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3.5% Fixed Rate???

Chase Financial charged by FTC with misleading and deceptive advertising

June 11, 2004


At a time when interest rates are rising, the offer of a 3.5% fixed payment 30-year mortgage looked almost too good to be true.

Turns out that was exactly the case with the offer being made by a California company, according to a federal government complaint filed in U.S. District Court in California.

The Federal Trade Commission (FTC) has charged in a complaint that Chase Financial Funding of Aliso Viejo, Calif., broke federal laws by misleading and deceiving customers with ads offering "extremely low mortgage rates," the commission said in a written statement.

While the ads claimed the loans were fixed rate, they were actually adjustable rate mortgages, the FTC has charged.

"Consumers have suffered substantial injury as a result of the defendants' unlawful acts," the FTC said in the complaint. "The actual interest rate charged is in fact considerably higher and varies monthly."

Calls to Chase's office were not returned.

Along with the company, named as defendants in the complaint were President James F. Berry, Vice President Suzanne Admire and General Manager Jeremy Alexander.

Chase, doing business now as Choice Financial Funding, "duped consumers with promises of a '3.5% fixed payment 30 year loan' and a '3.5% fixed payment loan','' the FTC said.

"(Chase) did not offer any such the loan," the commission said. "The loan (Chase) falsely advertised is actually an adjustable rate mortgage, where the principal balance would increase if consumers make payments at the advertised rates. Even these minimum payment amounts may increase by 7.5 percent each year."

On June 1, a U.S. District Judge in the Central District of California handed down a preliminary injunction "barring the defendants' illegal business practices," the FTC said.

The government has also asked the court to go further and "bar the defendants permanently from engaging in deceptive lending practices and to award relief" to the customers who were allegedly duped by the ads.

The FTC alleges that Chase violated the federal Truth-in-Lending Act by not disclosing the true terms of the loan and for not indicating in the ads that the interest rate may increase.

Chase also had consumers sign applications for loans that were not offered or available and misled borrowers about refinancing prepayment penalties and fees, the commission said.

Chase used direct mail and Internet ads "via spam" to contact consumers, the FTC said. Public records of some customer's mortgage loans were used to make comparisons between the customers "existing payment" and a "new loan payment."

The company also advertised the loans on it's Web site.

The loans Chase actually offered were adjustable rate mortgages with four payment options, including an interest-only payment and a lower minimum payment option where unpaid interest is deferred.

"Each month any unpaid interest is added to the principal of the loan, so that the principal balance increases rather than decreases," the FTC said. "Even the minimum payment amount is subject to increase annually."

Patrick Crowley is a political reporter and columnist and former business writer for The Cincinnati Enquirer. Email Patrick at: [email protected]

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