The Consumer Financial Protection Bureau has been sending strong messages across the real estate industry lately with its aggressive campaign against companies who they believe have made material misrepresentations which improperly suggested the lender was affiliated with a United States governmental entity or the company advertising its mortgage products was endorsed, sponsored by, or affiliated with a governmental program to consumers. The first consent order is American Preferred Lending.

On Feb. 12, 2015 the CFPB entered into a consent order with American Preferred Lending, Inc. whereby the bureau deemed American Preferred Lending violated Regulation N, 12 C.F.R. 1014.3(n) and UDAAP. The consent order found that American Preferred Lending disseminated direct-mail mortgage loan advertisements that improperly suggested that American Preferred Lending was affiliated with a governmental agency, and misrepresented that the advertised mortgage loan products were endorsed, sponsored by, or affiliated with a governmental program. The CFPB said the direct mail pieces appeared as if they were United States government notices.

The CFPB noted that “the overall format of the advertisements, including the use of plain text in labeled boxes and the title ‘Payment’ Reduction Notice,’ evoked a government form.” The advertisements were also not clearly marked so consumers could see they came from American Preferred and not the Government.

The bureau also noted that the envelopes American Preferred Lending sent to consumers included a reference to federal law but did not include a return address, and on the primary page of the advertisement American Preferred Lending’s name appeared only in the small print disclosures.

Also of concern is advertisements American Preferred sent out to consumers contained the web address which was designed to deceive consumers into thinking the communications came from a governmental entity. Some of the advertisements that were mailed also contained the FHA Approved Lending Institution logo which the CFPB deemed to be eerily similar to HUD’s circular logo with the words “FEDERAL HOUSING COMMISSIONER APPROVED LENDING INSTITUTION” around the exterior.

Regulation N (the Mortgage Acts and Practices Advertising Rule) prohibits any person from making “any material misrepresentations, expressly or by implication, in any commercial communication, regarding any term of any mortgage credit product, including by not limited to misrepresentations” that “the provider is, or is affiliated with, any governmental entity,” 12 CFR 1014.3(n)(1), or that the product “is or relates to a government benefit, or is endorsed, sponsored by, or affiliated with any government or other program, including but not limited to through the use of formats, symbols, or logos that resemble those of such entity, organization, or program.” 12 CFR 1014.3(n)(2).

The consent order also said American Preferred Lending violated Section 1036(a)(1)(B) of the CFPA stating the misrepresentations in connection with the advertising practices use for marketing, promoting, offering for sale, or sale of mortgage products was unfair, deceptive, or abusive acts or practices which triggered a UDAAP violation.

American Preferred Lending agreed to pay a $85,000 penalty and must establish a compliance program.

The take-away from this consent order are:
1. Mortgage companies must ensure that their mailing pieces clearly and conspicuously identify themselves and not the government when they advertise.
2. Never use a website URL name which could mislead consumers into thinking they are on a government website.
3. Companies must have an internal compliance program in place to review all advertising and marketing campaigns.
4. Mortgage companies should never wrongfully depict their affiliation with the US Government in their direct mail or website advertisements.

Lastly, it should be noted the CFPB provided a lot more guidance in this enforcement action by providing more explicit examples in the consent order of what they found misleading in the advertisements and website.

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