On February 12, 2015, the CFPB took action against three mortgage companies for allegedly misleading consumers with advertisements implying U.S. government approval of their products. In addition to the CFPB exercising its authority to prohibit unfair, deceptive or abusive acts or practices, the agency also charged the three institutions with violating the Mortgage Acts and Practices Rule (Regulation N), which prohibits making "any material misrepresentations, expressly or by implication, in any commercial communication, regarding any term of any mortgage credit product, including but not limited to misrepresentations" that "the provider is, or is affiliated with, any governmental entity."
These enforcement actions stem from a joint "sweep" with the Federal Trade Commission (FTC). The two agencies reviewed approximately 800 randomly selected mortgage-related advertisements across the country, including advertisements for mortgage loan, refinancing, and reverse mortgage products. The CFPB and the FTC examined public ads in newspapers, on the Internet, and on mail solicitations. Further, some of the mortgage-related ads came to the attention of the CFPB and the FTC from consumer complaints.
- All Financial Services: The Bureau stated in its complaint that All Financial Services, a lender/broker, misrepresented that the source of the advertisements was, or was affiliated with, a governmental entity. The Bureau alleged that the company misrepresented that a Federal Housing Administration (FHA)-insured reverse mortgage program was time-limited or had a deadline. The Bureau also took issue with advertising material that resembled the United States seal, as well as language such as "Government Lending Division" and "Housing and Recovery Act of 2008 Eligibility Notice." In its complaint filed in the United States District Court for the District of Maryland, the Bureau seeks a civil penalty, disgorgement order, and permanent injunctions against All Financial.
- Flagship Financial Group: The CFPB alleged that from August 2011 to December 2012 the company sent mailings implying that its U.S. Department of Veterans Affairs (VA) loans were endorsed or sponsored by the U.S. Department of Housing and Urban Development (HUD). The CFPB took issue with the company's alleged claim that it was "HUD-Approved." For example, the ads noted by the Bureau included text about federal legislation, and said, "HUD-Approved Flagship Financial Group has been directed to get VA homeowners instant relief by lowering their monthly payments." Under the consent order, Flagship Financial Group must pay a $225,000 civil penalty, in addition to standard injunctive relief.
- American Preferred Lending: The CFPB alleged that from August 2011 to February 2013, the company sent mailings to potential consumers that appeared as if they were U.S. government notices, obscuring that they were actually from American Preferred Lending. The Bureau claimed that more than 100,000 mailings were sent that had an FHA-approved lending institution logo, and referenced the web address, www.FHAdept.us. The Bureau argued that these factors, when combined, gave the impression that the ads were from the U.S. government, or an entity affiliated with the government. The Bureau stated that although the company is authorized to originate VA and FHA loans, it is not an agent of, or affiliated with, the U.S. government. Under the consent order, American Preferred must pay an $85,000 civil penalty, in addition to standard injunctive relief.
As the relationship between the Bureau and the FTC continues to grow, we can expect to see additional joint law enforcement sweeps that focus on a specific industry's compliance with the consumer financial laws.
For more information about other CFPB-related issues, contact the authors or other members of Venable's CFPB Task Force.