FTC issues rule on deceptive mortgage advertising

Advertisements with interest rates that seem too good to be true or messages indicating that you’ve been pre-approved for a fantastic mortgage may not be so common in the future.

A new rule from the Federal Trade Commission designed to prohibit deceptive mortgage advertising took effect last week. The FTC began the process of constructing the Mortgage Acts and Practices Advertising (MAP) Rule in mid-2009 to prohibit misrepresentations in any commercial mortgage credit communication regarding any term of a mortgage credit product.

The final rule is codified at 16 CFR 321.

The MAP Rule accomplishes several important objectives by giving the FTC and the states authority to seek civil penalties for deceptive mortgage advertising. It provides guidance on what constitutes deceptive mortgage advertising and imposes record-keeping requirements on mortgage advertisers to facilitate law enforcement, FTC Commissioner Edith Ramirez explained.

In addition to the FTC and state agencies, the new Consumer Protection Financial Protection Bureau will also provide enforcement of the rule.

The rule seeks to eliminate common mortgage misrepresentations or deceptive practices regarding actual fees charged, additional costs, pre-payment penalties and other terms consumers need to understand in selecting a mortgage product.

As the rule states: “Reasonableness is evaluated based on the sophistication and understanding of consumers in the group to which the representation is targeted, which may be a general audience or a specific group. A claim may be susceptible to more than one reasonable interpretation, and if one such interpretation is misleading, then the advertisement is deceptive, even if other, non-deceptive interpretations are possible.”

“We work closely with the Federal Trade Commission and we support any effort to strengthen the protection of consumers against deceptive advertising and particularly mortgage advertising,” said David Polino, president of the Upstate New York Better Business Bureau.

The Upstate NY BBB issues advertising guidelines for specific industries and may alter their guidelines based on the FTC’s action once they’ve fully examined the new rule. For now, Polino said he is just happy there are additional rules to protect consumers against potentially misleading mortgage advertising.

Advertising highlighting introductory interest rates and/or payments that don’t last for the life of the loan often prove to be confusing to consumers, and the new rule states speed reading and flashing disclaimers do not constitute a sufficient warning.

The rule applies to lenders, brokers, real estate agents, advertising agencies home builders and others but not to banks, thrifts and credit unions outside the FTC’s jurisdiction.

Part of the rule’s enforcement provision imposes recordkeeping requirements on mortgage advertisers to keep copies of advertising and marketing records, documents, website information, logs, scripts and materials related to the product for 24 months after the commercial communication was made to consumers.

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