advertising, there needs to be policies and procedures in place as well as controls.
She suggests social media be controlled from a central location rather than at the branch level because of the “super high risk” involved.
Lender compliance department should do monthly audits, looking to see if the branches are meeting policies and procedures.