Insights

In September, the Federal Trade Commission (FTC) proposed a rule to ban misrepresentations in the advertising of all mortgages. The so-called Mortgages Acts and Practices Advertising Rule (MAP) would prohibit all material misrepresentations in advertising about consumer mortgages. The FTC took this action pursuant to the Omnibus Appropriations Act of 2009 and the Credit Card Accountability Responsibility and Disclosure Act of 2009. Congress wanted the FTC to root out unfair or deceptive acts or practices in mortgage lending, including acts or practices related to loan modification and foreclosure rescue services.

Section 5 of the Federal Trade Commission Act, which the FTC enforces, broadly prohibits unfair or deceptive acts or practices in consumer credit transactions, among other transactions. Within this framework, the FTC set out in the MAP a detailed list of misrepresentations about fees, costs, obligations, and other aspects of credit that would constitute violations. The MAP would broadly ban any material misrepresentation – whether made expressly or impliedly – in any commercial communication regarding any term of any mortgage credit product. The MAP defines “term” as any of the fees, costs, obligations, or characteristics of, or associated with, the mortgage product. So, by way of example, the MAP bans misrepresentations about interest charged for the mortgage, including misrepresentations about whether the lender includes the amount of interest owed each month in the customer’s payments, loan amounts or total amount due. The MAP also bars misrepresentations about the Annual Percentage Rate and any other rate. The MAP thus has significant interplay with the federal Truth in Lending Act and Regulation Z, which regulate advertising that uses certain “trigger terms,” including the APR.

The MAP also limits the ability of a lender to state that an advertised mortgage product has no costs. For example, lenders in the past have referred to loans as “no cost,” where the consumer paid no upfront costs, but did, in fact, pay certain costs at closing – or could, in another iteration, pay certain costs if they refinanced out of the loan. The MAP bars outright any false or misleading claims that the lender will charge no fees – including a scenario where the fees and costs, though not separately paid by the consumer, are included in the loan amount. The MAP prohibits false claims for the life of the loan, in effect extending the reach of the MAP beyond the loan’s origination.

In addition to barring misrepresentations regarding fees or costs, the MAP bars misrepresentations about the obligations the consumer would incur in connection with a given mortgage product or the characteristics of the mortgage. Under no circumstances under the MAP can a mortgage creditor make misstatements pertaining to the variablity of interest, payments, or other terms, including use of the word “fixed,” when the terms of the mortgage may vary. The MAP also bars statements already regulated under other statutes – either state or federal. For example, the MAP prohibits misrepresentations about the effectiveness of the mortgage in helping the borrower resolve her credit problems. This MAP provision is broader than a similar Regulation Z provision that applies only to closed-end mortgages secured by dwellings. The MAP also bans a creditor from misleadingly implying that a given mortgage has any association with a government agency – a ban already adopted by many states. Finally, the MAP regulates statements in advertisements related to the availability of a given mortgage product. A creditor cannot misrepresent the consumer’s ability to obtain a given mortgage, including false claims that the creditor has preapproved the consumer for a loan.

The MAP would apply to a broad variety of actors in the mortgage market, including mortgage lenders, brokers, and servicers; real estate agents and brokers; advertising agencies; home builders; lead generators; rate aggregators; and other entities under the FTC’s jurisdiction. Currently, under the FTC Act, the Commission may bring actions against those under its jurisdiction who engage in deceptive mortgage advertising, and it may seek injunctive relief against them. Under the MAP, the FTC could file actions against violators to seek civil penalties in addition to injunctions. The MAP would also allow the states to bring actions for civil penalties for violations of the rule.

The FTC seeks comments about the MAP during its 45-day public comment period, which ends November 15, 2010.

Comments on the Federal Trade Commission’s proposed Mortgages Acts and Practices Advertising Rule must be submitted by November 15, 2010.

Catherine M. Brennan is a partner in the Maryland office of Hudson Cook, LLP. Cathy can be reached at 410-865-5405 or by email at cbrennan@hudco.com.