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CFPB Takes Action Against Mortgage Firms for Misrepresenting Government Affiliation

Feb 12, 2015

The Consumer Financial Protection Bureau (CFPB) is taking action against three mortgage companies for misleading consumers with advertisements implying U.S. government approval of their products. The CFPB is suing reverse mortgage lender All Financial Services, seeking to halt its illegal activities. The CFPB is also ordering Flagship Financial Group and American Preferred Lending to end their false advertising.

“Each of these companies has misled consumers with false advertising,” said CFPB Director Richard Cordray. “The U.S. government is very serious about stopping companies from falsely claiming federal authority, and we are particularly concerned about false or deceptive statements made in advertisements about reverse mortgages that target older Americans.”

The 2011 Mortgage Acts and Practices Advertising Rule prohibits misleading claims in mortgage advertising, including implying a government affiliation. The CFPB alleges that mailings by All Financial Services, American Preferred Lending and Flagship Financial Group imitated U.S. government notices. While government programs insure or guarantee certain mortgages, the private lenders that make these loans are not government entities and are not affiliated with the U.S. government. Federal Housing Administration (FHA) loans are loans from private lenders that are regulated and insured by the FHA, a government agency. Veterans Affairs (VA) loans are similarly made by private lenders to eligible veterans, current servicemembers, and surviving spouses; they are guaranteed by the Department of Veterans Affairs.

The CFPB alleges that from November 2011 to December 2012, All Financial Services used advertisements that were deceptive. The Bureau alleges that the company misrepresented that the source of the advertisements was, or was affiliated with, a governmental entity. They also misrepresented that the FHA-insured reverse mortgage program was time-limited or had a deadline. For example, one mailer sent to nearly 200,000 consumers advertising All Financial Services’ reverse mortgages had an eagle resembling the Great Seal of the United States. Furthermore, the header read, “GOVERNMENT LENDING DIVISION” and “Housing and Recovery Act of 2008 Eligibility Notice.”

The Bureau also alleges that the company falsely said that no monthly payments are required “whatsoever” under a reverse mortgage “as long as you and your spouse live in the home.” The CFPB alleges this ad is misleading for two reasons. First, homeowners who take out a reverse mortgage are still required to pay taxes and insurance. Second, at the time the ads were disseminated, the reverse mortgages they advertised could be due upon the death of the last borrower, regardless of whether a non-borrowing spouse still lived in the home.

The CFPB is filing a complaint against All Financial Services in the United States District Court for the District of Maryland seeking a civil fine and a permanent injunction to prevent future violations. The complaint is not a finding or ruling that the defendant has actually violated the law.

The CFPB investigation discovered that from August 2011 to December 2012, Flagship Financial Group sent mailings implying that its VA loans were endorsed or sponsored by the U.S. Department of Housing & Urban Development (HUD). The company claimed, in more than one million mailers, that it was “HUD-Approved.” For example, the ads 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.” Flagship Financial Group has no unique affiliation beyond that of other lenders to originate VA-guaranteed loans and was not “HUD-Approved” at the time it claimed in its advertisements to have that status.

The company also sent tens of thousands of mailers advertising mortgage credit products that looked like a government notice. For example, the mailings had a heading, “PURSUANT TO THE FEDERAL HOUSING ADMINISTRATION (FHA) HUD No. 12-045,” instructed consumers to call their “assigned FHA loan specialist,” and obscured the company’s name as the source of the advertisements. The company will also pay a civil penalty of $225,000.

The CFPB’s investigation revealed that American Preferred Lending, from August 2011 to February 2013, sent mailings to potential consumers that appeared as if they were U.S. government notices, obscuring that they were actually from American Preferred Lending. More than 100,000 mailings were sent that had an FHA-approved lending institution logo, and referenced the web address, These factors combined gave the impression that the ads were from the U.S. government, or an entity affiliated with the government. Although the company is authorized to originate VA and FHA loans, it is not an agent of, or affiliated with, the U.S. government.

American Preferred Lending will be prohibited from falsely implying a government affiliation in future advertisements. It will also pay a civil penalty of $85,000. The civil penalty amount reflects, in part, the company’s financial condition, and will be paid with funds contributed to the company by its owners.

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