Pennsylvania Secretary of Banking Bill Schenck is slamming mortgage brokers over the use of deceptive solicitations.
These materials dupe customers into thinking that the broker is associated with their bank or that their bank has sold information about them to the broker, he said.
"Please be advised that the department strongly disapproves of this practice and considers it grounds for stern regulatory action," Mr. Schenck wrote in a July 7 letter to all brokers operating in the state.
He told brokers that they may not include the name of unaffiliated banks on advertising materials. Such practices have mushroomed in recent years as refinancing activity has soared. "In that environment, these types of letters have been much more common," the regulator said in an interview.
The letter is one of several steps Mr. Schenck has taken to protect consumers since becoming the banking commissioner six months ago. Others include closing a loophole that allowed banks to charge big fees when cashing tax refund checks and demanding that payday lenders and check-cashing firms stop abusive practices.
"We are taking an increasingly active consumer protection approach," he said in the interview. But he also said that the crackdown on brokers was spurred by banks that are concerned the marketing materials will confuse their customers.
Mortgage brokers also backed Mr. Schenck.
"We're absolutely against the fact that anyone would ever use misleading representation when advertising to the consumer," said Tony Salvitti Jr., the president of the Pennsylvania Association of Mortgage Brokers. "We fully agree with Secretary Schenck."
Pennsylvania is not the only state grappling with this issue; Indiana and Illinois have enacted laws in the last three years banning such practices, and there has been a push for similar legislation in Wisconsin.
Such a law may not be needed in Pennsylvania, where the Department of Banking has broad jurisdiction over mortgage brokers and bankers, including the authority to revoke licenses, issue cease-and-desist orders, and collect monetary fines.
Mr. Schenck said his department has even "started to go after telemarketers who deceptively advertise a connection to a bank on behalf of mortgage brokers."
The department's moves have gotten the attention of the state Legislature, which may raise the maximum fine for deceptive solicitations, currently $2,000 per incident.
