On Feb. 12, the Consumer Financial Protection Bureau took action against three mortgage companies for disseminating false or misleading advertisements under the Mortgage Acts and Practices Advertising Rule. Among other things, the rule prohibits a mortgage company from implying in advertisements to consumers that the company is a government entity or is affiliated with a government entity if no such affiliation exists.
The CFPB entered into consent orders with Flagship Financial Group and American Preferred Lending (both of whichwere ordered to pay a civil penalty) and filed a complaint in federal court against All Financial Services. All three actions alleged that the companies sent deceptive advertisements to consumers that misrepresented to the consumers that the companies were governmental entities or were affiliated with a governmental entity.
For example, one mailing to over one million consumers indicated it was from the "Government Lending Division" and contained an eagle with a seal on it. Another example cited by the CFPB was an advertisement whose text read, "HUD-Approved Flagship Financial Group has been directed to get VA homeowners instant relief by lowering their monthly payment," when in fact it was merely approved to originate loans guaranteed by the Department of Veterans Affairs.
In another example, a company distributed a mailing with an FHA-approved lending institution logo, referencing the web address www.FHAdept.us, which was formatted to obscure the actual institution's name. All these factors, according to the CFPB, misled consumers into thinking the mortgage companies were affiliated with the government.
Here, no express misrepresentation was involved. Yet, because the advertisements were constructed in such a way as to create a reasonable and predictable level of confusion, the distribution of the advertising was impermissible.
Thus, even where there is not a clear intention by a mortgage company to actively mislead consumers about specific terms of loan products or transactions, where there are indications of misleading advertisement content, such as a website that appears to be government-affiliated, the CFPB will take action to avoid such confusion.
As such, lenders must not only avoid misleading statements, but anything in connection with their advertising that may have the likelihood of creating significant confusion for consumers. Otherwise, the CFPB may interpret the failure to avoid such confusion as a violation of federal lending laws.
Ari Karen is a principal at the law firm of Offit Kurman.