A new Final Rule issued by the Federal Trade Commission seeks to establish clearer rules on the advertisement of mortgage products as it relates to unfair or deceptive practices that may occur in commercial communications.
The intent of the rule is to establish civil penalties to enhance the deterrent of law enforcement actions against deceptive practices, especially in cases where "consumer redress or disgorgement is not available or feasible."
The rule establishes three definitions in determining the type of products that fall under this rule. First the product must be considered a form of credit, or "“the right to defer payment of debt or to incur debt and defer its payment.” Second, it must be secured by real property or a dwelling (a residential one to four unit property including a condominium, coop, mobile home or) trailer). Third, the credit must be offered primarily for personal, family or household purposes. Covered products included both closed-end or open-end mortgage loans and both forward and reverse mortgages.
The terms of the rule apply broadly to any type of commercial communications regarding any term of the mortgage product. This refers to any of the fees, costs, obligations or characteristics of the product and any conditions related to the availability of the product. The commercial communications affected essentially cover any type of method for communicating with a consumer:
any written or oral statement, illustration, or depiction, whether in English or any other language, that is designed to effect or create interest in purchasing goods or services, whether it appears on or in a label, package, package insert, radio, television, cable television, brochure, newspaper, magazine, pamphlet, leaflet, circular, mailer, book insert, free standing insert, letter, catalog, poster, chart, billboard, public transit card, point of purchase display, film, slide, audio program transmitted over a telephone system, telemarketing script, onhold script, upsell script, training materials provided to telemarketing firms, program-length commercial (“infomercial”), the Internet, cellular network, or any other medium. Promotional materials and items and Web pages are included in the term “commercial communication.”
In defining the deceptive acts or misrepresentations, the rule lays out 20 specific prohibited misrepresentations as it relates to advertising practices regarding any term of mortgage credit product, including but not limited to:
(a) the interest charged for the mortgage credit product
(b) the annual percentage rate, simple annual rate, periodic rate, or any other rate;
(c) the existence, nature, or amount of fees or costs to the consumer associated with the mortgage credit product, including misrepresentations that no fees are charged;
(d) the existence, cost, payment terms, or other terms associated with any additional product or feature that is or may be sold in conjunction with the mortgage credit Product
(e) the terms, amounts, payments, or other requirements relating to taxes or insurance associated with the mortgage credit product
(m) the effectiveness of the mortgage credit product in helping the consumer resolve difficulties in paying debts, including but not limited to misrepresentations that any mortgage credit product can reduce, eliminate, or restructure debt
(n) the association of the mortgage credit product or any provider of such product with any other person or program, including specific misrepresentations the provider is affiliated with the government or the product is a government benefit
(o) the source of any commercial communication is made by or on behalf of the consumer’s current mortgage lender or servicer;
(p) the right of the consumer to reside in the dwelling that is the subject of the mortgage credit product, or the duration of such right, including how long or under what conditions a consumer with a reverse mortgage can stay in the dwelling;
(q) the consumer’s ability or likelihood to obtain any mortgage credit product or term, whether the consumer has been preapproved or guaranteed for any such product or term;
(r) the consumer’s ability or likelihood (preapproval) to obtain a refinancing or modification of any mortgage credit product or term; and
(s) the availability, nature, or substance of counseling services or any other expert advice offered to the consumer regarding any mortgage credit product or term
Companies must keep copies of commercial communication, along with supporting documentation on the availability of products, for a period of 24 months for the last date the material was distributed.
In addition to enforcement actions by the FTC, the rule also authorizes the Consumer Financial Protection Bureau (CFPB) and states to enforce this rule. Both the FTC and CFPB are able seek civil penalties for violations of the rule, and it authorizes states to seek enforcement actions via civil actions in federal district court.
The Final Rule becomes effective on August 19, 2011.