Complaints by a growing number of banks about nonbanks’ unauthorized use of their names and logos in marketing materials have more states enacting stiffer penalties for such crimes.
A California law taking effect Jan. 1 will let state regulators issue cease-and-desist orders to nonbanks that pose as banks in mailings pitching insurance products or mortgage refinancings. Violators may also have to pay any costs incurred by the bank as a result of the impersonation, including attorney fees.
States including Illinois, Indiana, Wisconsin, and Missouri, have similar statutes against bank imposters, which usually get names and mortgage information from public records, then send mailings that appear to be from the banks where the recipients have their mortgage.
Oregon’s Department of Consumer and Business Services revokes the licenses of Oregon mortgage brokers and finance companies that commit these crimes, but members of the Oregon Bankers Association find that inadequate, says Kenneth Sherman Jr., the trade group’s general counsel.
“New operators from out of state are doing this, and so we’ve just had a huge flurry of these things,” said Mr. Sherman, an attorney at Sherman Sherman Johnnie & Hoyt LLP in Salem. About a third of the trade group’s 40 bank members have complained that their names and logos have been stolen, Mr. Sherman said, and the group is considering lobbying state legislators to enact a law against such practices.
Customers tend to get these solicitations shortly after obtaining a mortgage from a bank or refinancing their home, Mr. Sherman said. The name of the customer’s bank usually appears somewhere on the front of the envelope, along with a return address such as “Loan Processing Center.” Sometimes the front of the envelope also says “Important mortgage information enclosed,” or something similar.
Inside is an advertisement suggesting that the recipient refinance with the nonbank at a lower interest rate, and listing the amount, current interest rate, and other details about the customer’s loan with the actual bank.
Mr. Sherman said most customers do not realize their loan information is available to anyone who visits a county courthouse or title company and requests recently recorded mortgages and trust deeds.
“The most common complaint that our members get from customers, is ‘How dare the bank make this loan to finance this house, and turn around and give this information to someone else,’ ” he said.
Many banks let their customers know at the time of closing that the loan information is public record, so that customers may be on guard for these types of solicitations, Mr. Sherman said.
But customers usually have a lot of other information to digest during a closing, so disclosures like this often “go in one ear and out the other,” he said. “I’ve been through this with some refinancings recently to get better rates, and it’s mind-boggling — and I’m a lawyer.”
Illinois passed its law in 2001, and since then state regulators have issued several cease-and-desist orders against bank impostors there, according to the Illinois Department of Financial Institutions.
Linda Koch, the president of the Illinois Bankers Association, says she believes the law has been a deterrent.
“Quite frankly, we’ve not had bankers complaining about this in the last several years,” Ms. Koch said.
