The purpose of advertising any product or service is not to sell the product per se, but to get the consumer to take action. From the dawn of advertising, deceptive or misleading advertising generated the most amounts of interest and activity. Advertising claims became so outrageous that congress formed the Federal Trade Commission (FTC) in 1914 with its primary focus to stop unfair methods of competition in commerce.
The federal rules for advertising mortgage loans state that if an ad contains any of the triggering terms below, it requires that the amount of the downpayment, the terms of repayment and the annual percentage rate (APR) be disclosed:
►The amount or percentage of a downpayment
►The number of payments or period of repayment
►The amount of any payment
►The amount of any finance charge
If an interest rate is stated, you must provide the APR in the same type size as the interest rate. Essentially, if you tell part of the story, you need to tell the rest of the story.
Deceptive or misleading advertising
The FTC, U.S. Department of Housing & Urban Development (HUD) and many State Banking Departments are focusing on Deceptive or Misleading Advertising, and from the recent settlements, you may be surprised by some of their interpretations. Here are some of the things mortgage companies have been cited for:
►Using FINAL NOTICE OF RATE INCREASE and LOAN SERVICING DEPARTMENT instead of their company name in the area normally used for a return address.
►Saying “Skip up to two mortgage payments” and “No out-of-pocket closing costs” in a mail solicitation.
►Displaying a misleading Federal Housing Administration (FHA) seal in a manner that falsely represents that the mortgagee’s business services or products originate from HUD.
Since Mortgagee Letter 2011-17 was issued on April 15, 2011, the use of the FHA-Approved Lending Institution logo must be accompanied by a conspicuous disclaimer that clearly informs the public that the mortgagee authoring the advertisement is not acting on behalf of or at the direction of HUD/FHA or the federal government. Even using the acronyms such as Ginnie Mae, FHA or HUD can lead to problems. In addition, mortgagees are now responsible for reviewing all advertisements generated by lead generators on behalf of their company for compliance with advertising requirements and all business names, aliases, and d/b/a’s used by FHA-approved mortgagees must be registered with HUD.
Doing it right
►Don’t include an interest rate or other triggering terms without including the necessary disclosures.
►No advertisement may include language which deceives, defrauds or misrepresents loans terms, conditions or charges, including, but not limited to, the use of words indicating “Immediate Approval” or “Immediate Closing.”
►Don’t make it appear that you are an exclusive provider of government loans or that your company is acting on the governments behalf.
What should an advertisement contain?
►In addition to the required disclosures, all advertisements and solicitations should prominently include the name and address of the originating entity, state licensing information and the company’s NMLS Identifying number.
►When using pictures of applicants, make sure they are representative of the population as a whole.
►Use the Equal Housing Lender or Equal Housing Opportunity Logo.
►Add a disclaimer subject to credit approval.
Advertising policy
Advertising violations are costly. Protect your company by having a written advertising policy detailing the required components of an advertisement and the procedures that are required before an advertisement can be placed on behalf of the company. List an individual in management that must approve any ad before it is placed. Some states prohibit loan originators from advertising on their own and require that the company be listed on the advertising contract.
This article was co-authored by Bonnie Nachamie.
Jonathan Pinard is president and Bonnie Nachamie is chief executive officer of First National Compliance Solutions Inc. in Merrick, N.Y. Jonathan may be reached by phone at (800) 400-4134 or e-mail
[email protected]. Bonnie may be reached by phone at (800) 400-4134 or e-mail
[email protected].
