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Federal regulators probe mortgage ads that may mislead consumers

Original source:,0,3437677.story

Los Angeles Times
Jim Puzzanghera
November 20, 2012

The FTC and Consumer Financial Protection Bureau are investigating 19 firms and have sent warning letters to 32 others about mortgage ads that may be misleading.

WASHINGTON — Federal regulators have opened investigations into 19 financial companies for possible violations of new mortgage advertising rules designed to keep firms from misleading consumers about reverse mortgages and other products.

In addition, the regulators have sent letters to 32 other firms warning them about advertisements that falsely imply a connection to a government program or provide other potentially misleading information.

The actions, announced Monday, came after a review by the Federal Trade Commission and the Consumer Financial Protection Bureau of about 800 ads by mortgage lenders, mortgage brokers and other firms outside the conventional banking system.

"Misrepresentations in mortgage products can deprive consumers of important information while making one of the biggest financial decisions of their lives," said Richard Cordray, director of the consumer bureau, which shares enforcement of mortgage advertising rules with the FTC.

"Baiting consumers with false ads to buy into mortgage products would be illegal," Cordray said.

The agencies did not identify the companies under formal investigation or those that received warning letters.

Jerry Cerasale, senior vice president of government affairs for the Direct Marketing Assn., said the trade group supported government steps to crack down on fraudulent ads.

"If you go after the fraudsters, we applaud it," he said. "Our whole system depends on trust."

The FTC said it had launched investigations of 13 companies and sent 20 warning letters. The consumer bureau said it had opened six investigations and issued 12 warning letters. Violations could lead to civil penalties.

Last year, the FTC enacted the Mortgage Acts and Practices Rule, which prohibits misrepresentations of consumer mortgages through ads or other communications.

The two agencies reviewed ads in newspapers, direct mail, email and online, including on Facebook.

Some ads featured the image of an eagle or official-looking seal or used abbreviations similar to those for federal programs, implying an affiliation with the government. Others simply promoted lower rates or touted guaranteed approval without being clear about the requirements.

The agencies sent warning letters to companies with ads that implied they were affiliated with a government agency but only in small type at the bottom of the ads stated that the firms were not affiliated with the government.

"To the extent that something is clearly a misrepresentation and appears to us to be clearly false, that is something that is far more likely to result in opening an investigation," said Kent Markus, assistant director for enforcement at the consumer bureau.

The bureau focused on ads that target older Americans and members of the military. The agency also has been considering requiring better disclosure and stricter oversight of reverse mortgages.

Consumers Union, publisher of Consumer Reports, has been warning people about the potential pitfalls of reverse mortgages.

"These are very large dollar amount transactions and can have a significant impact on someone's financial future, so any advertising regarding a mortgage … has to be honest and has to be truthful," said Norma Garcia, a staff attorney at Consumers Union.