New Advertising Rule Proposed

Mortgage originators, lenders and servicers will be subject to new advertising requirements under a new rule being proposed.

Scope
The proposed rule would apply broadly and include mortgage lenders, brokers and servicers and other entities under the FTC’s jurisdiction. Although, under the FTC Act, the FTC may currently bring actions against those who engage in deceptive mortgage advertising, it may only seek injunctive relief against them. Pursuant to the powers granted under the Omnibus Appropriations Act and Credit CARD Act, the FTC has issued this proposed rule allowing it to seek civil penalties in addition to injunctions.

General Prohibitions
The proposed rule largely addresses representations regarding the obligations or characteristics associated with mortgage credit products. Among other provisions, it prohibits:

• misrepresentations pertaining to the variability of interest, payments, or other terms of mortgage credit products, including, for example, misrepresentations using the word “fixed” when terms are variable or limited in duration;

• false or misleading comparisons between rates or payments, including but not limited to comparisons involving savings;
  
  
• misrepresentations about the type of mortgage credit product that is offered, for example, false claims that a mortgage is fully amortizing;
  

• misrepresentations about the amount of the obligation or the existence, nature, or amount of cash or credit the consumer could receive, including, for example, false claims that the consumer will receive a certain amount of cash by obtaining a home equity loan, or will receive a certain amount of credit through a purchase money loan;
  

• misrepresentations about the existence, number, amount, or timing of any minimum or required payments;
  

• misrepresentations about the potential for default on the mortgage credit product, including but not limited to misrepresentations about the circumstances under which the consumer could default for nonpayment of taxes or insurance, failure to maintain the property, or not complying with other obligations;
  

• misrepresentations about the effectiveness of the mortgage credit product in helping consumers resolve problems in paying debts, including false or misleading claims that the lender’s or servicer’s product (through a waiver, forgiveness, or otherwise) will reduce, eliminate, or restructure a debt or any other obligation of any person;
  

• misrepresentations about the association between a mortgage credit product or a provider of such product and any other person or program, including but not limited to any affiliation with an organizational or governmental program, benefit, or entity;
  

• misrepresentations about the source of the mortgage credit product and the commercial communications for it, including but not limited to claims that the communication is made by or on behalf of the consumer’s current mortgage lender or servicer; and
  

• misrepresentations about the consumer’s right to reside in the dwelling that is the subject of the mortgage credit product, including but not limited to false or misleading claims about how long or under what conditions a consumer can stay in the dwelling.

The proposed rule also addresses misrepresentations with respect to fees and costs and representations that pertain to the availability of the mortgage credit product and related advice.

Coverage of Disclosure Requirements
In its current form, the proposed rule does not include any advertising disclosure requirements. However, among other applicable state and federal regulations, mortgage advertisers and marketers separately must comply with TILA and its implementing regulation, Regulation Z.

Among other provisions, Regulation Z also prohibits misleading or deceptive advertisements, including:

• advertising as “fixed” a rate or payment that will change after a period of time, unless the advertisement meets other disclosure criteria;

• comparing actual or hypothetical rates or payments to the rates or payments on an advertised loan, unless the advertisement discloses the rates or payments that will apply over the full term of the advertised loan;

• misrepresenting an advertised loan as part of a “government loan program” or as otherwise endorsed or sponsored by a government entity;

• using the name of the consumer’s current lender, unless the advertisement has an equally prominent disclosure of the person actually distributing the advertisement and includes a “clear and conspicuous” statement that the advertiser is not associated with the consumer’s current lender;

• making any misleading claim that an advertised loan will eliminate debt or result in forgiveness of a consumer’s existing loan terms with, or obligations to, another creditor;

• using the term “counselor” in an advertisement to refer to a for-profit mortgage broker or mortgage lender; and

• advertising mortgages in a language other than English while providing advertising disclosures only in English.

The public comment period for this proposed rule ends Nov. 15.