CFPB action on deceptive advertising

by: Melinda Peterson

In February, the CFPB took action against three mortgage companies, Flagship Financial Group , American Preferred Lending , and All Financial Services , for allegedly violating Regulation N, Mortgage Acts and Practices Advertising.  This rule prohibits “any person to make any material misrepresentation, expressly or by implication, in any commercial communication, regarding any term of any mortgage credit product.”

While Regulation N outlines multiple prohibited representations, the CFPB addressed two in their action against these mortgage companies; misrepresenting affiliation with a government entity and misrepresenting payments.

Each of these companies allegedly sent out direct mail advertisements that looked like government notices and appeared that the source of the ad was a government agency.  One contained a heading “PURSUANT TO THE FEDERAL HOUSING ADMINISTRATION (FHA) HUD No. 12-045,” and instructed recipients to call an “assigned FHA loan specialist,” while the actual name of the mortgage company was buried in the disclaimer.

In addition to misrepresenting government affiliation, the CFPB alleged that one company sent out misleading advertisements regarding required payments.  The ad included a statement that “There is no monthly payment or repayment required whatsoever for as long you or your spouse live in the home.”  The CFPB considers this misleading because the borrower is still required to pay for insurance and property taxes.  Also, the loan could become due and payable upon death of the borrower, even if the non-borrowing spouse still lives in the home.

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