[Federal Register Volume 76, Number 141 (Friday, July 22, 2011)]
[Rules and Regulations]
[Pages 43826-43847]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-18605]
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FEDERAL TRADE COMMISSION
16 CFR Part 321
Mortgage Acts and Practices--Advertising
AGENCY: Federal Trade Commission (FTC or Commission).
ACTION: Final rule.
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SUMMARY: Pursuant to the 2009 Omnibus Appropriations Act (Omnibus
Appropriations Act), as clarified by the Credit Card Accountability,
Responsibility and Disclosure Act of 2009 (Credit CARD Act), the
Commission issues this Final Rule and Statement of Basis and Purpose
(SBP) relating to unfair or deceptive acts and practices that may occur
with regard to mortgage advertising. This Final Rule, among other
things: Prohibits any misrepresentation in any commercial communication
regarding any term of any mortgage credit product; and imposes certain
recordkeeping requirements.
DATES: This final rule is effective August 19, 2011.
ADDRESSES: Requests for copies of this Rule and this SBP should be sent
to: Public Reference Branch, Federal Trade Commission, 600 Pennsylvania
Avenue, NW., Room 130, Washington, DC 20580. The complete record of
this proceeding is also available at that address. Relevant portions of
the proceeding, including the Final Rule and SBP, are available at
http://www.ftc.gov. On July 21, 2011, the Commission's rulemaking
authority under the Omnibus Appropriations Act transfers to the
Consumer Financial Protection Bureau (contact information available at
http://www.consumerfinance.gov).
FOR FURTHER INFORMATION CONTACT: Laura Johnson or Carole Reynolds,
Attorneys, Division of Financial Practices, Federal Trade Commission,
600 Pennsylvania Avenue, NW., Washington, DC 20580, (202) 326-3224.
SUPPLEMENTARY INFORMATION:
I. Background
A. Statutory Authority
On March 11, 2009, President Obama signed the Omnibus
Appropriations Act.\1\ Section 626 of that Act directed the Commission
to commence, within 90 days of enactment, a rulemaking proceeding with
respect to mortgage loans.\2\ Section 626 also directed the FTC to use
notice and comment procedures under Section 553 of the Administrative
Procedure Act \3\ to promulgate these rules.\4\
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\1\ Omnibus Appropriations Act, 2009, Public Law 111-8, 123
Stat. 524 (Omnibus Appropriations Act).
\2\ Id. Sec. 626(a), 123 Stat. at 678.
\3\ 5 U.S.C. 553.
\4\ Omnibus Appropriations Act Sec. 626(a). Because Congress
directed the Commission to use APA rulemaking procedures, the FTC
did not use the procedures set forth in Section 18 of the Federal
Trade Commission Act (FTC Act), 15 U.S.C. 57a.
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On May 22, 2009, President Obama signed the Credit CARD Act.\5\
Section 511 of this statute clarified the Commission's rulemaking
authority under the Omnibus Appropriations Act.\6\
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\5\ Credit Card Accountability Responsibility and Disclosure Act
of 2009, Public Law 111-24, 123 Stat. 1734 (Credit CARD Act).
\6\ Id. Sec. 511.
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1. Covered Acts and Practices
Section 511 of the Credit CARD Act specified that the FTC
rulemaking ``shall relate to unfair or deceptive acts or practices
regarding mortgage loans, which may include unfair or deceptive acts or
practices involving loan modification and foreclosure rescue
services.'' \7\ The Omnibus Appropriations Act, as clarified by the
Credit CARD Act, does not otherwise specify what the Commission should
include in, or exclude from, a rule, but rather directs the FTC to
issue mortgage rules that ``relate to'' unfairness or deception.\8\
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\7\ Id. Sec. 511(a)(1)(B). In a separate rulemaking, the
Commission issued a final rule with respect to mortgage assistance
relief services. See Mortgage Assistance Relief Services (MARS),
Final Rule, 75 FR 75092 (Dec. 1, 2010), available at http://www.ftc.gov/os/fedreg/2010/december/R911003mars.pdf.
\8\ Credit CARD Act Sec. 511(a)(1)(B).
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Section 5 of the FTC Act broadly proscribes unfair or deceptive
acts or practices in or affecting commerce. An act or practice is
deceptive if there is a representation, omission of information, or
practice that is likely to mislead consumers who are acting reasonably
under the circumstances, and the representation, omission, or practice
is one that is material, i.e., likely to affect consumers' decisions to
purchase or use the product or service at issue.\9\ Section 5(n) of the
FTC Act sets forth a three-part test to determine whether an act or
practice is unfair. First, the practice must be one that causes or is
likely to cause substantial injury to consumers. Second, the injury
must not be outweighed by countervailing benefits to consumers or to
competition. Third, the injury must be one that consumers could not
reasonably have avoided.\10\
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\9\ Federal Trade Commission Policy Statement on Deception,
appended to In re Cliffdale Assocs., Inc., 103 F.T.C. 110, 174-84
(1984) (Deception Policy Statement).
\10\ 15 U.S.C. 45(n). Additionally, Section 5(n) of the FTC Act
provides that ``[i]n determining whether an act or practice is
unfair, the Commission may consider established public policies as
evidence to be considered with all other evidence. Such public
policy considerations may not serve as a primary basis for such
determination.''
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Accordingly, the Commission interprets the Omnibus Appropriations
Act, as clarified by the Credit CARD Act, to allow it to issue rules
that prohibit or restrict unfair or deceptive conduct or that are
reasonably related to the goal of preventing unfair or deceptive
practices. The FTC notes, however, that all of the conduct prohibited
by the Final Rule is itself deceptive.
2. Covered Entities
Section 511 of the Credit CARD Act also clarified that the
Commission's rulemaking authority is limited to entities over which the
FTC has jurisdiction under the FTC Act.\11\ Under the FTC Act, the
Commission has jurisdiction over any person, partnership, or
corporation that engages in unfair or deceptive acts or practices in or
affecting commerce, except, among others: \12\ banks,\13\ savings and
loan
[[Page 43827]]
institutions, Federal credit unions,\14\ non-profits,\15\ and common
carriers. The Final Rule does not cover the practices of entities that
are excluded from the FTC's jurisdiction.
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\11\ Credit CARD Act Sec. 511(a)(1)(C).
\12\ See 15 U.S.C. 44, 45(a)(2).
\13\ The FTC Act defines ``banks'' by reference to a listing of
certain distinct types of depository institutions. See 15 U.S.C. 44,
57a(f)(2). That list includes: National banks, Federal branches of
foreign banks, member banks of the Federal Reserve System, branches
and agencies of foreign banks, commercial lending companies owned or
controlled by foreign banks, banks insured by the Federal Deposit
Insurance Corporation (FDIC), and insured state branches of foreign
banks. The Commission has jurisdiction over entities that are
affiliated with banks, such as parent or subsidiary companies, that
are not themselves banks. This jurisdiction is held concurrently
with the Federal bank regulatory agencies (the Board of Governors of
the Federal Reserve System (Federal Reserve Board or Board), the
Office of the Comptroller of the Currency (OCC), the FDIC, and the
Office of Thrift Supervision (OTS)) and the National Credit Union
Administration (NCUA) as to their respective institutions. See
Gramm-Leach-Bliley Act, Public Law 106-102, Sec. 133(a), 113 Stat.
1338, 1383 (1999) (codified at 15 U.S.C. 41 note (a)); Minnesota v.
Fleet Mortg. Corp., 181 F. Supp. 2d 995 (D. Minn. 2001). The FTC
also has jurisdiction over non-bank entities that provide services
to or on behalf of a bank, such as credit card marketing. See, e.g.,
FTC v. CompuCredit Corp., No. 08-1976, at 6-15 (N.D. Ga. Oct. 8,
2008) (magistrate judge's non-final report and recommendation)
(finding that the FTC has jurisdiction under FTC Act against entity
that contracted to provide services to a bank); FTC v. Am. Std.
Credit Sys., 874 F. Supp. 1080, 1086 (C.D. Cal. 1994) (dismissing
argument that entity that contracted to perform credit card
marketing and other services for a bank is not subject to FTC Act).
Effective July 21, 2011, the FTC and the Bureau of Consumer
Financial Protection (CFPB) will share concurrent enforcement
authority over specific categories of ``nondepository covered
persons.'' See infra Part I.A.4.
\14\ The exclusion is limited to Federal credit unions; thus,
the FTC has jurisdiction over state-chartered credit unions (whether
or not they have Federal insurance), among others. See infra note
127 and accompanying text.
\15\ Section 4 of the FTC Act, 15 U.S.C. 44, specifies that the
Commission's jurisdiction over ``corporations'' is limited to
entities that are organized to carry on business for their own
profit or that of their members. Thus, the non-profit exemption does
not apply to ostensible non-profits that operate for the profit of
their members. See, e.g., Am. Med. Ass'n v. FTC, 638 F.2d 443 (2d
Cir. 1980), aff'd by an equally divided court, 445 U.S. 676 (1982);
FTC v. AmeriDebt, Inc., 343 F. Supp. 2d 451 (D. Md. 2004).
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3. Enforcement
The Omnibus Appropriations Act, as clarified by the Credit CARD
Act, also permits both the Commission and the states to enforce the
rules the FTC issues.\16\ The Commission can use its powers under the
FTC Act to investigate and enforce such rules, and the FTC can seek
civil penalties under the FTC Act against those who violate them. In
addition, states can enforce the rules by bringing civil actions in
Federal district court or another court of competent jurisdiction to
obtain civil penalties and other relief. Before bringing such an
action, however, states must give 60 days advance notice to the
Commission or other ``primary federal regulator'' of the proposed
defendant,\17\ and the regulator has the right to intervene in the
action.
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\16\ Omnibus Appropriations Act Sec. 626(b); Credit CARD Act
Sec. 511(a)(1)(B).
\17\ Effective July 21, 2011, states must provide the advance
notice to the CFPB or Commission, as appropriate. See infra Part.
I.A.4.
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4. The Dodd-Frank Act
On July 21, 2010, President Obama signed the Dodd-Frank Wall Street
Reform and Consumer Protection Act.\18\ The Dodd-Frank Act made
substantial changes in the Federal regulatory framework for providers
of financial services. Among the changes, the Dodd-Frank Act will
transfer the Commission's rulemaking authority under the Omnibus
Appropriations Act to a new Bureau of Consumer Financial Protection
(CFPB) \19\ on July 21, 2011, the ``designated transfer date'' set by
the Treasury Department.\20\ In addition, on the designated transfer
date, the FTC's authority to ``issue guidelines'' under the Omnibus
Appropriations Act will transfer to the CFPB.\21\ Both the Commission
and the CFPB, however, will have authority to bring law enforcement
actions and seek civil penalties against specific categories of
``nondepository covered persons'' to enforce the rules promulgated
under the Omnibus Appropriations Act, including this Final Rule.\22\
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\18\ Dodd-Frank Wall Street Reform and Consumer Protection Act,
Public Law 111-203, 124 Stat. 1376 (2010) (Dodd-Frank Act).
\19\ Id. Sec. 1061.
\20\ See CFPB, Designated Transfer Date, 75 FR 57252, 57253
(Sept. 20, 2010); see also Dodd-Frank Act Sec. 1062.
\21\ Dodd-Frank Act Sec. 1061.
\22\ See Dodd-Frank Act Sec. Sec. 1024, 1061, 1097.
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B. The Rulemaking and Public Comments Received
On June 1, 2009, the Commission published in the Federal Register
an Advance Notice of Proposed Rulemaking (ANPR) soliciting comments on
the contours of a possible rule that would prohibit or restrict unfair
and deceptive acts and practices that may occur throughout the life-
cycle of a mortgage loan,\23\ i.e., in the advertising and marketing of
the loan, at the time of loan origination, in the home appraisal
process, and during the servicing of the loan. The ANPR described these
services generically as ``Mortgage Acts and Practices,'' and the
rulemaking proceeding was entitled the Mortgages Acts and Practices
(MAP) Rulemaking.\24\
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\23\ The Omnibus Appropriations Act and the Credit CARD Act use
the term ``loan'' in referring to mortgage credit generally and do
not limit that term in any way. Accordingly, this SBP and Final Rule
use the term ``loan'' to refer to any form of mortgage credit.
\24\ Mortgage Acts and Practices (MAP), ANPR, 74 FR 26118 (June
1, 2009).
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On September 30, 2010, the Commission published in the Federal
Register a Notice of Proposed Rulemaking (NPRM) relating to unfair or
deceptive acts and practices that may occur with regard to mortgage
advertising, the MAP B Advertising Rule (proposed rule).\25\ Among
other things, the proposed rule prohibited any misrepresentation in any
commercial communication regarding any term of any mortgage credit
product, and it imposed certain recordkeeping requirements.
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\25\ See MAP B Advertising, NPRM, 75 FR 60352 (Sept. 30, 2010).
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In response to the NPRM, the Commission received a total of 22
comments.\26\ Commenters included industry trade associations or
groups, credit unions, state credit union regulators, a not-for-profit
law firm, a real estate settlement services firm, and a group of state
banking and consumer credit regulators. The Commission also received
five comments from individuals. Most of the comments expressed support
for FTC regulatory action or particular aspects of the proposed rule.
These comments are discussed below.\27\
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\26\ The comments submitted in response to the NPRM are
available at http://www.ftc.gov/os/comments/mapadrule/index.shtm. A
list of those who submitted comments appears following Part V of
this SBP.
\27\ See infra Part III.
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II. Mortgage Advertising Practices
A. Overview
As discussed in the ANPR and NPRM, the mortgage life-cycle begins
when a consumer initially shops for a mortgage, whether to purchase a
home or real property,\28\ refinance an existing mortgage, or obtain a
home equity loan or line of credit (known as a HELOC) based on the
consumer's equity in the home.\29\ Consumers may consider obtaining
diverse types of mortgage products. The loan may be a forward mortgage,
the most prevalent type of loan, in which the homeowner borrows funds
and remits payments for principal, interest, and, in some cases, other
charges. Alternatively, the loan may be a reverse mortgage, in which
senior citizens borrow funds secured by their homes. With a reverse
mortgage, the borrower is not required to repay the debt as long as he
or she remains in the home; and the loan is not due until the homeowner
moves out of or sells the home, dies, or fails to satisfy certain loan
conditions.\30\ Forward mortgages may be traditional, such as fully
amortizing 30-year fixed-rate or
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adjustable rate mortgages (ARMs),\31\ or nontraditional.\32\
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\28\ Traditional mortgages are considered ``closed-end credit,''
generally consisting of installment financing where the amount
borrowed and repayment schedule are set at the transaction's outset.
The Truth in Lending Act (TILA), 15 U.S.C. 1601-1666j, and its
implementing Regulation Z, 12 CFR part 226, set various advertising
and other requirements for closed-end credit. See, e.g., 12 CFR
226.17-.24.
\29\ HELOCs typically are ``open-end credit,'' which TILA
defines as credit extended to a consumer under a plan in which: (1)
The consumer reasonably contemplates repeated transactions; (2) the
creditor may impose a finance charge from time to time on the
outstanding unpaid balance; and (3) the amount of credit that may be
extended to the consumer during the plan's term is generally made
available to the extent that any unpaid balance is repaid. See 15
U.S.C. 1602(i); 12 CFR 226.2(a)(10) and (20).
\30\ See generally 12 CFR 226.33 (reverse mortgages under
Regulation Z) and U.S. Department of Housing and Urban Development
(HUD), Glossary, definition of ``reverse mortgage,'' available at
http://www.hud.gov/offices/hsg/sfh/buying/glossary.cfm.
\31\ In a fully amortizing loan, the borrower pays principal and
the full amount of interest that is due each month throughout the
life of the loan.
\32\ Nontraditional mortgages have included, for example,
interest-only (I/O) loans and payment option ARMs (option ARMs). I/O
loans involve an initial loan period in which the borrower pays only
the interest accruing on the loan balance; after the initial period,
the borrower either makes increased payments of principal and
interest or remits a large payment, sometimes referred to as a
``balloon payment.'' Option ARMs offer borrowers several choices
each month during the loan's introductory period, including a
minimum payment that is smaller than the interest accruing on the
principal. After the introductory period, the loan is recast, and
the borrower's payments increase to amortize and repay principal and
the adjustable interest rate over the remaining loan term. See
generally FTC, Comment to Jennifer L. Johnson, Secretary, Board of
Governors of the Federal Reserve System (Sept. 14, 2006), at 5-13
(providing comments on the home equity lending market and
summarizing the Commission's May 2006 alternative mortgage workshop,
Protecting Consumers in the New Mortgage Marketplace), available at
http://www.ftc.gov/opa/2006/09/fyi0661.shtm (FTC Comment on Home
Equity Lending and Alternative Mortgage Workshop).
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Consumers receive information about mortgages through many
different channels of communication. Some consumers seek out mortgage
information on their own, for example, on the Internet or by contacting
a real estate broker, mortgage lender, mortgage broker, or others.
Marketers and advertisers widely disseminate mortgage advertisements to
consumers through print media (such as newspapers and magazines),
television, radio, the Internet, billboards, and other methods.
Marketers and advertisers also send targeted information to particular
consumers through direct mail or electronic communications such as e-
mail or text messages.
Many types of entities market and advertise mortgage products.
Mortgage lenders, mortgage brokers, mortgage servicers, and real estate
brokers advertise and market mortgage products. In addition,
advertising agencies, home builders, lead generators,\33\ rate
aggregators,\34\ and others also may market and advertise mortgage
products to consumers. Mortgage lenders and servicers are particularly
likely to market products to their current customers, in addition to
prospective customers.
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\33\ Lead generators are business entities that provide, in
exchange for consideration, consumer information to a seller or
telemarketer for use in the marketing of goods or services. See,
e.g., Quik Payday, Inc. v. Stork, 549 F.3d 1302, 1304 (10th Cir.
2008); FTC v. Connelly, No. SA CV 06-701 DOC (RNBx), 2006 U.S. Dist.
LEXIS 98263, at *11 (C.D. Cal. Dec. 20, 2006); United States v.
Ameriquest Mortg. Co., No. 8:07-cv-01304 CJC-MLG (C.D. Cal. 2007)
(stipulated judgment and order).
\34\ Rate aggregators regularly collect and publish rates and
other information from numerous mortgage lenders, mortgage brokers,
or other sources. Consumers typically can compare mortgage credit
product terms for free by searching or viewing this information
sorted by rate, loan amount, mortgage credit product, or other
criteria. Rate aggregators may supply the lenders' or brokers'
contact information, so the consumer can reach lenders or brokers
directly, or they may act as lead generators and provide the
consumer's information to lenders or brokers.
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B. Deception in Mortgage Advertising
Advertising and marketing can provide consumers with valuable
information about mortgage options, costs, and features. This
information is critical to the decisions consumers make throughout the
mortgage origination process, especially because mortgage products are
typically complex.\35\ Information is useful for decision making,
however, only if it is truthful and non-misleading.\36\ Preventing and
deterring deception in advertisements for mortgages, therefore, is a
primary objective of FTC law enforcement and of the Final Rule.
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\35\ This is particularly true for nontraditional mortgages, the
terms of which are often unfamiliar to consumers. See generally FTC
Comment on Home Equity Lending and Alternative Mortgage Workshop,
supra note 32.
\36\ See Deception Policy Statement, supra note 9, at 176-77.
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The elements of deception are set forth in the FTC's Deception
Policy Statement of 1984. An act or practice is deceptive if: (1) There
is a representation, omission of information, or practice that is
likely to mislead consumers acting reasonably under the circumstances;
and (2) that representation, omission, or practice is material to
consumers.\37\
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\37\ See id. at 175-183; see also FTC v. Tashman, 318 F.3d 1273,
1277 (11th Cir. 2003); FTC v. Gill, 265 F.3d 944, 950 (9th Cir.
2001); FTC v. QT, Inc., 448 F. Supp. 2d 908, 957 (N.D. Ill. 2006),
aff'd, 512 F.3d 858 (7th Cir. 2008); FTC v. Think Achievement Corp.,
144 F. Supp. 2d 993, 1009 (N.D. Ind. 2000); FTC v. Minuteman Press,
53 F. Supp. 2d 248, 258 (E.D.N.Y. 1998).
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A representation may be express or implied. ``Express claims
directly represent the fact at issue, while implied claims do so in an
oblique or indirect way.'' \38\ Whether an implied claim is made
depends on the overall net impression that consumers take away from an
advertisement, based on all of its elements (language, pictures,
graphics, etc.).\39\ The FTC evaluates whether consumers' impressions
or interpretations of a representation or omission are reasonable.
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, such as
children or the elderly.\40\ 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.\41\
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\38\ FTC v. QT, Inc., 448 F. Supp. 2d at 957.
\39\ See FTC v. Cyberspace.com, LLC, 453 F.3d 1196, 1200 (9th
Cir. 2006) (``A solicitation may be likely to mislead by virtue of
the net impression it creates even though the solicitation also
contains truthful disclosures.''); FTC v. Gill, 265 F.3d at 956
(affirming deception finding based on ``overall `net impression' ''
of statements); Removatron Int'l Corp. v. FTC, 884 F.2d 1489, 1497
(1st Cir. 1989) (advertisement was deceptive despite written
qualification); Thompson Med. Co. v. FTC, 791 F.2d 189, 197 (DC Cir.
1986) (literally true statements may nonetheless be deceptive); FTC
v. QT, Inc., 448 F. Supp. 2d at 958.
\40\ See Deception Policy Statement, supra note 9, at 177-79.
\41\ See id. at 178.
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A disclaimer or qualifying statement may correct a misleading
impression, but only if it is sufficiently clear and prominent to
convey the qualifying information effectively, i.e., it is both noticed
and understood by consumers. ``[I]n many circumstances, reasonable
consumers do not read the entirety of an ad or are directed away from
the importance of the qualifying phrase by the acts or statements of
the seller;'' \42\ thus, a fine print disclosure at the bottom of a
print advertisement or a brief video superscript in a television
advertisement is unlikely to qualify a claim effectively.\43\
Similarly, because consumers ``may glance only at the headline'' of an
advertisement, ``accurate information in the text may not remedy a
false headline.'' \44\
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\42\ Id. at 181.
\43\ See, e.g., id. at 180; see also In re Stouffer Food Corp.,
118 F.T.C. 746 (1994); In re Kraft, Inc., 114 F.T.C. 40, 124 (1991),
aff'd, 970 F.2d 311 (7th Cir. 1992).
\44\ Deception Policy Statement, supra note 9, at 180.
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A representation, omission, or practice is material if it is likely
to affect a consumer's choice of or conduct regarding a product.\45\ If
consumers are likely to have chosen differently but for the claim, the
claim is likely to have caused consumer injury.\46\ Express claims are
presumed material.\47\ Similarly, information regarding the cost of a
product or service is presumed material.\48\ Intentional implied
claims,\49\ and claims about the purpose and
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efficacy of a product or service,\50\ are also presumed to be material.
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\45\ See Kraft, Inc. v. FTC, 970 F.2d 311, 322 (7th Cir. 1992);
In re Cliffdale Assocs., Inc., 103 F.T.C. 110, 165 (1984); see also
FTC v. SlimAmerica, Inc., 77 F. Supp. 2d 1263, 1272 (S.D. Fla.
1999).
\46\ See Deception Policy Statement, supra note 9, at 183.
\47\ See FTC v. Pantron I Corp., 33 F.3d 1088, 1095-96 (9th
Cir. 1994).
\48\ See In re Peacock Buick, 86 F.T.C. 1532, 1562 (1975),
aff'd, 553 F.2d 97 (4th Cir. 1977); Deception Policy Statement,
supra note 9, at 182-83.
\49\ See In re Thompson Med. Co., Inc., 104 F.T.C. 648, 816
(1984), aff'd, 791 F.2d 189 (DC Cir. 1986).
\50\ Novartis Corp. v. FTC, 223 F.3d 783, 786-87 (DC Cir.
2000).
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C. Other Mortgage Advertising Requirements \51\
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\51\ This discussion is not intended as a comprehensive list of
all potentially applicable mortgage advertising and marketing laws.
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In addition to the FTC Act, mortgage advertisers and marketers are
subject to TILA (including the Home Ownership and Equity Protection Act
(HOEPA) \52\) and Regulation Z, among other legal requirements.\53\ In
July 2008, the Federal Reserve Board issued many new mortgage
advertising rules under Regulation Z; these rules took effect on
October 1, 2009.\54\
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\52\ 15 U.S.C. 1639.
\53\ For a brief summary of the advertising requirements under
TILA and Regulation Z, see MAP--Advertising, NPRM, 75 FR 60352,
60356-57 (Sept. 30, 2010). Other requirements include mortgage
advertising mandates under the Helping Families Save Their Homes Act
of 2009, Public Law 111-22, Sec. 203, 123 Stat. 1632, 1643
(codified at 12 U.S.C. 5201 note), which HUD enforces, and
advertising regulations and guidance for Federal Housing
Administration (FHA) programs, which HUD has issued. For example,
FHA-approved lenders or mortgagees must use their HUD-registered
business names in advertisements and promotional materials for FHA
programs and maintain copies of their materials for two years. See
75 FR 20718 (Apr. 20, 2010) (codified at 24 CFR 202). Lenders and
others are permitted to distribute the FHA and fair housing logos in
marketing materials to prospective FHA borrowers. HUD-approved
mortgagees are required to establish procedures for compliance with
FHA program requirements, including to avoid engaging in false or
misrepresentative advertising. See HUD Mortgagee Letters 2009-02 and
2009-12, available at http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/2009ml.cfm; see also infra note 124 (discussing
NCUA advertising regulations).
\54\ See 73 FR 44522, 44599-602 (July 30, 2008) (codified
generally at 12 CFR 226.16, 226.24). The Board promulgated some of
these rules under Section 129(l)(2) of TILA, 15 U.S.C. 1639(l)(2),
and others under Section 105 of TILA, 15 U.S.C. 1604. The Commission
has authority to obtain civil penalties for violations of rules that
the Board promulgates under Section 129(l)(2), but does not have
specific authority to obtain civil penalties for violations of rules
that the Board promulgates under Section 105.
On August 16, 2010, the Board proposed additional protections
and disclosure requirements for mortgage advertisements. See Press
Release, Board, Federal Reserve Board Proposes Enhanced Consumer
Protections and Disclosures for Home Mortgage Transactions,
available at http://www.federalreserve.gov/newsevents/press/bcreg/20100816e.htm (Aug. 16, 2010). The Board subsequently announced that
it does not expect to finalize this proposal prior to the July 2011
date for transfer of rulemaking authority to the CFPB. See Press
Release, Board, available at http://www.federalreserve.gov/newsevents/press/bcreg/20110201a.htm (Feb. 1, 2010).
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The states also have enacted various laws or regulations that
address aspects of deceptive mortgage advertising practices,\55\
including laws implementing the Federal Secure and Fair Enforcement for
Mortgage Licensing Act of 2008 (SAFE Act), which requires a nationwide
licensing and/or registration system for mortgage loan originators.\56\
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\55\ State advertising requirements differ from one another in
the practices, types of credit, and entities covered. See, e.g., Me.
Rev. Stat. Ann. tit. 9-A, 9-301 (2010); Md. Code Regs. 09.03.06.05
(2010); Nev. Rev. Stat. Ann. 645B.196 (2010); N.Y. Bank. Law 595-a
(Consol. 2010).
\56\ Title V of the Housing and Economic Recovery Act of 2008,
Public Law 110-289 (2008) (codified at 12 U.S.C. 5101). After the
SAFE Act's enactment on July 30, 2008, the states moved to enact or
amend laws to license mortgage loan originators. See generally
http://www.csbs.org; see also HUD SAFE Mortgage Licensing Act,
available at http://hud.gov/offices/hsg/rmra/safe/sfea.cfm. State
SAFE laws address advertising in different ways. See, e.g., S.B.
948, 2009 Gen. Assem., Reg. Sess. (Conn. 2009); S.B. 1218, 25th
Leg., 1st Spec. Sess. (Haw. 2009); H.B. 4011, 96th Gen. Assem., Reg.
Sess. (Ill. 2009); A.B. 3816, 213th Leg., 2nd Ann. Sess. (N.J.
2009). The Federal banking agencies and Farm Credit Administration
have also implemented a registration system and other requirements
for mortgage loan originators, in connection with the SAFE Act. See
75 FR 51623 (Aug. 23, 2010); see also 76 FR 6185 (Feb. 3, 2011).
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None of these Federal or state statutes or regulations duplicates
the specificity and breadth of practices, and diversity of
entities,\57\ covered in the Final Rule.
---------------------------------------------------------------------------
\57\ See infra Part III.B.4.
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D. Consumer Protection Problems in Mortgage Advertising
The FTC has substantial law enforcement experience with mortgage
advertising practices. Since 1995, the Commission has brought 18 law
enforcement actions against individuals or companies that allegedly
engaged in unfair or deceptive practices or violations of TILA in
mortgage advertising.\58\ These actions have targeted large and small
mortgage lenders, mortgage brokers, and others throughout the
country.\59\ The cases have involved advertisements and marketing
materials in various media, including print advertisements,\60\
unsolicited e-mails,\61\ direct mail marketing,\62\ Internet
advertisements and Web sites,\63\ telemarketing,\64\ and in-person
sales presentations.\65\ The alleged violations have included deceptive
claims--often made to subprime borrowers--about key terms and other
aspects of the loans, such as:
---------------------------------------------------------------------------
\58\ See Table B--List of FTC Mortgage Advertising Enforcement
Actions, infra.
\59\ See, e.g., FTC v. Mortgages Para Hispanos.com Corp., No.
4:06-cv-19 (E.D. Tex. 2006); FTC v. Ranney, No. 04-F-1065 (MJW) (D.
Colo. 2004); FTC v. Chase Fin. Funding, Inc., No. SACV04-549 GLT
(ANx) (C.D. Cal. 2004); FTC v. OSI Fin. Servs., Inc., No. 02-C-5078
(N.D. Ill. 2002); United States v. Mercantile Mortg. Co., No. 02-C-
5079 (N.D. Ill. 2002); FTC v. Assocs. First Capital Corp., No. 1:01-
00606 JTC (N.D. Ga. 2001); FTC v. First Alliance Mortg. Co., No.
SACV 00-964 DOC (EEx) (C.D. Cal. 2000).
\60\ See, e.g., FTC v. Safe Harbour Found. of Fla., Inc., No.
08-C-1185 (N.D. Ill. 2008); FTC v. Ranney, No. 04-F-1065 (MJW) (D.
Colo. 2004).
\61\ See, e.g., FTC v. 30 Minute Mortg., Inc., No. 03-60021
(S.D. Fla. 2003); FTC v. Chase Fin. Funding, Inc., No. SACV04-549
GLT (ANx) (C.D. Cal. 2004).
\62\ See, e.g., In re Am. Nationwide Mortg. Co., F.T.C. Dkt. No.
C-4249 (2009); In re Michael Gendrolis, F.T.C. Dkt. No. C-4248
(2009); FTC v. Chase Fin. Funding, Inc., No. SACV04-549 GLT (ANx)
(C.D. Cal. 2004); FTC v. First Alliance Mortg. Co., No. SACV 00-964
DOC (EEx) (C.D. Cal. 2000); United States v. Unicor Funding, Inc.,
No. SACV99-1228 (C.D. Cal. 1999); FTC v. Assocs. First Capital
Corp., No. 1:01-00606 JTC (N.D. Ga. 2001); FTC v. Safe Harbour
Found. of Fla., Inc., No. 08-C-1185 (N.D. Ill. 2008); In re
FirstPlus Fin. Group, Inc., F.T.C. Dkt. No. C-3984 (2000).
\63\ See, e.g., In re Shiva Venture Group, Inc., F.T.C. Dkt. No.
C-4250 (2009); FTC v. Ranney, No. 04-F-1065 (MJW) (D. Colo. 2004).
\64\ See, e.g., FTC v. First Alliance Mortg. Co., No. SACV 00-
964 DOC (EEx) (C.D. Cal. 2000).
\65\ See, e.g., id.; FTC v. Assocs. First Capital Corp., No.
1:01-00606 JTC (N.D. Ga. 2001).
---------------------------------------------------------------------------
Misrepresentations of the loan amount or the amount of
cash disbursed; \66\
---------------------------------------------------------------------------
\66\ See, e.g., id.; FTC v. OSI Fin. Servs., Inc., No. 02-C-5078
(N.D. Ill. 2002); United States v. Mercantile Mortg. Co., No. 02-C-
5079 (N.D. Ill. 2002); In re FirstPlus Fin. Group, Inc., F.T.C. Dkt.
No. C-3984 (2000).
---------------------------------------------------------------------------
Claims for loans with specified terms, when no loans with
those terms were available from the advertiser; \67\
---------------------------------------------------------------------------
\67\ See, e.g., FTC v. 30 Minute Mortg., Inc., No. 03-60021
(S.D. Fla. 2003).
---------------------------------------------------------------------------
Claims of low ``teaser'' rates and payment amounts,
without disclosing that the rates and payments would increase
substantially after a limited period of time; \68\
---------------------------------------------------------------------------
\68\ See, e.g., In re Am. Nationwide Mortg. Co., F.T.C. Dkt. No.
C-4249 (2009); In re Shiva Venture Group, Inc., F.T.C. Dkt. No. C-
4250 (2009); In re Michael Gendrolis, F.T.C. Dkt. No. C-4248 (2009).
The FTC also sent over 200 warning letters in 2007 to mortgage
lenders, mortgage brokers, and media outlets regarding mortgage
advertising claims, including teaser rates, that could be deceptive
or violate TILA. See Press Release, FTC, FTC Warns Mortgage
Advertisers and Media That Ads May Be Deceptive (Sept. 11, 2007),
available at http://www.ftc.gov/opa/2007/09/mortsurf.shtm.
---------------------------------------------------------------------------
Misrepresentations that rates were fixed for the full term
of the loan; \69\
---------------------------------------------------------------------------
\69\ See, e.g., In re Am. Nationwide Mortg. Co., F.T.C. Dkt. No.
C-4249 (2009).
---------------------------------------------------------------------------
Misrepresentations about, or failure to adequately
disclose, the existence of a prepayment penalty \70\ or large balloon
payment due at the end of the loan; \71\
---------------------------------------------------------------------------
\70\ See, e.g., FTC v. Chase Fin. Funding, Inc., No. SACV04-549
(GLT (ANx) C.D. Cal. 2004); FTC v. OSI Fin. Servs., Inc., No. 02-C-
5078 (N.D. Ill. 2002).
\71\ See, e.g., FTC v. OSI Fin. Servs., Inc., No. 02-C-5078
(N.D. Ill. 2002).
---------------------------------------------------------------------------
Claims about the monthly payment amounts that the borrower
would owe, without disclosing the existence, cost, and terms of credit
insurance products ``packed'' into the loan; \72\
---------------------------------------------------------------------------
\72\ See, e.g., FTC v. Assocs. First Capital Corp., No. 1:01-
00606 JTC (N.D. Ga. 2001). The complaint in that case alleged, among
other things, that the defendants included credit insurance products
in the loan package without the borrower's knowledge.
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[[Page 43830]]
Claims that the loans were amortizing, when, in fact, they
involved interest-only transactions; \73\
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\73\ See, e.g., FTC v. Capital City Mortg. Corp., No. 1:98CV237
(D.D.C. 1998).
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Claims of mortgage payment amounts that failed to include
loan fees and closing costs of the kind typically included in loan
amounts; \74\
---------------------------------------------------------------------------
\74\ See, e.g., FTC v. Assocs. First Capital Corp., No. 1:01-
00606 JTC (N.D. Ga. 2001). In addition, in making these statements,
the lender allegedly did not reveal that the loans were interest-
only and that borrowers would owe the entire principal amount in a
large balloon payment at the end of the loan term.
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False or misleading savings claims in high loan-to-value
loans; \75\
---------------------------------------------------------------------------
\75\ See, e.g., In re FirstPlus Fin. Group, Inc., F.T.C. Dkt.
No. C-3984 (2000).
---------------------------------------------------------------------------
False or misleading claims regarding the terms or nature
of interest rate lock-ins; \76\
---------------------------------------------------------------------------
\76\ See, e.g., In re Lomas Mortg. U.S.A., Inc., 116 F.T.C. 1062
(1993).
---------------------------------------------------------------------------
False claims that an entity was a national mortgage
lender; \77\
---------------------------------------------------------------------------
\77\ See, e.g., FTC v. 30 Minute Mortg. Inc., No. 03-60021 (S.D.
Fla. 2003).
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Failure to disclose adequately that the advertiser, not
the consumer's current lender, was offering the mortgage; \78\ and
---------------------------------------------------------------------------
\78\ See, e.g., In re Michael Gendrolis, F.T.C. Dkt. No. C-4248
(2009).
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False or misleading claims that consumers were ``pre-
approved'' for mortgage loans.\79\
---------------------------------------------------------------------------
\79\ See, e.g., United States v. Unicor Funding, Inc., No.
SACV99-1228 (C.D. Cal. 1999).
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Numerous states also have brought enforcement actions under state
laws alleging deceptive mortgage advertising and marketing, challenging
misrepresentations about: (1) The lack of closing costs; \80\ (2) low
fixed or teaser rates or payments; \81\ (3) the advertiser's
affiliation with the consumer's current lender; \82\ (4) the
availability of government grants for home repairs; \83\ (5) the
savings available by refinancing; \84\ (6) reverse mortgage terms and
government affiliation; \85\ (7) the availability of rates compared to
competitors; \86\ and (8) the advertiser's self-description as a
``bank.'' \87\
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\80\ See, e.g., In re Lenox Fin. Mortg., LLC, No. 2007-017383
(Ariz. Sup. Ct. 2007) (assurance of discontinuance), available at
http://www.azag.gov/press_releases/sept/2007/LenoxFinancialAssurance&Approval.pdf.
\81\ See, e.g., State v. Lifetime Fin., Inc., No. LC080829 (Cal.
Super. Ct. 2008), available at http://www.ag.ca.gov/cms_attachments/press/pdfs/n1533_complaint_for_civil_penalties.pdf;
State v. Green River Mortg., No. 2009CV89 (Colo. Dist. Ct. 2009),
press release available at http://www.coloradoattorneygeneral.gov/press/news/2009/05/12/attorney_general_announces_settlement_barring_mortgage_broker_operating_inside; State v. One Source
Mortg., Inc., No. 07CH34450 (Ill. Cir. Ct. 2007), press release
available at http://www.ag.state.il.us/pressroom/2007_11/20071126.html; In re Paramount Equity Mortg., Inc., No. C-07-405-08-
SC01 (Wash. Dept of Fin. Inst. 2008), available at http://www.dfi.wa.gov/CS%20Orders/C-07-405-08-SC01.pdf.
\82\ See, e.g., State v. Sroka, No. 2007-16-61 (Idaho Dept of
Fin. 2007), available at http://finance.idaho.gov/ConsumerFinance//Actions/Administrative/2007-16-61_Sroka_Terrazas_Order_Cease_and_/Desist.pdf; State v. Sage, No. 2007-8-45 (Idaho Dept of Fin.
2007), press release available at http://finance.idaho.gov/PR/2007/PressRel_Sage_CDOrder.pdf; State v. Goldstar Home Mortg., No.
09AB-CV02310 (Mo. Cir. Ct. 2009) press release available at http://ago.mo.gov/newsreleases/2009/AG_Koster_files_lawsuits_after_mortgage_fraud/.
\83\ See, e.g., State v. Ellis, No. 07CH34451 (Ill. Cir. Ct.
2007), press release available at http://www.ag.state.il.us/pressroom/2007_11/20071126.html.
\84\ See, e.g., State v. Advantage Mortg. Serv., Inc., No. C107
(Neb. Dist. Ct. 2007), available at http://www.ndbf.ne.gov/forms//Advantage_Mortgage_/Complaint.pdf.
\85\ See, e.g., State v. Upstate Capital, Inc., No. 08-036 (N.Y.
Office of Att'y Gen. 2008), press release available at http://www.ag.ny.gov/media_center/2008/apr/apr24a_08.html. Other cases
have charged other entities with deceptive advertising, including
using the words ``United States of America'' or an image of the
Statute of Liberty, when the advertiser had no affiliation with the
government (see State v. Island Equity Mortg., Inc., (N.Y. Banking
Dept 2007), available at http://www.banking./state.ny.us//ea070412.htm), and falsely representing that the advertisers were
affiliated with a government program (see In re Assurity Fin.
Servs., LLC, No. C-07-320-08-SC01 (Wash. Dept of Fin. Inst. 2008),
available at http://www.dfi.wa.gov/CS%20Orders/C-07-fxsp0;320-08-
SC01.pdf); see also State v. Am. Advisors Group, Inc., No.
2010CH00158 (Ill. Cir. Ct. filed Feb. 8, 2010), available at http://www.scribd.com/doc/33748621/People-Illinois-v-American-Advisors-Group-Complaint; State v. Hartland Mortg. Ctrs., Inc., No. 10CH05339
(Ill. Cir. Ct. filed Feb. 8, 2010), press release available at
http://www.ag.state.il.us/pressroom/2010_02/20100208.html). HUD
also has taken action against two lenders for deceptive advertising
of HUD-insured reverse mortgages. See Press Release, HUD, FHA
Withdraws Three Lenders, Suspends a Fourth (Feb. 25, 2010),
available at http://portal.hud.gov/portal/page/portal/HUD/press/press_releases_media_advisories/2010/HUDNo.10-019.
\86\ See, e.g., In re Paramount Equity Mortg., Inc., No. C-07-
405-08-SC01 (Wash. Dept of Fin. Inst. 2008), available at http://www.dfi.wa.gov/CS%20Orders/C-07-405-08-SC01.pdf.
\87\ See, e.g., id.
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III. Discussion of the Rule
The Commission's law enforcement experience, state law enforcement
activities, and the comments received in response to the ANPR and NPRM
demonstrate that deceptive claims in mortgage advertising and marketing
pose a risk of significant harm to consumers. The FTC believes that
this Final Rule prohibiting misrepresentations in mortgage advertising
will enable the agency to protect prospective borrowers by establishing
clearer standards, increasing the efficiency of law enforcement, and
deterring unlawful behavior. In particular, as noted above, the
Commission and CFPB will be able to seek civil penalties for violations
of the Final Rule, thereby enhancing the deterrent effect of law
enforcement actions.\88\ Civil penalties may be an especially useful
deterrent in cases in which consumer redress or disgorgement is not
available or not feasible. States also will be able to enforce the Rule
and seek civil penalties, which will further help deter deception in
mortgage advertising and marketing.
---------------------------------------------------------------------------
\88\ See supra Part I.A.4.
---------------------------------------------------------------------------
A. Section 321.1: Scope
Section 321.1 states that the Final Rule implements the mandate of
the Omnibus Appropriations Act, as clarified by the Credit CARD
Act.\89\ These statutes direct the Commission to commence a rulemaking
proceeding to issue rules that ``relate to unfair or deceptive acts or
practices regarding mortgage loans''.\90\ The Credit CARD Act limits
the Commission's rulemaking authority to persons over whom the FTC has
jurisdiction under the FTC Act, as discussed above.
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\89\ Section 321.1 of the Final Rule merely simplifies the
language that was used in this section of the proposed rule.
\90\ See Omnibus Appropriations Act Sec. 626(a); Credit CARD
Act Sec. 511(a)(1)(B).
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B. Section 321.2: Definitions
1. Sections 321.2(e): ``Mortgage Credit Product;'' 321.2(c):
``Credit;'' 321.2(d): ``Dwelling;'' and 321.2(b): ``Consumer''
The Final Rule, like the proposed rule, prohibits any person from
``making any material misrepresentation * * * in any commercial
communication, regarding any term of any mortgage credit product''
Section 321.2(e) of the Rule adopts the proposed rule's definition of
``mortgage credit product.'' To fall within that definition, the
product must meet three criteria. First, it must be a form of
``credit.'' The term ``credit'' is defined in Sec. 321.2(c) as ``the
right to defer payment of debt or to incur debt and defer its
payment.'' \91\ Second, the credit must be secured by either real
property or a dwelling.\92\ The proposed rule defined ``dwellin'' as
``a
[[Page 43831]]
residential structure that contains one to four units, whether or not
that structure is attached to real property'' and includes ``an
individual condominium unit, cooperative unit, mobile home, and
trailer, if it is used as a residence''.\93\ The Final Rule adds the
term ``manufactured home'' to the definition to ensure that the Rule's
protections extend to consumers whose homes are constructed at a site
(e.g., factory floor) other than the final location of the
structure.\94\ Third, the credit must be ``offered or extended to a
consumer primarily for personal, family, or household purposes.''
``Consumer'' is defined in Sec. 321.2(b) as a ``natural person to whom
a mortgage credit product is offered or extended''.\95\ ``Personal,
family, or household purposes'' includes, for example, home purchase or
improvement loans, debt consolidation or home equity transactions,
credit for medical or dental expenses, and educational loans. Credit
offered or extended primarily for a business purpose would not be
covered, even if a lien on a dwelling secures the loan. The
determination of whether the credit is ``primarily'' for personal,
family, or household use rather than ``primarily'' for business use
requires an assessment of all of the facts of a particular transaction.
---------------------------------------------------------------------------
\91\ Final Rule Sec. 321.2(c). This definition is largely based
on that in Regulation Z. See 12 CFR 226.2(a)(14). One difference,
however, is that the Final Rule covers all shared equity and shared
appreciation mortgages offered to consumers, whereas certain types
of such mortgages may not be considered ``credit'' under Regulation
Z. See Regulation Z Commentary, 12 CFR 226.2(a)(14)-1 and
226.17(c)(1)-11, Supp. I. In shared equity and shared appreciation
mortgages, the consumer receives cash, a lower interest rate, or
other favorable terms in exchange for agreeing to share with the
lender or other company all or part of the consumer's total equity
or the appreciation in the consumer's equity when the loan comes
due, or at some other point during the loan.
\92\ Note that some aspects of the Regulation Z advertising
rules apply to credit secured by a dwelling but not credit secured
by real property. See 12 CFR 226.16(d); 12 CFR 226.24(f) and (i).
\93\ Final Rule Sec. 321.2(d). Both primary and secondary (or
vacation) homes are covered if they are used as collateral for the
loan. The term ``dwelling'' is based on that used in TILA and
Regulation Z. See 15 U.S.C. 1602(v) and 12 CFR 226.2(a)(19).
\94\ The Final Rule also includes a non-substantive revision to
the last sentence of the proposed definition. These changes conform
the Rule's definition of ``dwelling'' more closely with the
definition of the same term used in the Commission's MARS Rule. See
12 CFR 322.2(e).
\95\ Final Rule Sec. 321.2(b). Thus, credit offered or extended
to an organization or governmental entity is not covered.
---------------------------------------------------------------------------
``Mortgage credit product'' is defined to include ``credit'' that
is either closed-end (e.g., installment financing) \96\ or open-end
(e.g., HELOCs).\97\ The term includes traditional, fully amortizing
loans and nontraditional or alternative financing.\98\ ``Mortgage
credit product'' further includes both forward and reverse
mortgages.\99\ The Commission did not receive any comments on the
above-defined terms or concepts.
---------------------------------------------------------------------------
\96\ Construction financing and other forms of credit in which
multiple advances may be common are also covered. In these
transactions, some or all of the advances may be estimates (as to
their dollar amount or the date on which they will occur)
\97\ The Rule applies the same standards to closed-end and open-
end credit. In contrast, the Regulation Z advertising provisions
(including restrictions on deceptive claims) are different for
closed-end and open-end credit. See, e.g., 12 CFR 226.24(i) and 12
CFR 226.16(d)(5) and (f).
\98\ Covered alternative loans include, for example, hybrid
ARMs, teaser rate or teaser payment loans with low rates or payments
that expire after a short period, interest-only and balloon
mortgages, negative amortization mortgages, shared equity and shared
appreciation mortgages, buydowns, and payment option ARMs.
\99\ See supra note 30 and accompanying text.
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2. Section 321.2(g): ``Term''
The Final Rule applies to commercial communications regarding any
``term'' of any mortgage credit product. It adopts, without change, the
proposed rule's broad definition of ``term,'' which means ``any of the
fees, costs, obligations, or characteristics of, or associated with,
the product.'' The definition also ``includes any of the conditions on
or related to the availability of the product.'' ``Term'' is intended
to cover all aspects of a mortgage credit product without exception.
The Commission did not receive any comments on this definition.
3. Section 321.2(a): ``Commercial Communication''
As discussed above, the Rule applies to claims made in any
``commercial communication.'' The definition of that term in the Final
Rule, which includes only non-substantive modifications to the proposed
rule's definition, provides that a ``commercial communication'' is:
any written or oral statement, illustration, or depiction, whether
in English or any other language, that is designed to effect or
create interest in purchasing goods or services, whether it appears
on or in a label, package, package insert, radio, television, cable
television, brochure, newspaper, magazine, pamphlet, leaflet,
circular, mailer, book insert, free standing insert, letter,
catalogue, poster, chart, billboard, public transit card, point of
purchase display, film, slide, audio program transmitted over a
telephone system, telemarketing script, onhold script, upsell
script, training materials provided to telemarketing firms, program-
length commercial (``infomercial''), the Internet, cellular network,
or any other medium. Promotional materials and items and Web pages
are included in the term ``commercial communication''.\100\
---------------------------------------------------------------------------
\100\ Proposed Sec. 321.2(a) used the term ``verbal'' where the
Final Rule uses the term ``oral.'' The Final Rule also includes non-
substantive revisions to the last sentence of the proposed
definition. These changes conform the Rule's definition of
``commercial communication'' more closely with the definition of the
same term used in the Commission's MARS Rule. See 16 CFR 322.2(c).
This definition encompasses commercial communications \101\ in any
medium and in any language.\102\
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\101\ Based on this definition, the Rule has broader
applicability than the Board's advertising rules in Regulation Z,
which specifically exempt personal contacts, communications about
existing accounts, and certain educational materials. See Regulation
Z Commentary, 12 CFR 226.2(a)(2), Supp. I.
\102\ See also infra Part III.C.5.
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The Commission received a few comments relating to the proposed
definition of ``commercial communication.'' \103\ One commenter
suggested that the Rule provide a safe harbor or alternative disclosure
mechanism for commercial communications delivered by radio.\104\ The
commenter expressed concern that any disclosures that may be required
to comply with the Rule would require airtime in addition to that used
for the advertisement itself.\105\ The Commission declines to make this
change because the Final Rule does not impose any affirmative
disclosure requirements but rather prohibits misrepresentations.
---------------------------------------------------------------------------
\103\ CMC/MBA at 5-6; HSA at 2-6; NRMLA at 4. The Commission
notes that one commenter suggested a ``Good Housekeeping Seal of
Approval'' concept for online mortgage calculators, generally
commenting that the Federal Government should make certain HUD-
certified mortgage evaluation technology widely available to
consumers on Federal agency Web sites. CMC/MBA at 5-6. This
commenter also requested that the Commission postpone this
rulemaking and, instead, engage in a coordinated rulemaking with the
CFPB. Id. at 1.
\104\ NRMLA at 4.
\105\ Id.
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Another commenter stated that the combination of the risk of
liability and the recordkeeping requirements under the proposed rule
would discourage real estate agents and brokers from providing general
mortgage-related information to clients or prospective clients.\106\
This commenter suggested revising the definition of ``commercial
communication'' to address this issue, or in the alternative, narrowing
the recordkeeping requirements and adding a ``good-faith
exception''.\107\ Specifically, the commenter stated that the
definition of ``commercial communication'' is overbroad because it goes
beyond mortgage advertising to encompass communications about any goods
or services.\108\ Thus, according to the commenter, the Commission
should narrow the definition by replacing the phrase ``purchasing goods
or services'' with ``obtaining a particular mortgage credit
product''.\109\ The Commission declines to revise the definition as
suggested. The definition is not overbroad when viewed in the context
of the Final Rule. The prohibition against misrepresentations in Sec.
321.3 does not apply to all commercial communications; rather, it
applies to any commercial communication ``regarding any term of any
mortgage
[[Page 43832]]
credit product.'' \110\ Thus, the Rule is appropriately limited to
mortgage-related communications.
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\106\ HSA at 2-6.
\107\ See infra Part III.E.2.
\108\ HSA at 3.
\109\ Id. at 5
\110\ To provide clarity and guidance, Sec. Sec. 321.3(a)-(s)
of the Final Rule set forth a non-exclusive list of such
misrepresentations.
---------------------------------------------------------------------------
The commenter also suggested adding an exception at the end of the
definition for certain informational or educational statements that
real estate brokers and agents may make.\111\ With respect to this
suggestion, the Commission notes that a communication is not
``commercial'' unless it ``is designed to effect or create interest in
purchasing goods or services.'' Thus, a statement that is purely
informational and is not designed to effect or create interest in
purchasing goods or services would not be covered by the Rule.\112\ The
Commission believes that the language in the definition of ``commercial
communication,'' which also appears in the Commission's MARS Rule \113\
and several advertising-related orders,\114\ provides an appropriate
dividing line between commercial and noncommercial communications.
---------------------------------------------------------------------------
\111\ HSA at 5. Specifically, the commenter suggested adding the
following language: ``Informational or educational statements made
by real estate brokers and agents in an effort to explain or
illustrate concepts relating to mortgage credit products generally,
and not designed to advertise a particular mortgage credit product,
are not included in the phrase `commercial communication.' '' Id.
\112\ Note that commercial communications include promotional
materials even if they are portrayed as educational in nature. For
example, the term encompasses program-length commercials
(``infomercials'') and other promotional items. See Final Rule Sec.
321.2(a); see also supra note 101.
\113\ See 12 CFR 322.2(c).
\114\ See, e.g., FTC v. Xacta 3000, Inc., No. 09-CV-0399 (D.
N.J. 2010); In re Novartis Corp., F.T.C. Dkt No. 9279 (1999).
---------------------------------------------------------------------------
4. Section 321.2(f): ``Person''
The Final Rule adopts the proposed rule's definition of ``person,''
which means ``any individual, group, unincorporated association,
limited or general partnership, corporation, or other business
entity''.\115\ Thus, any individual or entity that makes
representations in a commercial communication about a mortgage credit
product is a ``person'' for purposes of the Rule. The types of entities
the Rule covers generally include mortgage lenders, mortgage brokers,
mortgage servicers, real estate agents and brokers, advertising
agencies, home builders, lead generators, rate aggregators, and others
within the Commission's jurisdiction who engage in commercial
communications concerning mortgage credit products.\116\ As mandated by
the Omnibus Appropriations Act, the Rule does not cover individuals and
entities that are excluded from the FTC's jurisdiction.
---------------------------------------------------------------------------
\115\ Final Rule Sec. 321.2(f). This definition is based on
that used in Regulation Z. See 12 CFR 226.2(a)(22).
\116\ See supra notes 33-34 and accompanying text.
---------------------------------------------------------------------------
The Commission received numerous comments regarding whom the Final
Rule should cover. One commenter representing several groups of state
financial institution regulators supported broad coverage without
exemptions for any non-depository institutions beyond those that are
exempt under the FTC Act. In particular, this commenter advocated for
coverage of subsidiaries or affiliates of banks and thrifts.\117\
Another commenter requested an exemption for advertising agencies,
stating that the responsibility for compliance with the Rule should
fall on the lenders, brokers, or agents promoting the products.\118\
Another commenter similarly requested an exemption from the Rule for
real estate agents and brokers, stating that they provide incidental or
de minimis advice about mortgage lending simply to inform consumers of
their options and not to market any particular mortgage credit
product.\119\ The commenter stated, however, that the Rule should apply
to a real estate professional that is compensated as a loan originator
or by a loan originator for this service.\120\ Another commenter,
raising concerns about the Rule's impact on real estate agents and
brokers, requested other specific amendments to the Rule that would
effectively exempt such persons from the Rule.\121\
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\117\ CSBS/ACSSS/NACCA at 1.
\118\ Gorbey at 1.
\119\ NAR at 1-2.
\120\ Id. at 2.
\121\ See generally HSA; see also supra Part III.B.3 and infra
Part III.E.2.
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The Commission declines to exempt advertising agencies or real
estate professionals from the Final Rule. These types of individuals
and entities, as well as others, can make direct or indirect
misrepresentations to consumers about mortgage credit products, causing
consumers harm.\122\ Accordingly, the Final Rule must cover
misrepresentations by each of these categories of persons to protect
consumers from deception. In addition, the Commission notes that the
Rule covers any person, including an advertising agency \123\ or real
estate professional, who makes representations to consumers about a
mortgage credit product only to the same extent that the person would
be covered and subject to liability under Section 5 of the FTC Act.
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\122\ For example, a company may make a representation
indirectly to consumers by providing another with materials
containing deceptive claims that the recipient, in turn, provides to
consumers. The Commission has held companies that provide others
with such deceptive ``means and instrumentalities'' liable under
Section 5 of the FTC Act. See, e.g., In re Castrol N. Am., Inc., 128
F.T.C. 689 (1999); In re Shell Chem. Co., 128 F.T.C. 749 (1999);
Waltham Watch Co. v. FTC, 318 F.2d 28, 32 (7th Cir. 1963) (``Those
who put into the hands of others the means by which they may mislead
the public, are themselves guilty of a violation of Section 5.* *
*'').
\123\ Under the FTC Act, an advertising agency is liable for the
claims it made to consumers if it was ``an active participant in
preparing the violative advertisements'' and ``must have known or
had reason to know'' the advertisements were deceptive. See, e.g.,
In re Bristol-Myers Co., 102 F.T.C. 21, 364 (1983). The Commission,
for example, has brought cases alleging that advertising agencies
violated Section 5 of the FTC Act by making deceptive
representations of automobile lease or credit terms in
advertisements. See In re Bozell Worldwide, Inc., 127 F.T.C. 1
(1999); In re Martin Adver., Inc., 127 F.T.C. 10 (1999); In re
Foote, Cone & Belding Adver., Inc., 125 F.T.C. 528 (1998); In re
Grey Adver., Inc., 125 F.T.C. 548 (1998); In re Rubin Postaer and
Assocs., Inc., 125 F.T.C. 572 (1998).
---------------------------------------------------------------------------
Most of the submitted comments advocating particular exemptions
from the Rule were from or on behalf of state-chartered credit unions.
Some of these commenters urged the Commission to exclude state-
chartered credit unions because existing regulations already cover them
\124\ or because Federally-chartered credit unions would not be covered
by the Rule.\125\ Some commenters suggested, in the alternative, that
the Commission include state-chartered credit unions under the Rule but
``deem'' them in compliance if, for example, they comply with other
current and future mortgage regulations.\126\
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\124\ See CUAO at 1; PCUA at 1; WCUL at 1; see also NASCUS at 1;
CUNA at 1; OMNI at 1. Federally-insured credit unions are prohibited
generally by NCUA's regulations from using advertising or
promotional material that contains inaccurate, misleading, or
deceptive claims concerning their products, services, or financial
condition. See 12 CFR 740.2. Some commenters noted that the
advertising practices of state-chartered credit unions that are
Federally insured are subject to existing NCUA advertising
regulations. See NASCUS at 2; CUNA at 2; see generally BECU.
\125\ See BECU at 3; PCUA at 2.
\126\ See, e.g., CUAO at 1; WCUL at 1; CUNA at 1.
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Because of the importance of protecting consumers from deceptive
mortgage advertising, regardless of the type of entity engaged in the
deception, the Final Rule does not grant any exemptions for
institutions within the FTC's jurisdiction under the FTC Act.
Consistent with the FTC's jurisdiction, the Final Rule covers all
credit unions except Federally-chartered credit unions.\127\ The Rule
simply prohibits
[[Page 43833]]
material misrepresentations and does not conflict with the regulations
of other Federal agencies.\128\ Nor does the Commission believe that
prohibiting any person, including nonfederally-chartered credit unions,
real estate professionals, advertising agencies, and others, from
making deceptive claims would put them at a competitive disadvantage.
Many entities not covered by the Final Rule are subject to general
Federal and state truth-in-advertising laws, including state ``little
FTC Acts'' that reflect the prohibition against unfair or deceptive
acts or practices found in Section 5 of the FTC Act. Moreover,
compliance with the Final Rule's recordkeeping obligations should not
be overly burdensome, because it requires the retention of documents
that many covered persons already retain in the ordinary course of
business.\129\
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\127\ The Commission's jurisdiction excludes Federally-chartered
credit unions but includes all state-chartered credit unions and
nonfederally-chartered credit unions in Puerto Rico and other U.S.
territories (whether or not they have Federal insurance). See 15
U.S.C. 45(a)(2), 57a(f)(4); 12 U.S.C. 1766, 1786; see also FTC,
Disclosures for Non-Federally Insured Depository Institutions Under
the Federal Deposit Insurance Corporation Improvement Act (FDICIA),
Final Rule, 75 FR 31682, 31683 (June 4, 2010); NCUA, Frequently
Asked Questions, http://www.ncua.gov/About/FAQ.aspx (last visited
Apr. 4, 2011); NASCUS, State Credit Union Facts & Figures, http://www.nascus.org/facts-figures/index.php (last visited Apr. 4, 2011).
\128\ In other words, nothing in the other agencies' regulations
would require entities to make deceptive claims that the Final Rule
prohibits.
\129\ See infra Part III.E.
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C. Section 321.3: Prohibited Representations
1. Final Rule
The Final Rule adopts, without change, proposed Sec. 321.3, which
prohibits any material misrepresentation, whether made expressly or by
implication, in any commercial communication, regarding any term of any
mortgage credit product.\130\ The Commission concludes that this
provision is necessary and appropriate to protect consumers from
deceptive practices.
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\130\ As noted above, a claim is deceptive under Section 5 of
the FTC Act if there is a ``representation, omission, or practice
that * * * is likely to mislead consumers acting reasonably under
the circumstances, and * * * the representation, omission, or
practice is material.'' Cliffdale, 103 F.T.C. at 165. Information is
``material'' if it is ``likely to affect [a consumer's] choice of,
or conduct regarding, a product.'' Id.; see also Novartis, 223 F.3d.
at 786; supra notes 45-50 and accompanying text. The types of
information in the representations specified in Sec. 321.3 of the
Rule involve matters central to consumers' decisions about mortgage
credit products. Thus, the types of misrepresentations the Rule
prohibits are ``material.''
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To provide clarity and guidance, Sec. Sec. 321.3(a)-(s) also set
forth a non-exclusive list of misrepresentations that would violate the
Final Rule.\131\ The list includes the most common misrepresentations
that have been challenged in Federal and state enforcement actions over
the past several years. The list is intended to provide illustrative
guidance about the kinds of claims that are prohibited, thereby
promoting compliance.
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\131\ In the NPRM, the Commission informally grouped the list of
misrepresentations into three broad categories to facilitate
discussion. Neither the SBP nor the Final Rule uses the three
categories.
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Section 321.3(a) covers misrepresentations about interest charged
for the product, including, but not limited to, misrepresentations
about (1) the amount of interest owed each month that is included in
the consumer's payments, loan amount, or total amount due; or (2) the
interest owed each month that is not included in the payments but is
instead added to the total amount due.\132\
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\132\ In the NPRM, the Commission also addressed negative
amortization products in connection with Sec. 321.3(a). After
further reflection, the Commission believes it is more appropriate
to address this topic in connection with Sec. 321.3(i). See infra
note 144 and accompanying text.
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Section 321.3(b) bars misrepresentations about the APR, simple
annual rate, periodic rate, or any other rate, including, but not
limited to, a payment rate.\133\ The Commission has challenged
deceptive rate claims in many cases, some of which included allegations
that originators understated the true rate by more than 100
percent.\134\
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\133\ A payment rate is the rate used to calculate the
consumer's monthly payment amount and is not necessarily the same as
the interest rate. If the payment rate is less than the interest
rate, the consumer's monthly payment amount does not include the
full interest owed each month; the difference between the amount the
consumer pays and the amount the consumer owes is added to the total
amount due from the consumer.
The Rule prohibits misrepresentations about payment rates and
any other rate, for both closed-end and open-end credit. In
comparison, Regulation Z bans advertising of payment rates,
effective rates, and qualifying rates for closed-end credit, see
Regulation Z Commentary, 12 CFR 226.24(c)-2, Supp. I, but does not
ban advertising of such rates for open-end credit.
\134\ See FTC v. Safe Harbour Found. of Fla., Inc., No. 08-C-
1185 (N.D. Ill. 2008) (severely understated APR); see also In re Am.
Nationwide Mortg. Co., F.T.C. Dkt. No. C-4249 (2009); In re Shiva
Venture Group, Inc., F.T.C. Dkt. No. C-4250 (2009); In re Michael
Gendrolis, F.T.C. Dkt. No. C-4248 (2009).
In the NPRM, the Commission addressed savings rates in
connection with Sec. 321.3(b). After further reflection, the
Commission believes it is more appropriate address this topic in
connection with Sec. 321.3(h). See infra notes 141-43 and
accompanying text.
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Section 321.3(c) bars misrepresentations about the existence,
nature, or amount of fees or costs associated with any mortgage credit
product. It also prohibits false or misleading claims that no fees are
charged, for example, if the fees and costs in fact are incorporated in
the loan amount or total amount due from the consumer.\135\ This
provision covers fees and costs imposed at any point during the life of
the loan.
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\135\ See, e.g., FTC v. Ranney, No. 04-F-1065 (MJW) (D. Colo.
2004); FTC v. Chase Fin. Funding, Inc., No. SACV04-549 GLT (ANx)
(C.D. Cal. 2004) (allegedly promoting ``NO COSTS * * * NO KIDDING''
and ``no-fee'' loans, when in fact, the loans included such
charges); see also FTC v. Assocs. First Capital Corp., No. 1:01-
00606 JTC (N.D. Ga. 2001); FTC v. First Alliance Mortg. Co., No.
SACV 00-964 DOC (EEx) (C.D. Cal. 2000).
---------------------------------------------------------------------------
Section 321.3(d) covers misrepresentations about terms associated
with additional products or features that may be sold in conjunction
with a mortgage credit product.\136\ Thus, this provision covers claims
made in cross-selling other products or features in mortgage credit
product offers, including, but not limited to, credit insurance, credit
disability insurance, car clubs, or other ``add-ons'' to the loan.\137\
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\136\ The Commission has challenged such misrepresentations in
its law enforcement actions. See, e.g., FTC v. Assocs. First Capital
Corp., No. 1:01-00606 JTC (N.D. Ga. 2001).
\137\ The Commission has alleged deceptive practices involving
add-ons to non-mortgage personal loans as well. See FTC v. Stewart
Fin. Co. Holdings, Civ. No. 1:03-CV-2648-JTC (N.D. Ga. 2003).
---------------------------------------------------------------------------
Section 321.3(e) covers misrepresentations relating to the taxes or
insurance associated with a mortgage credit product, for example,
claims about whether tax or insurance charges are included in the
overall monthly payment or must be paid separately.\138\
---------------------------------------------------------------------------
\138\ Commission enforcement actions have challenged deceptive
claims that the advertised monthly payment included tax and
insurance charges, when in fact it did not. See, e.g., United States
v. Mercantile Mortg. Co., No. 02-C-5079 (N.D. Ill. 2002); FTC v. OSI
Fin. Servs., Inc., No. 02-C-5078 (N.D. Ill. 2002); FTC v. Assocs.
First Capital Corp., No. 1:01-00606 JTC (N.D. Ga. 2001).
---------------------------------------------------------------------------
Section 321.3(f) bars misrepresentations about the existence or
amount of any penalty for making prepayments on the mortgage.\139\
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\139\ The Commission has brought several cases against entities
that allegedly deceived consumers about prepayment penalties. See,
e.g., United States v. Mercantile Mortg. Co., No. 02-C-5079 (N.D.
Ill. 2002); FTC v. OSI Fin. Servs., Inc., No. 02-C-5078 (N.D. Ill.
2002); FTC v. Chase Fin. Funding Inc., No. SACV 04-549 GLT (ANx)
(C.D. Cal. 2004); see also FTC Bureau of Consumer Protection, Bureau
of Economics, and Office of Policy Planning, Comments before Board
of Governors of Federal Reserve System on Truth in Lending 4 n.11
(Apr. 8, 2008), available at http://www.ftc.gov/os/2008/04/V080008frb.pdf.
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Section 321.3(g) prohibits misrepresentations pertaining to the
variability of interest, payments, or other terms of mortgage credit
products, including, but not limited to, misrepresentations using the
word ``fixed'' when terms are, in fact, variable or limited in
duration.\140\
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\140\ The Commission has charged mortgage brokers and other
entities with falsely promising consumers low fixed payments and
rates on their mortgage loans, including promising ``30 year fixed.
1.95%,'' ``3.5% fixed payment loan,''; and other rates that were
not, in fact, fixed. See, e.g., In re Am. Nationwide Mortg. Co.,
F.T.C. Dkt. No. C-4249 (2009); FTC v. Chase Fin. Funding, Inc., No.
SACV 04-549 GLT (ANx) (C.D. Cal. 2004); see also FTC v. 30 Minute
Mortg., Inc., No. 03-60021 (S.D. Fla. 2003); Andrews v. Chevy Chase
Bank, 240 F.R.D. 612 (E.D. Wis. 2007) (describing payment option ARM
sold as ``fixed rate'' when interest was only fixed for one month,
although payments were fixed for a year).
Section 321.3(g) of the Final Rule is broader than a similar
provision in Regulation Z that applies only to closed-end dwelling-
secured credit and requires specific advertising disclosures. See 12
CFR 226.24(i)(1).
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[[Page 43834]]
Section 321.3(h) bars false or misleading comparisons between rates
or payments,\141\ including, but not limited to, comparisons involving
savings. It also is intended to cover false or misleading savings rate
claims in financing promotions. The Commission has challenged, for
example, deceptive claims that consumers will save money (such as at a
particular rate of savings) by accepting a credit offer.\142\ This
provision also bars false or misleading comparisons between rates or
payments available for different parts of the loan term.\143\
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\141\ Section 321.3(h) of the Final Rule is broader than a
similar provision in Regulation Z that applies only to closed-end
dwelling-secured credit and requires specific advertising
disclosures. See 12 CFR 226.24(i)(2).
\142\ The Commission has challenged deceptive savings rate
claims in non-mortgage contexts. See In re Automatic Data
Processing, Inc., 115 F.T.C. 841 (1992) (alleged deceptive
comparisons in automobile financing). Section 321.3(h) of the Final
Rule would prohibit these types of promotions when used in the
mortgage context. In the NPRM, the Commission addressed savings
rates in connection with Sec. 321.3(b).
\143\ See, e.g., In re FirstPlus Fin. Group, Inc., F.T.C. Dkt.
No. C-3984 (2000).
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Section 321.3(i) prohibits misrepresentations about the type of
mortgage credit product being offered, e.g., false claims that a
mortgage is fully amortizing.\144\
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\144\ The Commission has challenged such misrepresentations in
its law enforcement actions. See, e.g., In re Shiva Venture Group,
Inc., F.T.C. Dkt. No. C-4250 (2009); In re Michael Gendrolis, F.T.C.
Dkt. No. C-4248 (2009); In re Am. Nationwide Mortg. Co., F.T.C. Dkt.
No. C-4249 (2009); FTC v. OSI Fin. Servs., Inc., No. 02-C-5078 (N.D.
Ill. 2002); United States v. Mercantile Mortg. Co., No. 02-C-5029
(N.D. Ill. 2002); FTC v. Capital City Mortg. Corp., No. 1:98CV237
(D.D.C. 1998).
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Section 321.3(j) bars misrepresentations about the amount of the
obligation or the existence, nature, or amount of cash or credit the
consumer could receive from the loan.\145\ This would include, for
example, false claims that the consumer will receive a certain amount
of cash by obtaining a home equity loan, or will receive a certain
amount of credit through a purchase money loan.
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\145\ See FTC v. Assocs. First Capital Corp., No. 1:01-00606 JTC
(N.D. Ga. 2001) (alleging deceptive representations about loan
amounts in home equity mortgages); FTC v. First Alliance Mortg. Co.,
No. SACV 00-964 DOC (EEx) (C.D. Cal. 2000) (same); see also United
States v. Mercantile Mortg. Co., No. 02-C-5079 (N.D. Ill. 2002)
(alleging deceptive representations about cash dispersal amounts in
home equity loans or refinances); FTC v. OSI Fin. Servs., Inc., No.
02-C-5078 (N.D. Ill. 2002) (same).
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Section 321.3(k) prohibits misrepresentations about the existence,
number, amount, or timing of any minimum or required payments.\146\ One
commenter, focusing on reverse mortgages, suggested revising the Rule
to clarify that it is not a violation of Sec. 321.3(k) if the
advertisement makes clear that the borrower has no regular monthly
repayment installment obligations under the loan but must pay the real
estate taxes and hazard insurance.\147\ Although no revision of the
Rule text is necessary on this point, the Commission emphasizes that
the Final Rule does not prohibit a person from including in an
advertisement truthful, non-misleading information about the borrower's
responsibility to pay real estate taxes and hazard insurance. The
Commission notes, however, that the determination of whether an
advertisement is deceptive is based on the net impression of the
advertisement as a whole. Thus, a fine print disclosure about the
borrower's need to pay taxes and insurance often would not be
sufficient to qualify a more prominent claim that the borrower need not
make monthly payments.\148\
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\146\ This provision covers, for example: (1) Misrepresentations
about whether certain payments are part of the loan, see, e.g., FTC
v. OSI Fin. Servs., Inc., No. 02-C-5078 (N.D. Ill. 2002); United
States v. Mercantile Mortg. Co., No. 02-C-5079 (N.D. Ill. 2002); (2)
false claims that an aspect of the loan would cover the payments
due, see FTC v. Ranney, No. 04-F-1065 (MJW) (D. Colo. 2004); and (3)
false or misleading claims as to the obligation to repay, or make
other payments associated with, a reverse mortgage, see Federal
Financial Institutions Examination Council (FFIEC), Reverse Mortgage
Products: Guidance for Managing Compliance and Reputation Risks
(FFIEC Reverse Mortgage Guidance), 75 FR 50801, 50809 (Aug. 17,
2010) (guidance issued by Federal and state bank regulatory agencies
on need for adequate information and other consumer protections
regarding reverse mortgage products). The Commission notes that
reverse mortgages are also subject to other Federal requirements.
See, e.g., 24 CFR 206 (HUD regulations on HECMs). See generally 12
CFR 226 (Regulation Z).
\147\ See NRMLA at 4.
\148\ ``Fine print disclosures generally may not cure a
misimpression created by the text of an advertisement.'' In re
Stouffer Foods Corp., 118 F.T.C. 746, 786 (citation omitted); see
also In re Am. Nationwide Mortg. Co., F.T.C. Docket No. C-4249
(2009); In re Michael Gendrolis, F.T.C. Dkt. No. C-4248 (2009).
---------------------------------------------------------------------------
Section 321.3(l) prohibits misrepresentations about the potential
for default on the mortgage credit product, including, but not limited
to, misrepresentations about the circumstances under which the consumer
could default for nonpayment of taxes or insurance, failure to maintain
the property, or non-compliance with other obligations.\149\
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\149\ For example, it would violate this section for a reverse
mortgage lender to make the false or misleading claim that ``no
matter what, you can stay in your home for life,'' when the lender
can force the sale of the property if the consumer does not
adequately maintain the property.
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Section 321.3(m) bars misrepresentations about the effectiveness of
the mortgage credit product in helping consumers resolve problems in
paying debts.\150\ This section covers false or misleading claims that
the lender's or servicer's product (through a waiver, forgiveness, or
otherwise) can reduce, eliminate, or restructure a debt or any other
obligation of any person.\151\
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\150\ The Commission notes that the MARS Rule prohibits mortgage
assistance relief service providers from: (1) Misrepresenting the
amount of money or percentage of the debt amount that a consumer may
save by using the mortgage assistance relief service; and (2) making
a representation about the efficacy of any such service unless the
provider can substantiate the representation. See 16 CFR
322.3(b)(10), (c). In contrast, the MAP--Advertising Final Rule
prohibits any person from misrepresenting the effectiveness of the
mortgage credit product in helping the consumer resolve problems
paying debts. While the Final Rule is intended to address
communications from lenders, servicers, and other advertisers
primarily, it also is worded broadly enough to cover
misrepresentations about mortgage credit products that may not be
covered by the MARS Rule.
Section 321.3(m) of the Final Rule is broader than a similar
provision in Regulation Z that applies only to closed-end dwelling-
secured credit. See 12 CFR 226.24(i)(5).
\151\ Thus, this provision covers false or misleading claims of
debt elimination, debt forgiveness, or savings associated with
mortgage credit products. See, e.g., In re FirstPlus Fin. Group,
Inc., F.T.C. Dkt. No. C-3984 (2000); FTC v. Safe Harbour Found. of
Fla., Inc., No. 08-C-1185 (DC Ill. 2008).
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Section 321.3(n) prohibits misrepresentations about the association
between a mortgage credit product or a provider of such product and any
other person or program, including, but not limited to, any affiliation
with an organizational or governmental program, benefit, or
entity.\152\
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\152\ The FTC has challenged many of these types of claims in
its loan modification cases, including where the defendants
allegedly claimed, in part through the use of names, seals, or
symbols, that the mortgage credit product was a government benefit
or that the lender was affiliated with the government. See, e.g.,
FTC v. Ryan, No. 1:09-cv-00535-HHK (D.D.C. 2009). In some contexts,
such misrepresentations may also violate the MARS Rule. See 16 CFR
322.3(b)(3). The MAP--Advertising Final Rule is worded broadly
enough to cover misrepresentations about mortgage credit products
that may not be covered by the MARS Rule.
Section 321.3(n) of the Final Rule is broader than a similar
provision in Regulation Z that applies only to closed-end dwelling-
secured credit and is limited to claims about the loan program
advertised. See 12 CFR 226.24(i)(3). In comparison, the Commission's
Rule applies to both closed-end and open-end credit secured either
by real property or a dwelling, covers claims about the loan program
as well as the provider of the advertisement, and expressly
references use of symbolic representations.
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[[Page 43835]]
One commenter suggested revising the Rule to clarify that Sec.
321.3(n)(2) does not prohibit a person from advertising that it offers
FHA-insured home equity conversion mortgages (HECM loans) if the
person, in fact, does so.\153\ While no revision of the Rule text is
warranted on this point, the Commission notes that the Final Rule does
not prohibit advertisers from making truthful, non-misleading claims as
to the products they offer, including HECMs.
---------------------------------------------------------------------------
\153\ See NRMLA at 4.
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The same commenter also suggested making clear that the Rule
permits advertisers to use symbols or logos that resemble those of a
government entity, organization, or program, when their use is required
or allowed, such as the Equal Housing lender logo.\154\ The Final Rule
generally permits the use of symbols and logos when required or allowed
by the government.\155\ Nevertheless, an advertisement including such a
symbol or logo may be misleading, depending on the circumstances. For
example, if an Internet advertisement, which is accessible by consumers
located in any state, included such logos, but the advertiser had
recently lost certain of its state licenses or certifications to offer
mortgages in those jurisdictions, the advertisement could be deceptive
and violate the Rule. Thus, the Commission agrees that the Rule permits
the use of such symbols or logos in a truthful, non-misleading manner,
but it does not believe that it is necessary to revise the language of
the Rule to address the commenter's concern.
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\154\ See id. For example, HUD regulations implementing the Fair
Housing Act, 42 U.S.C. 3601-3631, generally require the Equal
Housing Opportunity logo on fair housing posters. See 24 CFR 110.
\155\ See, e.g., 42 U.S.C. 3605; 24 CFR 110.
---------------------------------------------------------------------------
Section 321.3(o) covers misrepresentations about the source of the
mortgage credit product and the commercial communications for it,
including, but not limited to, claims that the communication is made by
or on behalf of the consumer's current mortgage lender or
servicer.\156\
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\156\ See, e.g., In re Michael Gendrolis, F.T.C. Dkt. No. C-4248
(2009) (alleging the failure to disclosure adequately that the
advertiser, not the consumer's current lender, was offering the
mortgage). This section also covers false or misleading ``trigger
lead'' solicitations, in which entities: (1) Obtain information
about the consumer from sources such as prescreened lists sold by
consumer reporting agencies; (2) based on that information, contact
the consumer to promote a mortgage credit product or term; and (3)
misrepresent their identity as the consumer's current lender or
servicer.
Section 321.3(o) of the Final Rule is broader than a similar
provision in Regulation Z that applies only to closed-end dwelling-
secured credit and is limited to representations about lenders. See
12 CFR 226.24(i)(4). In comparison, the Commission's Rule applies to
both closed-end and open-end credit secured either by real property
or a dwelling and bars misrepresentations about both servicers and
lenders.
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Section 321.3(p) prohibits misrepresentations about the consumer's
right to reside in the dwelling that is the subject of the mortgage
credit product, including, but not limited to, false or misleading
claims about how long or under what conditions a consumer can stay in
the dwelling.\157\ One commenter, focusing on reverse mortgages,
suggested revising the Rule to clarify that it is not a violation of
Sec. 321.3(p) if the advertisement makes clear that the borrower must
maintain the collateral property, satisfy any occupancy requirements,
and timely pay the real estate taxes and hazard insurance, if such are
required and applicable under the loan agreement.\158\ While no
revision of the Rule text is necessary on this point, the Commission
emphasizes that the Final Rule does not prohibit a person from
including in an advertisement truthful, non-misleading information
about the obligations the borrower must meet to stay in the dwelling.
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\157\ Issues concerning the consumer's right to reside in the
dwelling have frequently arisen in the sale of reverse mortgages.
See generally U.S. Gov't Accountability Office (GAO), GAO-09-606,
Reverse Mortgages: Product Complexity and Consumer Protection Issues
Underscore Need for Improved Controls over Counseling for Borrowers
(2009) (GAO Reverse Mortgage Report).
\158\ NRMLA at 4.
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Sections 321.3(q) and 321.3(r) bar misrepresentations about the
consumer's ability or likelihood to obtain any mortgage credit product
or term, or a refinancing or modification of any mortgage credit
product or term. This includes false or misleading claims about whether
the consumer has been preapproved or guaranteed for any such product or
term.\159\
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\159\ The Commission has challenged similar claims in prior law
enforcement actions. See, e.g., United States v. Unicor Funding,
Inc., No. 99-1228 (C.D. Cal. 1999); In re Lomas Mortg. U.S.A., Inc.,
116 F.T.C. 1062 (1993); FTC v. Safe Harbour Found. of Fla., Inc.,
No. 08-C-1185 (DC Ill. 2008); FTC v. Assocs. First Capital Corp.,
No. 1:01-00606 JTC (N.D. Ga. 2001).
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Section 321.3(s) bars misrepresentations about the availability,
nature, or substance of counseling services or any other expert advice
offered to the consumer regarding any mortgage credit product or term,
including, but not limited to, the qualifications of those offering the
services or advice.\160\ One commenter suggested clarifying whether,
with respect to reverse mortgages, Sec. 321.3(s) applies primarily to
counselors and counseling agencies, or also applies to lenders and loan
originators.\161\ Because Sec. 321.3(s) in the Final Rule applies to
any ``person,'' as defined in Sec. 321.2(f), it applies to all of
these types of individuals or entities. The same commenter also
suggested clarifying that advertisements may include valid professional
designations, such as a Better Business Bureau indication or reference
to status as a Certified Reverse Mortgage Professional for a loan
originator.\162\ The Final Rule does not prohibit truthful, non-
deceptive references to valid professional designations.\163\
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\160\ Such misrepresentations have been identified as
problematic in the offering of reverse mortgages, see, e.g., FFIEC
Reverse Mortgage Guidance, supra note 146, and GAO Reverse Mortgage
Report, supra note 157, and of loan modifications, see generally
MARS, Final Rule, 75 FR 75092. In some contexts, such
misrepresentations may also violate the MARS Rule. See 16 CFR
322.3(b)(1). The MAP--Advertising Final Rule is worded broadly
enough to cover misrepresentations about mortgage credit products
that may not be covered by the MARS Rule.
Section 321.3(s) of the Final Rule is broader than a similar
provision in Regulation Z that applies only to closed-end dwelling-
secured credit and addresses advertisements that use the term
``counselor'' to refer to a for-profit mortgage broker or creditor,
its employees, or others working for the broker or creditor in
offering, originating, or selling mortgages. See 12 CFR
226.24(i)(6). In comparison, the Commission's Rule applies to both
closed-end and open-end credit secured either by real property or a
dwelling and bans misrepresentations regardless of the type of for-
profit entity involved.
\161\ NRMLA at 4.
\162\ Id.
\163\ A literally true claim about a professional designation
could nonetheless be misleading. For example, if an advertisement
included a reference to ``Better Business Bureau approval,'' when
certain Better Business Bureau offices approved the lender but
others had issued a cautionary rating, this advertisement could be
deceptive and violate the Rule.
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2. Advertising Disclosures
The proposed rule did not include any affirmative advertising
disclosure requirements, and the Final Rule does not adopt any such
requirements for the reasons discussed further below. In the NPRM, the
Commission tentatively concluded that it was unnecessary to mandate
advertising disclosures. The Commission also tentatively concluded that
not doing so would avoid possible inconsistencies with other Federally-
or state-mandated disclosure requirements for mortgage advertising,
thereby lowering the likelihood of consumer confusion while making
compliance easier. Nevertheless, the NPRM specifically requested
comment on whether there are any disclosure
[[Page 43836]]
requirements that the Commission should include in the Final Rule. The
Commission received several comments addressing this issue--some
discussing disclosures generally and others recommending specific
disclosure requirements.
a. Comments Discussing Disclosures Generally
A comment from a group of state banking and consumer credit
regulators generally recommended against requiring disclosures because
other Federal rules require specific advertising disclosures and
imposing additional requirements could create inconsistencies and
confusion.\164\ This commenter suggested, however, that the Rule should
prohibit advertising that obscures significant risks to the consumer.
The commenter stated that advertisements promoting a particular
mortgage product or feature should give clear and prominent information
alerting consumers to any potentially negative aspects of the loan,
such as negative amortization.\165\ To achieve this result, the
commenter suggested that the Rule require mortgage advertisements to
disclose any qualifying information, the omission of which would likely
mislead reasonable consumers in a material way.\166\ The Commission
declines to adopt any affirmative disclosure requirements in the Final
Rule but notes that Sec. 321.3 broadly prohibits misrepresentations
about any term of any mortgage credit product and that the omission of
qualifying information may cause a representation to be misleading in
violation of Sec. 321.3.\167\
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\164\ See CSBS/ACSS/NACCA at 1.
\165\ See id.
\166\ See id.
\167\ Under Section 5 of the FTC Act, it is a deceptive practice
to omit qualifying information when making a literally truthful
claim if the omission of that information is likely to mislead
reasonable consumers in a material way. See Deception Policy
Statement, supra note 9, at 176-77. For example, a closed-end
mortgage advertisement likely would be deceptive if it represented
that a loan has a very low interest rate, but failed to disclose
that the rate would substantially increase after a few months. Such
claims often are referred to as ``half truths.'' Mortgage
advertisements that include half truths in most cases also would be
considered to have made implied misrepresentations that would fit
into the specific categories of misrepresentations in the Rule.
Continuing with the above example, a claim that a loan has a very
low interest rate, in the absence of any qualifying information, is
likely to imply to reasonable consumers that the rate lasts at least
for longer than a few months. Thus, the Final Rule's prohibition on
misrepresentations likely will cover the sorts of half truths that
can arise when mortgage advertisers fail to make material
disclosures.
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In addition, as noted in the NPRM and in several comments the
Commission received, there are already substantial Federal and state
regulations applicable to mortgage advertisements, including those that
mandate disclosures. Mandating advertising disclosures in this Rule
would create potential conflicts and inconsistencies with the
disclosure provisions of the other requirements to which covered
entities are also subject, particularly TILA and Regulation Z. For
example, under TILA and Regulation Z, the APR must be calculated
following certain methods, and it must be disclosed in mortgage
advertisements in some circumstances.\168\ If the Commission were to
require a disclosure of the APR, it would either duplicate the TILA
requirements or, if the APR was calculated using different costs and
procedures than those established by TILA and Regulation Z, would
result in inconsistent Federal requirements and inconsistent
disclosures, leading to potential consumer confusion and increased
burden on business. Similarly, if the Commission were to require a
specific disclosure in all mortgage advertisements that state a monthly
payment amount, this disclosure would either duplicate or potentially
conflict with numerous other requirements under Regulation Z.\169\
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\168\ See, e.g.,12 CFR 226.4; 226.14; 226.16(b) and (d)(1), (2)
and (6); 226.22; and 226.24(d) and (f)(2).
\169\ For example, it is not clear that requiring disclosure of
suggested ``take-home income'' applicable to an advertised mortgage
credit product would be consistent with other Regulation Z
requirements. See infra notes 175-76 and accompanying text; see
also, e.g., 12 CFR 226.24(f)(3) (requiring various disclosures with
equal prominence and in close proximity, in certain mortgage
advertisements, when a monthly payment amount is stated); 12 CFR
226.24(a) (providing that an advertisement for credit must state
only those terms that actually are or will be arranged or offered).
---------------------------------------------------------------------------
Thus, the Commission has determined not to require any affirmative
advertising disclosure requirements in the Final Rule. It concludes
that the Final Rule's prohibitions on misrepresentations in commercial
communications regarding mortgage credit products will provide
sufficient protection to consumers. Finally, the Commission is
cognizant of the important interplay between existing Federal and state
advertising and disclosure requirements and designed the Rule to avoid
conflict or inconsistency with those other requirements.
b. Comments Recommending Specific Disclosures
One commenter suggested requiring that any commercial communication
about a reverse mortgage loan state that it relates to a reverse
mortgage loan.\170\ The commenter indicated that this would allow
consumers at the outset to identify the product being marketed as a
reverse mortgage, which, the commenter stated, is important because
reverse mortgages are a unique subset of mortgage credit products.\171\
As noted above, the Commission generally declines to adopt any
affirmative disclosure requirements in the Final Rule to avoid conflict
and inconsistency with other Federal and state disclosure requirements.
Moreover, depending on the circumstances, if advertisements offering
reverse mortgages misrepresent that they are offering another type of
mortgage, or if advertisements offering other mortgage products
misrepresent that they are offering reverse mortgages, such false or
misleading claims would violate Sec. 321.3(i).
---------------------------------------------------------------------------
\170\ See NRMLA at 3.
\171\ Id.
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The same commenter also recommended requiring that any commercial
communication offering a reverse mortgage loan state whether the entity
making the communication is the lender for the loan, and if not, state
the role of the entity and its purpose in collecting information about
the prospective borrower.\172\ An individual commenter similarly
suggested that the Commission require mortgage companies to disclose in
their advertising the name and state under which they are
licensed.\173\ Another commenter proposed requiring mortgage brokers to
disclose they are not mortgage lenders and do not fund loans.\174\ As
noted above, the Commission generally declines to adopt any affirmative
disclosure requirements in the Final Rule to avoid conflict and
inconsistency with other Federal and
[[Page 43837]]
state disclosure requirements. Nonetheless, it is a violation of
Sec. Sec. 321.3(n) or (o) if the advertisement misrepresents,
respectively: (1) The association of the mortgage credit product or any
provider of the product with any other person of program, or (2) the
source of any commercial communication, such as whether it is made by
on behalf of the consumer's current lender or servicer.
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\172\ Id.
\173\ See Coe at 1. The Commission notes that some states
restrict companies from disseminating mortgage advertisements unless
they have, and display, such license information. See Kan. Stat.
Ann. 9-2208 (2010); Or. Admin. R. 441-870-0080 (2010); 7 Pa. Cons.
Stat. 6121, 6135 (2010); 10 Va. Admin. Code 5-160-60 (2010); see
also supra note 56 (SAFE Act requirements). The Commission also
notes that lenders and mortgagees approved by the FHA must use their
HUD-registered business names in all advertisements and promotional
materials related to FHA programs. See supra note 53.
\174\ See CSBS/ACSS/NACCA at 2. This commenter also indicated
that while various states require this information to be provided
after application, few rules exist requiring brokers to make this
distinction in advertising. Id. The Commission notes that some
states require disclosures in advertisements (or provide that it is
deceptive not to include certain information) indicating that the
entity is a mortgage broker only and not a mortgage lender or that
it does not make or fund loans. See Conn. Gen. Stat. 36a-497 (2010);
N.J. Admin. Code 3:2-1.4 (2010); N.Y. Banking Law 595-a; N.Y. Comp.
Codes R. & Regs. tit. 3, 38.2 (2010); 209 Mass. Code Regs. 42.12A
(2010).
---------------------------------------------------------------------------
One individual commenter expressed concern that advertisements
quoting a monthly payment amount do not offer guidance on how much a
household should earn to afford that payment.\175\ The commenter
proposed requiring that any home loan advertisement quoting a ``monthly
price'' (presumably, a monthly payment amount) also must include a
suggested ``take home income'' (after tax) needed for the consumer to
afford that ``monthly price,'' to clarify to the consumer the
connection between ``how much it will cost'' and ``how much I can
spend.'' \176\ Again, the Commission generally declines to adopt any
affirmative disclosure requirements in the Final Rule to avoid conflict
and inconsistency with other Federal and state disclosure requirements.
Nonetheless, Sec. 321.3 broadly prohibits misrepresentations about any
term of any mortgage credit product, which would include
misrepresentations about monthly payment amounts and other costs to the
consumer.
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\175\ Swider at 1.
\176\ See id. This commenter suggested that the required
disclosure should be calculated by multiplying the advertised
monthly payment by five. Thus, if the advertised monthly payment
were $500, this would trigger disclosure of a ``suggested take home
income'' (after tax) of $2,500. As indicated above, such a
disclosure could conflict with Federal or other requirements. See
supra note 169.
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3. Dodd-Frank Act and CFPB Considerations
As noted above, the Dodd-Frank Act made substantial changes in the
Federal regulatory framework for providers of financial products or
services, including transferring to the CFPB, on the transfer date
designated as July 21, 2011, the Commission's rulemaking authority
under the Omnibus Appropriations Act, as clarified by the Credit CARD
Act.\177\ The Commission received two comments that focus primarily on
the Dodd-Frank Act and suggest that the Commission defer issuing a
final rule in view of the upcoming transfer of rulemaking
authority.\178\ These commenters suggested that the Federal banking
agencies and the FTC should coordinate with the CFPB to implement one
set of mortgage rules, or that these entities should engage in a
coordinated review of regulatory initiatives and reevaluation of the
goals and methods of financial regulation.\179\ According to the
commenters, the fact that the CFPB does not assume rulemaking authority
under the Omnibus Appropriations Act until the designated transfer date
is merely a technicality.\180\ Another commenter representing a group
of state-chartered credit unions suggested that the Commission issue a
final rule but coordinate with the CFPB and defer mandatory compliance
with the FTC's Final Rule until Titles X and XIV of the Dodd-Frank Act
take effect.\181\
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\177\ See supra Part I.A.4. The FTC retains enforcement
authority for these rules concurrently with the CFPB. See Dodd-Frank
Act Sec. Sec. 1024, 1061.
\178\ See generally ABA and CMC/MBA.
\179\ See ABA at 1-2; CMC/MBA at 1. The commenters reference
various provisions of the Dodd-Frank Act, including the requirement
that the CFPB and FTC negotiate an agreement to facilitate
coordination on rulemaking. See, e.g., CMC/MBA at 3; see also Dodd-
Frank Act Sec. 1061(b)(5)(D); see ABA at 2-3; see also Dodd-Frank
Act Sec. 1097.
\180\ See ABA at 3; CMC/MBA at 4.
\181\ See PCUA at 1-2.
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The Commission declines to adopt any of these recommendations. The
Dodd-Frank Act did not remove or revise the Commission's rulemaking
authority prior to the July 21, 2011 transfer date, and the Commission
concludes that it is in the public interest to implement this Rule
now.\182\ The Final Rule essentially codifies existing deception law
under Section 5 of the FTC Act, and thus does not pose a significant
additional burden on covered entities. At the same time, the Final Rule
will enhance consumer protection and deter deception because the
Commission, the CFPB, and the states will be able to enforce it and
obtain civil penalties for violations.\183\ The Commission will
continue its coordination with the CFPB on mortgage-related issues to
avoid the imposition of inconsistent standards.
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\182\ Indeed, after the enactment of the Dodd-Frank Act, the
Commission issued another final rule consistent with the directive
under the Omnibus Appropriations Act. See supra note 7.
\183\ See supra Parts I.A.3 and I.A.4.
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4. Substantial Assistance or Support
The proposed rule did not include a ``substantial assistance''
provision. Some FTC rules prohibit a person from giving substantial
assistance or support to others who violate the rule if that person
knows or consciously avoids knowing of the violations. In the NPRM, the
Commission asked what evidence exists of individuals or entities
knowingly providing substantial assistance to those engaged in
deceptive mortgage advertising and whether the Final Rule should
specifically prohibit this conduct.
The Commission received two comments opposing a substantial
assistance provision.\184\ One of the commenters stated that the
prohibition may create a disincentive for real estate professionals to
provide advice and unintentionally result in consumers having less
access to information.\185\ The other commenter suggested that, if the
FTC did include such a prohibition, it should not hold lenders liable
for violations committed by third parties, such as lead generators or
brokers, that provided the substantial assistance or support.\186\
---------------------------------------------------------------------------
\184\ AFSA at 2; NAR at 2. Neither comment specifically
addressed the ``knows or consciously avoids knowing'' standard.
\185\ NAR at 2.
\186\ AFSA at 2.
---------------------------------------------------------------------------
The Commission received one comment supporting the inclusion in the
Final Rule of a substantial assistance or support provision.\187\ The
commenter stated that this prohibition would prevent mortgage loan
originators from evading the Rule by contracting their advertising to
third parties.\188\ Another commenter generally stated that the Rule
should cover third parties on whom companies rely for ``guidance''
regarding whether representations are prohibited by the Rule.\189\
---------------------------------------------------------------------------
\187\ CSBS/ACSSS/NAACA at 1. This comment did not specifically
address the ``knows or consciously avoids knowing'' standard.
\188\ Id. The Commission notes that the Rule covers any person
who ``make[s]'' a material misrepresentation in a commercial
communication about any term of a mortgage credit product. Whether
or not a lender or a third party is considered to have ``made'' the
misrepresentation for purposes of the Rule, however, depends on the
circumstances. See supra Part III.B.4.
\189\ OMNI at 1.
---------------------------------------------------------------------------
The Commission declines to add a substantial assistance provision
to the Rule. Neither the Commission's law enforcement experience nor
the public comments received indicate that the provision of knowing
substantial assistance to those engaged in deceptive mortgage
advertising is prevalent or poses significant risks to consumers. More
specifically, the record does not identify any classes of persons that
may provide substantial assistance or support to mortgage advertisers
that would not already be subject to the Rule. To the extent that there
are others who provide such assistance and support and are not covered
by the Rule, they may be liable under Section 5 of the FTC Act,\190\ or
the CFPB could
[[Page 43838]]
amend the Rule to bring them within its scope.
---------------------------------------------------------------------------
\190\ For example, assume that a mortgage lender runs deceptive
advertisements in violation of the Rule and submits the resulting
charges through a payment processor who knows or should know of the
lender's Rule violations. Having not incorporated a ``substantial
assistance or support'' provision into the Rule, the Commission
could not challenge the payment processor's conduct as a Rule
violation. However, depending on the facts and circumstances, the
Commission might be able to take law enforcement action against the
payment processor's conduct as an unfair act or practice in
violation of Section 5 of the FTC Act. See, e.g., FTC v. Your Money
Access, LLC, No. 2:07-5147 (E.D. Pa. 2007).
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5. Multiple Languages
The proposed rule broadly prohibited material misrepresentations in
commercial communications regardless of the language or languages
through which the claim is made.\191\ In the NPRM, the Commission
sought comment on several questions regarding the use of commercial
communications that ``mix languages'' in connection with mortgage
products, including whether such practices are unfair or deceptive,
whether they are prevalent, and whether the Final Rule should address
this conduct by adding disclosure requirements.
---------------------------------------------------------------------------
\191\ The Commission has taken law enforcement action against
those who have used a language other than English or multiple
languages in deceiving consumers. These include actions against
mortgage companies that allegedly deceptively offered loans to
consumers whose primary language was a language other than English.
One action challenged as deceptive a mortgage company's alleged
practice of stating loan terms orally to Spanish-speaking consumers
in Spanish, only to provide loan documents with different and less
favorable terms in English. See FTC v. Mortgages Para Hispanos.com
Corp., No. 4:06-cv19 (E.D. Tex. 2006). In another case, the company
allegedly offered certain mortgage terms in both Chinese and English
advertisements, but failed to disclose a large balloon payment. See
In re Felson Builders, Inc., 119 F.T.C. 652 (1995).
---------------------------------------------------------------------------
The Commission received several comments on this issue, most of
which indicated that the Commission should not address multiple
language issues in the Final Rule, beyond the general prohibition on
misrepresentations in any language or combination of languages.\192\
One commenter stated that no additional protections are needed and that
``only English should be used to keep costs down for institutions.''
\193\ Another commenter noted that the multiple languages issue relates
to mortgage loan disclosures in general and recommended that the
Commission coordinate with the CFPB to ensure a consistent
approach.\194\ Specifically, to the extent that regulations may require
disclosures in languages other than English, the commenter recommended
that regulators provide model disclosure forms.\195\
---------------------------------------------------------------------------
\192\ See AFSA at 2-3; HPC at 1-3; CMC/MBA at 6; OMNI at 2.
Commenters acknowledged that the proposed rule already prohibited
misleading claims in any language or combination of languages.
\193\ OMNI at 2.
\194\ CMC/MBA at 6.
\195\ Id.
---------------------------------------------------------------------------
Two commenters noted the benefits to consumers of advertising and
communicating in languages other than English and were concerned about
the disincentives that would result from requiring disclosures in those
languages.\196\ These commenters emphasized that the proposed rule
already covers bait and switch tactics (i.e., making claims about a
product in an advertisement to encourage expression of consumer
interest but then substituting a different product for the advertised
product) and misrepresentations, regardless of the language used.\197\
These commenters opposed requiring disclosures in the consumer's
preferred language, stating that the costs to business of maintaining
all of the various disclosures and contracts in all of the different
languages that consumers potentially use would outweigh the benefits to
consumers, and would cause companies not to advertise in languages
other than English to avoid the burdens of the Rule.\198\ According to
one of the two commenters, lenders likely would not advertise in any
languages other than English to avoid the risk of liability under state
unfair trade practices statutes.\199\ The commenter indicated that
providing any required contracts in a language other than English would
falsely raise consumers' expectations that they will be provided
support in that language throughout the rest of their relationship with
the lender.\200\ The other commenter questioned whether transaction
documents that states require to be publicly filed would be legally
permitted in various county recorders' offices if they were in
languages other than English.\201\
---------------------------------------------------------------------------
\196\ AFSA at 2-3; HPC at 2.
\197\ AFSA at 2; HPC at 2-3 (``Whether that misrepresentation is
found in the foreign language, whether it is found in the English
language or whether it is found in the mingling of the two languages
is irrelevant; it is the misrepresentation that is significant and
that is prohibited . * * *'').
\198\ AFSA at 2-3; HPC at 2.
\199\ AFSA at 2.
\200\ Id.
\201\ HPC at 2.
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In contrast, one commenter stated that a company that advertises in
a language other than English should provide disclosure and other
mortgage documents, including the loan contract, in that other language
as well as in English.\202\ Another commenter described seeing several
instances where borrowers with limited English proficiency were told
one thing in their native language, but the written contract said
something else.\203\ This commenter requested that the Commission
``make it clear that anything that is deceptive when either or both
languages or a `mix' of languages is considered should be prohibited by
rule.'' \204\
---------------------------------------------------------------------------
\202\ CSBS/ACSSS/NACCA at 2.
\203\ ABLE at 6.
\204\ Id.
---------------------------------------------------------------------------
As noted above, the Final Rule prohibits misleading claims in any
language or any combination of languages.\205\ The Commission believes
that, based on the record, it is not necessary to add a specific
provision requiring disclosures in languages other than English, or to
add other such related requirements to the Final Rule. For example, the
Final Rule already addresses the concern that arises where a mortgage
advertiser represents a key feature in a print advertisement in a
language other than English but makes an inconsistent representation
elsewhere in the advertisement in English. Such an advertisement could
be deceptive and thus prohibited by the Final Rule. It is also well-
established that the ``net impression'' to the consumer is a touchstone
of FTC deception analysis, and that, consequently, a fine print or
otherwise ineffective disclaimer may not cure an otherwise misleading
advertisement.\206\ This principle, as applied to advertising that uses
multiple languages, means that, in advertising targeting consumers in a
language other than English, a disclaimer in English may not cure
misleading claims in that other language.\207\
---------------------------------------------------------------------------
\205\ See Final Rule Sec. 321.2(a). In comparison, for closed-
end credit, Regulation Z specifically bans providing information
about some trigger terms or required disclosures only in a foreign
language in the advertisement but, at the same time, providing
information about other trigger terms or required disclosures only
in English in that advertisement. See 12 CFR 226.24(i)(7).
\206\ See, e.g., FTC v. Cyberspace.com, LLC, 453 F.3d 1196, 1200
(9th Cir. 2006).
\207\ See, e.g., 16 CFR 14.9 (under FTC rules, cease-and-desist
orders, and guides that require ``clear and conspicuous'' disclosure
of information, such disclosures must be made in the language of the
target audience); 16 CFR 610.4(a)(3)(ii) (in marketing free credit
reports, mandatory disclosures must be made in the same language as
that principally used in the advertisement); 16 CFR 429.1(a) (in
door-to-door sales, failure to furnish a completed receipt or
contract in the same language as the oral sales presentation is an
unfair and deceptive act or practice); 16 CFR 455.5 (where used car
sales are conducted in Spanish, mandatory disclosures must be made
in Spanish); 16 CFR 308.3(a)(1) (mandatory disclosures about pay-
per-call services must be made in the same language as that
principally used in the advertisement); see also FTC, Free Annual
File Disclosures, Final Rule, 75 FR 9726, 9733 (Mar. 3, 2010)
(noting ``the Commission's belief that a disclosure in a language
different from that which is principally used in an advertisement
would be deceptive'').
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[[Page 43839]]
The Rule generally focuses on misrepresentations, regardless of the
language or languages used, rather than requiring affirmative mortgage
advertising disclosures or regulating mortgage-related transaction
documents. In addition, Congress recently directed the CFPB to develop
streamlined mortgage disclosures,\208\ and the CFPB may be better
situated to address non-English language disclosure issues in a more
comprehensive fashion.
---------------------------------------------------------------------------
\208\ See, e.g., Dodd-Frank Act, Sec. 1100A; see also Press
Release TG-864, Dep't of the Treasury, Treasury Convenes Mortgage
Disclosure Forum, Event Brings Together Stakeholders to Discuss Path
Forward to Simplify Mortgages Disclosure Forms, Empower Consumers
with Better, Easy-to-Understand Information (Sept. 21, 2010),
available at http://www.treasury.gov/press-center/press-releases/Pages/tg864.aspx.
---------------------------------------------------------------------------
D. Section 321.4: Waiver Not Permitted
Section 321.4 of the Final Rule, which includes only non-
substantive modifications to the proposed rule, provides that ``[i]t is
a violation of this rule for any person to obtain, or attempt to
obtain, a waiver from any consumer of any protection provided by or any
right of the consumer under this rule.'' \209\ The Commission received
one comment strongly supporting this prohibition, stating that
``[t]here is never a justification for waivers of misrepresentations.''
\210\ The Commission did not receive any other comments addressing this
provision. The Commission therefore confirms that a non-waiver
provision is necessary to protect consumers from being deceived in
making decisions about the most important financial product most of
them will obtain in their lifetimes. The Commission is unaware of any
circumstances under which it should condone material misrepresentations
by allowing advertisers of mortgage loans to include purported waivers
in their contracts or other agreements with consumers.\211\
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\209\ The modifications are designed to make this provision
clearer and easier to understand. The changes also align this
provision with the same provision used in the Commission's MARS
Rule. See 16 CFR 322.8. The proposed provision stated that ``[a]ny
attempt by any person to obtain a waiver from any consumer of any
protection provided by or any right of the consumer under this rule
constitutes a violation of this rule.'' MAP B--Advertising, NPRM, 75
FR at 60370.
\210\ ABLE at 5.
\211\ Other consumer protection laws and regulations include
prohibitions on requiring consumers to waive their statutory rights.
See, e.g., 15 U.S.C. 1693l (Electronic Fund Transfer Act); 16 CFR
322.8 (MARS).
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E. Section 321.5: Recordkeeping Requirements
1. Final Recordkeeping Requirements
Section 321.5 of the proposed rule set forth specific categories of
records that persons covered by the proposed rule would be required to
retain. A failure to keep such records would be an independent
violation of the rule.\212\
---------------------------------------------------------------------------
\212\ Final Rule Sec. 321.5(b); see also 16 CFR 322.9(d)
(MARS); 16 CFR 310.5(b) (TSR).
---------------------------------------------------------------------------
The Final Rule's recordkeeping provision is the same as the
proposed rule's provision except for minor clarifying changes.\213\
Specifically, for a period of 24 months from the last date the person
made or disseminated the applicable commercial communication regarding
any term of any mortgage credit product, covered persons must retain
the following information:
---------------------------------------------------------------------------
\213\ This provision is similar in many respects to the
recordkeeping requirements set forth in the FTC's MARS Rule and
Telemarketing Sales Rule (TSR), including the mandate to retain
scripts, advertisements, and promotional materials. See 16 CFR 322.9
(MARS); 16 CFR 310.5 (TSR). The Telemarketing and Consumer Fraud and
Abuse Prevention Act expressly authorized the Commission to impose
recordkeeping requirements. 15 U.S.C. 6102(a)(3). Although the
Omnibus Appropriations Act, as clarified by the Credit CARD Act,
does not contain a specific provision on recordkeeping, the
recordkeeping requirements here are reasonably related to the
prevention of deception.
---------------------------------------------------------------------------
(1) Copies of all materially different commercial communications as
well as sales scripts, training materials, and marketing materials,
regarding any term of any mortgage credit product, that the person made
or disseminated during the relevant time period; \214\
---------------------------------------------------------------------------
\214\ The Final Rule omits the phrase ``websites and weblogs,''
because that language is included in the definition of ``commercial
communication.'' See Final Rule Sec. 321.2(a). This change is to
provide clarity; no substantive change is intended.
---------------------------------------------------------------------------
(2) Documents describing or evidencing all mortgage credit products
available to consumers during the time period in which the person made
or disseminated each commercial communication regarding any term of any
mortgage credit product, including but not limited to the names and
terms of each such mortgage credit product available to consumers; and
(3) Documents describing or evidencing all additional products or
services (such as credit insurance or credit disability insurance) that
are or may be offered or provided with the mortgage credit products
available to consumers during the time period in which the person made
or disseminated each commercial communication regarding any term of any
mortgage credit product, including but not limited to the names and
terms of each such additional product or service available to
consumers.
The Rule permits entities to keep the records in any legible form
and in the same manner, format, or place as they keep such records in
the ordinary course of business.
2. Comments Received
The Commission received several comments addressing different
aspects of the proposed recordkeeping requirements. Two commenters
supported the 24-month record retention period.\215\ Another commenter
representing several groups of state financial institution regulators
suggested that the Commission impose a three to four year requirement,
stating that many states require that timeframe and that a longer
period is more appropriate for ``such important records.'' \216\ The
Final Rule retains the 24-month record retention period because it
requires mortgage advertisers to retain sufficient documentation for
efficient and effective compliance monitoring, while avoiding the
imposition of unnecessary costs on advertisers.
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\215\ AFSA at 3; OMNI at 2.
\216\ CSBS/ACSSS/NACCA at 2.
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One commenter stated that the recordkeeping provision describes the
required categories of records adequately, but expressed concern that
the proposed rule did not clarify whether the required records must be
saved as hard copies or electronically. This commenter asserted that
retaining records electronically would save money and storage
space.\217\ Section 321.5(b) of the Final Rule adopts the language in
the proposed rule permitting entities to keep the records in any
legible form and in the same manner, format, or place as they keep such
records in the ordinary course of business. This language permits
electronic or hard copies.
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\217\ OMNI at 2.
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One commenter suggested that brokers who advertise rates and terms
of loans purportedly offered by lenders should retain evidence that the
rates and terms actually were being offered by specific lenders at the
time of the advertisement.\218\ Section 321.5(a)(2) of the Final Rule,
which is unchanged from the proposed rule, requires the retention of
such documents.
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\218\ CSBS/ACSSS/NACCA at 2.
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Several commenters discussed the overall costs and burdens
associated with recordkeeping requirements, particularly with respect
to advertising agencies, real estate brokers, and real
[[Page 43840]]
estate agents.\219\ One commenter advocated for an exemption from the
Rule for advertising agencies,\220\ stating that agencies create and
place commercial communications for a wide variety of clients, making
it burdensome to retain and keep track of all communications that the
Rule covers.\221\ Another commenter, requesting an exemption from the
Rule for real estate brokers and agents,\222\ stated that the
recordkeeping requirement would be an ``onerous burden'' on such
persons, because they would need to track weekly changes in mortgage
rates even though they are not acting as or on behalf of loan
originators.\223\
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\219\ Gorbey at 1; HSA at 2-6; NAR at 2.
\220\ See supra Part III.B.4.
\221\ Gorbey at 1.
\222\ See supra Part III.B.4.
\223\ NAR at 2.
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Another commenter stated that the combination of the risk of
liability under Sec. 321.3 for providing mortgage-related information
that proves to be inaccurate and the recordkeeping requirements under
Sec. 321.5 would discourage real estate agents and brokers from
providing general mortgage-related information to clients or
prospective clients.\224\ This commenter suggested revising the
definition of ``commercial communication'' to address this issue\225\
or, in the alternative, narrowing the recordkeeping requirements\226\
and adding a safe harbor'' or ``good-faith exception'' from the rule
for an ``unintentional inaccuracy.'' \227\
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\224\ HSA at 2-6.
\225\ See supra Part III.B.3.
\226\ Specifically, the commenter suggested the Commission add
the following italicized language to the recordkeeping requirements:
(1) Sec. 321.5(a)(1) would apply to ``commercial communications
that advertise the availability of any specified mortgage credit
product and are disseminated by such covered person'' (2) Sec.
321.5(a)(2) would apply to ``mortgage credit products advertised by
such covered person''; and (3) Sec. 321.5(a)(3) would apply to
``additional products or services * * * that are or may be offered
or provided by such covered person with the mortgage credit
products.'' HSA at 5-6. As discussed infra, the Commission has added
clarifying language to the Final Rule to address concerns about the
scope of the recordkeeping requirement.
\227\ HSA at 4-6. The commenter's proposed ``good-faith
exception'' states: ``The provisions of this rule [Sec. 321.3]
shall not apply to any unintentional inaccuracy in a commercial
communication, provided that such inaccuracy is the product of a
diligently maintained system or process that is reasonably
calculated to provide accurate information in commercial
communications.'' Id. at 6.
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With respect to overall burden, the Commission believes that the
record retention requirement is necessary to ensure that covered
persons are complying with the requirements of the Final Rule.\228\
Specifically, the requirement that covered persons retain copies of
their commercial communications will enable the FTC to review those
communications for any misrepresentations that violate the Rule and to
bring law enforcement actions as appropriate. Covered persons may offer
consumers many different mortgage credit products and may also offer or
provide additional products or services with the mortgage credit
products, making it difficult for enforcement agencies to evaluate the
veracity of claims in advertising for those products absent a
recordkeeping requirement.
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\228\ As noted in Part I.A.3, supra, the Omnibus Appropriations
Act, as clarified by the Credit CARD Act, permits both the
Commission and states to enforce the rules issued in connection with
this rulemaking. See Credit CARD Act Sec. 511(a)(1)(C) and (a)(2).
As noted in Part I.A.4, supra, effective July 21, 2011, both the
Commission and the CFPB will have the authority to enforce these
rules against specific categories of ``nondepository covered
persons.'' See Dodd-Frank Act'' 1024, 1061, 1097.
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The Commission recognizes that recordkeeping provisions impose
compliance costs; however, many covered persons in the ordinary course
of their business already retain the types of documents that the Final
Rule requires be retained. As noted above, to further reduce burden,
the Rule permits entities to keep the records in any legible form and
in the same manner, format, or place as they keep such records in the
ordinary course of business. The Final Rule also limits the retention
requirements to avoid imposing any unnecessary burden. For example,
covered entities need retain only commercial communications that are
``materially different'' from each other.
In response to commenters' concerns about the scope of the
recordkeeping requirements, the Commission's Final Rule adds clarifying
language throughout Sec. 321.5(a) that does not substantively change
the provision. The Final Rule clarifies that the recordkeeping
requirements, like the prohibition in Sec. 321.3, do not apply to all
commercial communications; rather, they apply to any commercial
communication ``regarding any term of any mortgage credit product.'' It
also clarifies that the requirements apply only to commercial
communications that the covered person ``made or disseminated.'' The
Commission declines to make additional changes to the recordkeeping
requirements, and specifically requires that records be retained by
mortgage lenders and brokers, real estate brokers and agents,
advertising agencies, and others that make representations about
mortgage credit product terms in commercial communications. As noted
above, the Rule is intended to be broad enough to cover commercial
communications about mortgage credit products that are not necessarily
offered or extended by the person who is making or disseminating the
commercial communication.
Similarly, the Commission has determined not to narrow the
recordkeeping requirement by providing a good faith exception for
unintentional deceptive claims.\229\ As explained above, the Final Rule
generally requires retention of only a narrow class of records that,
for the most part, advertisers are likely to keep in the ordinary
course of business. In addition, an exemption for unintentional
deception is contrary to the longstanding principle that a claim can be
deceptive even though it was not the advertiser's intent to
deceive.\230\ Finally, the challenges of proving an absence of good
faith would frustrate Commission efforts to ensure compliance with the
Final Rule.
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\229\ See supra notes 226-27 and accompanying text.
\230\ The law is well-established that good faith is not a
defense to liability under the FTC Act. See, e.g., FTC v.
Cyberspace.com, LLC, 453 F.3d 1196, 1202 (9th Cir. 2006); FTC v.
Freecom Communications, Inc., 401 F.3d 1192, 1202 (10th Cir. 2005)
(``Because the primary purpose of Sec. 5 is to protect the consumer
public rather than to punish the wrongdoer, the intent to deceive
consumers is not an element of a Sec. 5 violation.''); Removatron
Int'l Corp. v. FTC, 884 F.2d 1489, 1495 (1st Cir. 1989); FTC v.
World Travel Vacation Brokers, Inc., 861 F.2d 1020, 1029 (7th Cir.
1988) (``To be actionable under Section 5, these misrepresentations
or practices need not be made with an intent to deceive.'');
Chrysler Corp. v. FTC, 561 F.2d 357, 363 (DC Cir. 1977) (``An
advertiser's good faith does not immunize it from responsibility for
its misrepresentations.'').
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F. Section 321.6: Actions by States
The Omnibus Appropriations Act, as clarified by the Credit CARD
Act, permits states to enforce the rules issued in connection with this
rulemaking.\231\ States may enforce the rules, subject to the notice
requirements of the Omnibus Appropriations Act, by bringing civil
actions in Federal district court or another court of competent
jurisdiction. Section 321.6 tracks the statute, indicating that states
have the authority to file actions against those who violate the Rule.
One commenter expressed appreciation for the Commission's recognition
of the states' role in combating deceptive practices by including this
provision in the proposed rule.\232\ Section 321.6 of the Final Rule
includes only non-substantive modifications to the language that was
used in this section of the proposed rule.
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\231\ Credit CARD Act Sec. 511(a)(2).
\232\ CSBS/ACSSS/NACCA at 1.
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[[Page 43841]]
G. Section 321.7: Severability
Section 321.7 states that the provisions of the Rule are separate
and severable from one another. This provision, which is modeled after
a similar provision in the TSR,\233\ also states that if a court stays
or invalidates any provisions in the Rule, the Commission intends the
remaining provisions to continue in effect. The Commission included
this provision in the proposed rule, and it did not receive any
comments addressing it. The Commission has adopted the proposed
provision as the Final Rule.
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\233\ See 16 CFR 310.9.
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H. Effective Date
The Final Rule becomes effective on August 19, 2011. This 30-day
timeframe was included in the proposed rule. The Commission received
two comments regarding the proposed effective date. One commenter
supported this timeframe, provided the Final Rule is substantially the
same as the proposed rule and does not include affirmative disclosure
requirements.\234\ Another commenter suggested 60 days would be more
appropriate to allow time to set up internal procedures to retain
documents.\235\
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\234\ AFSA at 3.
\235\ OMNI at 2.
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The Commission concludes that the August 19, 2011 effective date is
appropriate. The Commission has adopted a Final Rule that is
substantially the same as the proposed rule and prohibits deceptive
claims that are already unlawful. The Commission recognizes that some
covered persons may need time to implement new recordkeeping procedures
but believes that 30 days, which is the same compliance period
permitted in recent Commission rulemakings,\236\ will give covered
persons sufficient time to modify their business practices to comply
with the Rule.\237\
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\236\ See 75 FR 75092 (MARS); 75 FR 48458 (TSR).
\237\ See also supra Part III.E (discussing limitations on
recordkeeping requirements).
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IV. Paperwork Reduction Act \238\
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\238\ OMB Control Number: 3084-0156. The Commission is required
to display the OMB Control Number assigned, and affected persons are
not required to respond to the collection of information unless it
displays a currently valid OMB control number.
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The Commission is submitting this Final Rule and a Supplemental
Supporting Statement to the OMB for review under the Paperwork
Reduction Act (PRA), 44 U.S.C. 3501-21. The recordkeeping requirements
\239\ of the Rule constitute a ``collection of information'' for
purposes of the PRA.\240\ The Rule does not impose a disclosure
requirement. The associated PRA burden analysis follows.
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\239\ Section 321.5 of the Final Rule sets forth the
recordkeeping requirements.
\240\ See 44 U.S.C. 3502(3)(A).
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A. Recordkeeping Requirements
As discussed above, the Final Rule requires covered persons to
retain: (1) Copies of materially different commercial communications
and related materials, regarding any term of any mortgage credit
product, that the person made or disseminated during the relevant time
period; (2) documents describing or evidencing all mortgage credit
products available to consumers during the relevant time period; and
(3) documents describing or evidencing all additional products or
services (such as credit insurance or credit disability insurance) that
are or may be offered or provided with the mortgage credit products
available to consumers during the relevant time period.\241\ A failure
to keep such records would be an independent violation of the Rule.
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\241\ See Final Rule Sec. 321.5(a)(1)-(3). The Final Rule's
recordkeeping provision is substantially the same as the proposed
rule's provision and merely adds clarifying language. See supra Part
III.E.2.
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Commission staff believes these recordkeeping requirements pertain
to records that are usual and customary and kept in the ordinary course
of business for many covered persons, such as mortgage brokers,
lenders, and servicers.\242\ As to these persons, the retention of
these documents does not constitute a ``collection of information,'' as
defined by OMB's regulations that implement the PRA.\243\ Other covered
persons, however, such as real estate agents and brokers, advertising
agencies, home builders, lead generators, rate aggregators, and others,
may not currently maintain these records in the ordinary course of
business. Thus, the recordkeeping requirements for those persons would
constitute a ``collection of information.''
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\242\ Some covered persons, particularly mortgage brokers and
lenders, are subject to state recordkeeping requirements for
mortgage advertisements. See, e.g., Fla. Stat. 494.00165 (2010);
Ind. Code. Ann. 23-2-5-18 (2010); Kan. Stat. Ann. 9-2208 (2010);
Minn. Stat. 58.14 (2010); Wash. Rev. Code 19.146.060 (2010). Many
mortgage brokers, lenders, and servicers are also subject to state
recordkeeping requirements for mortgage transactions and related
documents, and these may include descriptions of mortgage credit
products. See, e.g., Mich. Comp. Laws Serv. 445.1671 (2010); N.Y.
Banking Law 597 (Consol. 2010); Tenn. Code Ann. 45-13-206 (2010). In
addition, lenders and mortgagees approved by the FHA must retain
copies of all print and electronic advertisements and promotional
materials for a period of two years from the date the materials are
circulated or used to advertise. See supra note 53.
\243\ See 44 U.S.C. 3502(3)(A); 5 CFR 1320.3(b)(2).
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B. Estimated Hours Burden and Associated Labor Costs
Commission staff estimates that the Final Rule's recordkeeping
requirements will affect approximately 1.3 million persons \244\ who
would not otherwise retain such records in the ordinary course of
business. As noted, this estimate includes real estate agents and
brokers, advertising agencies, home builders, lead generators, rate
aggregators, and others that may provide commercial communications
regarding mortgage credit product terms.\245\
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\244\ No general source provides precise numbers of the various
categories of covered persons. Commission staff, therefore, has used
the following sources and inputs to arrive at this estimated total:
(1) 1.1 million real estate brokers and agents--from the National
Association of Realtors, see http://www.realtor.org (last visited
Feb. 17, 2011); (2) 160,000 home builders (this number is 15,000
less than the estimate in the NPRM)--from the National Association
of Home Builders, see http://www.NAHB.org (last visited Feb. 17,
2011); (3) 350 finance companies--from the American Financial
Services Association, see http://www.afsaonline.org (last visited
Feb. 17, 2011); (4) 22,170 advertising agencies--from the North
American Industry Classification System Association's database of
U.S. businesses, see http://www.naics.com/naics54.htm (last visited
Feb. 17, 2011); (5) 1,000 lead generators and rate aggregators--
based on staff's administrative experience. These inputs add to
1,283,520 (this number is 15,000 less than the estimate in the NPRM;
for rounding, and to account further for potentially unspecified
other covered persons, however, staff has increased the resulting
total to 1.3 million, which is the same as the estimate in the NPRM.
\245\ The Commission does not know what percentage of these
persons are, in fact, engaged in covered conduct under the Rule,
i.e., providing commercial communications about mortgage credit
product terms. For purposes of these estimates, the Commission has
assumed all of them are covered by the recordkeeping provisions and
are not retaining these records in the ordinary course of business.
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No comments specifically addressed or refuted this estimate or
staff's associated PRA burden assumptions and calculations. Apart from
revisiting data sources and including those updates in its
information,\246\ staff retains its previously published estimates
without modification.
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\246\ See supra note 244.
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Although the Commission cannot estimate with precision the time
required to gather and file the required records, it is reasonable to
assume that covered persons will each spend approximately 3 hours per
year to do these tasks, for a total of 3.9 million hours (1.3 million
persons x 3 hours). Staff further assumes that office support file
clerks will handle the Rule's record retention requirements at an
hourly rate of $14.19.\247\ Based upon the above
[[Page 43842]]
estimates and assumptions, the total annual labor cost to retain and
file documents is $55,341,000 (3.9 million hours x $14.19 per hour).
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\247\ This estimate is based on mean hourly wages for office
file clerks provided by the Bureau of Labor Statistics. See U.S.
Bur. of Labor Statistics, National Compensation Survey: Occupational
Earnings in the United States, 2010, Bulletin 2753, May 2011, at 3-
23, tbl. 3, available at http://www.bls.gov/ncs/ncswage2010.htm.
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Absent information to the contrary, staff anticipates that existing
storage media and equipment that covered persons use in the ordinary
course of business will satisfactorily accommodate incremental
recordkeeping under the Rule. Accordingly, staff does not anticipate
that the Rule will require any new capital or other non-labor
expenditures.
V. Regulatory Flexibility Act
The Regulatory Flexibility Act of 1980 \248\ requires the
Commission to provide an Initial Regulatory Flexibility Analysis (IRFA)
with a proposed rule, and a Final Regulatory Flexibility Analysis
(FRFA) with a Final Rule, if any, unless the Commission certifies that
the Rule will not have a significant economic impact on a substantial
number of small entities.\249\
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\248\ 5 U.S.C. 601-612.
\249\ 5 U.S.C. 603-605. The definition of ``small entity''
refers to the definition provided in the Small Business Act, which
defines a ``small-business concern'' as a business that is
``independently owned and operated and which is not dominant in its
field of operation.'' 5 U.S.C. 601(3); 15 U.S.C. 632(a)(1).
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As of the date of the NPRM, the Commission anticipated that the
proposed Mortgage Acts and Practices--Advertising Rule would not have a
significant economic impact on a substantial number of small
entities.\250\ Nonetheless, the FTC published an IRFA and requested
public comment on the impact on small businesses of its proposed Rule.
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\250\ In the NPRM, the Commission estimated that the proposed
rule would cover approximately 1.35 million entities. It was not
known, however, how many of those entities were small entities.
Nonetheless, staff estimated minimal burden and expense for each
entity to comply with the proposed rule's requirements. See MAP--
Advertising, NPRM, 75 FR at 60367 & nn.174-175.
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In response to the IRFA and questions in the NPRM, the Commission
did not receive any comprehensive empirical data regarding the revenues
of covered entities or the Rule's impact on small businesses. The Final
Rule is substantially the same as the proposed rule. The number of
entities that the Commission estimates the Final Rule will cover is
1.325 million, which is about 25,000 less than the estimate provided in
the NPRM.\251\ Staff's estimated minimal burden and expense for each
entity's compliance is the same as it was in the NPRM.\252\ Thus, the
Commission does not anticipate that the Final Rule will have a
significant economic impact on a substantial number of small entities.
Although the Commission certified under the RFA that the Final Rule
will not have a significant impact on a substantial number of small
entities, the Commission has determined, nonetheless, that it is
appropriate to publish an FRFA in order to explain the impact of the
Rule on small entities as follows:
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\251\ No general source provides precise numbers of the various
categories of covered persons. Commission staff, therefore, has used
the following sources and inputs to arrive at this estimated total:
(1) 25,400 mortgage lenders and mortgage brokers (this number is
25,600 less than the 51,000 estimate in the NPRM)--from various
online state regulatory agency resources and the Nationwide Mortgage
Licensing System and Registry Consumer Access, see http://www.nmlsconsumeraccess.org (last visited between Mar. 2-Mar. 25,
2011); (2) 80 mortgage servicers (this number is 20 more than the
estimate in the NPRM)--from several sources, including lists of
servicers participating in various Federal programs available at
http://makinghomeaffordable.gov/contact_servicer.html and http://hopenow.com/members.php (both last visited Feb. 15, 2011) (excluding
lenders who are also servicers under these programs); and (3) 1.3
million others--see supra note 244 (explaining estimate).
\252\ Staff estimates that the annual labor cost for each
covered person to file or retain documents under the recordkeeping
provisions was $42.57 (3 hours x $14.19 per hour). See supra Part
IV.B (discussing labor and equipment that staff estimates are needed
for compliance). Cf. U.S. Small Bus. Admin. Office of Advocacy, A
Guide for Government Agencies--How to Comply with the Regulatory
Flexibility Act 19 (June 2010), available at http://www.sba.gov/advo/laws/rfaguide.pdf (citing 126 Cong. Rec. S10,938 (Aug. 6, 1980)
(identifying 175 annual staff hours for recordkeeping as a
``significant impact'')).
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A. Need for and Objectives of the Rule
The Final Rule is intended to implement Section 626 of the Omnibus
Appropriations Act, as amended by the Credit CARD Act, which directs
the Commission to initiate a rulemaking related to unfair or deceptive
acts or practices with respect to mortgage loans. As described in Parts
II and III, above, the Commission seeks to prevent deceptive acts and
practices in the mortgage advertising industry, which has been the
subject of numerous law enforcement actions under Section 5 of the FTC
Act and TILA.
B. Significant Issues Raised by Public Comments, Summary of the
Agency's Assessment of These Issues, and Changes, If Any, Made in
Response to Such Comments
As discussed in Part III, above, comments to the NPRM raised
concerns about burden primarily in connection with two issues: (1)
Disclosures or other requirements concerning the use of multiple
languages in offering mortgage credit products; and (2) recordkeeping
requirements. For the reasons set forth below, the Final Rule is
substantively the same as the proposed rule, with a few non-substantive
clarifying edits.
1. Multiple Language Disclosures and Restrictions
In the NPRM, the Commission sought comment on several questions
regarding the use of commercial communications that ``mix languages''
in connection with mortgage products, including whether the Final Rule
should address this conduct by adding disclosure requirements. The
Commission received several comments addressing the burdens of
potential multiple language disclosure requirements.\253\ One commenter
stated that ``only English should be used to keep costs down for
institutions.''\254\ Two commenters noted the benefits to consumers of
advertising and communicating in non-English languages and were
concerned about the disincentives that would result from a non-English
disclosure requirement.\255\ These commenters opposed requiring
disclosures in the consumer's preferred language, stating that the
costs to business of maintaining all of the various disclosures and
contracts in all of the potentially different languages that consumers
use would outweigh the benefits to consumers, and would cause companies
not to advertise in languages other than English to avoid the burdens
of the Rule.\256\ According to one of the two commenters, lenders
likely would not advertise in non-English languages to avoid the risk
of liability under state unfair trade practices statutes.\257\ The
commenter indicated that providing any required contracts in non-
English languages would falsely raise consumers' expectations that they
will be provided non-English language support throughout the rest of
their relationship with the lender.\258\
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\253\ This FRFA discusses only those comments that addressed
burden concerns. For a full discussion of the multiple languages
issue, see supra Part III.C.5.
\254\ OMNI at 2.
\255\ AFSA at 2-3; HPC at 2.
\256\ AFSA at 2-3; HPC at 2.
\257\ AFSA at 2.
\258\ Id.
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As noted above, the Final Rule prohibits misleading claims in any
language or any combination of languages.\259\ The Commission did not
add a specific non-English language
[[Page 43843]]
disclosure or other related requirements to the Final Rule. Thus, the
Final Rule does not increase the economic burden in connection with the
multiple language issue for any covered persons, including small
entities.
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\259\ See Final Rule Sec. 321.2(a). In comparison, for closed-
end credit, Regulation Z specifically bans providing information
about some trigger terms or required disclosures only in a foreign
language in the advertisement but, at the same time, providing
information about other trigger terms or required disclosures only
in English in that advertisement. See 12 CFR 226.24(i)(7).
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2. Recordkeeping Requirements
The Commission received several comments addressing burden concerns
in connection with different aspects of the proposed recordkeeping
requirements.\260\ Two commenters supported the 24-month record
retention period,\261\ while another commenter suggested that the
Commission impose a three to four year requirement.\262\ The Final Rule
retains the 24-month record retention period because it requires
mortgage advertisers to retain sufficient documentation for efficient
and effective compliance monitoring, while avoiding the imposition of
unnecessary costs on advertisers.
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\260\ This FRFA discusses only those comments that addressed
burden concerns. For a full discussion of the recordkeeping issue,
see supra Part III.E.
\261\ AFSA at 3; OMNI at 2.
\262\ CSBS/ACSSS/NACCA at 2.
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One commenter expressed concern that the proposed rule did not
clarify whether the records must be saved as hard or electronic copies
and asserted that electronic records would save money and storage
space.\263\ Section 321.5(b) of the Final Rule adopts the language in
the proposed rule and permits electronic or hard copies, which will
limit the recordkeeping burden on all covered persons, including small
entities.
---------------------------------------------------------------------------
\263\ OMNI at 2.
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Several commenters discussed the overall costs and burden
associated with recordkeeping requirements, particularly with respect
to advertising agencies, real estate brokers, and real estate
agents.\264\ One commenter advocated for an exemption from the Rule for
advertising agencies, stating that agencies create and place commercial
communications for a wide variety of clients, making it burdensome to
retain and keep track of all communications that the Rule covers.\265\
Another commenter, requesting an exemption for real estate brokers and
agents, stated that the recordkeeping requirement would be an ``onerous
burden'' on such persons, because they would need to track weekly
changes in mortgage rates even though they are not acting as or on
behalf of loan originators.\266\
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\264\ Gorbey at 1; HSA at 2-6; NAR at 2.
\265\ Gorbey at 1.
\266\ NAR at 2.
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Another commenter stated that the combination of the risk of
liability under Sec. 321.3 for providing mortgage-related information
that proves to be inaccurate and the recordkeeping requirements under
Sec. 321.5 would discourage real estate agents and brokers from
providing general mortgage-related information to clients or
prospective clients.\267\ This commenter suggested revising the
definition of ``commercial communication'' to address this issue or, in
the alternative, narrowing the recordkeeping requirements and adding a
``safe harbor'' or ``good-faith exception'' from the rule for an
``unintentional inaccuracy.'' \268\
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\267\ HSA at 2-6.
\268\ See supra notes 226-27.
---------------------------------------------------------------------------
With respect to overall burden, the Commission believes that the
record retention requirement is necessary to ensure that covered
persons are complying with the requirements of the Final Rule.
Specifically, the requirement that covered persons retain copies of
their commercial communications will enable the FTC, the CFPB, and the
states to review those communications for any misrepresentations that
violate the Rule and to bring law enforcement actions as appropriate.
The Commission recognizes that recordkeeping provisions impose
compliance costs; however, many covered persons in the ordinary course
of their business already retain the types of documents that the Final
Rule requires be retained. As noted above, to further reduce burden,
the Rule permits entities to keep the records in any legible form and
in the same manner, format, or place as they keep such records in the
ordinary course of business. The Final Rule also limits the retention
requirements to avoid imposing any unnecessary burden. For example,
covered entities need retain only commercial communications that are
``materially different'' from each other.
In response to commenters' concerns about the scope of the
recordkeeping requirements, the Commission's Final Rule adds clarifying
language throughout Sec. 321.5(a) that does not substantively change
the provision. The Final Rule clarifies that the recordkeeping
requirements, like the prohibition in Sec. 321.3, do not apply to all
commercial communications; rather, they apply to any commercial
communication ``regarding any term of any mortgage credit product.'' It
also clarifies that the requirements apply only to commercial
communications that the covered person ``made or disseminated.'' The
Commission did not make substantive changes to the recordkeeping
requirements.\269\ Thus, the Final Rule does not increase the economic
burden in connection with recordkeeping for any covered persons,
including small entities.
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\269\ The Commission did not add a good faith exception for
unintentional deceptive claims. See supra note 230. The Commission's
changes to the recordkeeping requirements are clarifying edits.
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C. Description and Estimate of Number of Small Entities Subject to the
Final Rule or Explanation Why No Estimate Is Available
The Final Rule applies to any person who makes any representation
in any commercial communication regarding any term of any mortgage
credit product. Based upon its knowledge of the industry, the
Commission believes that a variety of individuals and companies under
its jurisdiction will be covered by the Rule, including but not limited
to mortgage lenders, mortgage brokers, mortgage servicers, real estate
agents and brokers, advertising agencies, home builders, lead
generators, and rate aggregators.
In response to the IRFA and a request for comments in the ANPR, the
Commission received no empirical data regarding the numbers or revenues
of any of these types of entities. On the basis of other available
data, however, Commission staff estimates that there are approximately
1.325 million entities subject to the proposed rule.\270\ Determining a
precise estimate of how many of these, if any, are small entities is
not readily feasible because of the lack of available data.\271\
---------------------------------------------------------------------------
\270\ See supra note 251.
\271\ Covered entities are classified as small entities if they
satisfy the Small Business Administrator's relevant size standards,
as determined by the Small Business Size Standards component of the
North American Industry Classification System (NAICS), available at
http://www.sba.gov/idc/groups/public/documents/sba_homepage/serv_sstd_tablepdf.pdf. Because a wide range of individuals and
companies may make representations in commercial communications
regarding any term of a mortgage product, no one classification is
applicable to this Rule.
The range in size standard for most of the relevant professional
and support services is $7 million or less in annual receipts. This
standard applies to, for example, real estate credit, mortgage and
nonmortgage loan brokers, other nondepository credit intermediation,
other activities related to credit intermediation (such as
servicing), secondary market financing (such as Fannie Mae and
Freddie Mac), marketing consulting services, advertising agencies,
public relations agencies, display advertising, direct mail
advertising, advertising material distribution services, other
services related to advertising, and all other professional,
scientific and technical services.
The range in size standard varies greatly for the following
other types of entities that are covered by the Rule: Offices of
real estate agents and brokers ($2 million or less); housing
construction/builders ($33.5 million or less); and credit unions
($175 million or less).
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[[Page 43844]]
D. Description of the Projected Reporting, Recordkeeping, and Other
Compliance Requirements of the Rule, Including an Estimate of the
Classes of Small Entities Which Will Be Subject to the Rule and the
Type of Professional Skills That Will Be Necessary To Comply
The Final Rule generally prohibits misrepresentations, consistent
with the prohibition on deceptive claims that would violate Section 5
of the FTC Act. The Rule elaborates on this prohibition by including
specific examples of types of misrepresentations covered by the Rule,
but it does not require affirmative disclosures. The entities subject
to the Rule are within the Commission's jurisdiction under the FTC Act,
and thus are already prohibited from such conduct. The classes of small
entities covered by the rule are discussed in Part V.C, above.
The Final Rule sets forth specific categories of records that
covered persons are required to retain. The Commission believes that
these recordkeeping requirements are necessary to ensure that covered
entities are complying with the requirements of the Rule. They will
enable the Commission, the CFPB, and the states to review copies of
commercial communications for any misrepresentations that violate the
Rule and to bring law enforcement actions as appropriate. The
Commission recognizes that recordkeeping provisions impose compliance
costs; however, many covered entities in the ordinary course of
business already retain the types of documents that the Final Rule
requires be retained. For those entities that may not already do so,
staff estimates minimal burden and expense for each entity to comply
with the requirements. The professional or other skills necessary for
compliance with the Rule are discussed in the Paperwork Reduction Act
analysis in Part IV.B, above. To further reduce any burden, the Rule
permits covered entities to keep the records in any legible form and in
the same manner, format, or place as they keep such records in the
ordinary course of business. The Final Rule also attempts to avoid
imposing any unnecessary burden by limiting the recordkeeping
requirements only to, for example, ``materially different'' commercial
communications. It also limits the timeframe for recordkeeping to 24
months.
E. Steps the Agency Has Taken To Minimize Any Significant Economic
Impact on Small Entities, Consistent With the Stated Objectives of the
Applicable Statutes
As previously noted, the Final Rule is intended to prevent
deceptive acts and practices in mortgage advertising. In drafting the
Rule, the Commission has made every effort to avoid unduly burdensome
requirements for all entities. The Final Rule does not impose any
affirmative disclosure requirements for advertisements. Further, as
discussed above, Commission staff believes that many covered entities
in the ordinary course of business already retain the types of
documents that the Final Rule requires be retained. In addition, Sec.
21.5(b) states that entities may keep such records in any legible form
and in the same manner, format, or place as they keep such records in
the ordinary course of business. The recordkeeping requirements are
format-neutral; for example, they permit the use of electronic methods
that might reduce compliance burdens.
The Final Rule also limits the types of information that must be
retained to avoid imposing any unnecessary burden. For example, covered
persons must retain only ``materially different'' versions of
commercial communications and related materials. Finally, the Rule
calls for a 24-month record retention period, which the Commission
believes requires mortgage advertisers to retain sufficient
documentation for efficient and effective compliance monitoring, while
avoiding the imposition of unnecessary costs on advertisers.
The Commission is not aware of any feasible or appropriate
exemptions for small entities. The protections afforded to consumers in
the Rule are equally important regardless of the size of the entity
making the commercial communication. Nonetheless, as discussed above,
the Final Rule attempts to minimize compliance burdens and any
significant economic impact for all entities, including small entities.
Table A--List of Commenters and Short-Names/Acronyms
------------------------------------------------------------------------
Short-Name/Acronym Commenter
------------------------------------------------------------------------
ABLE.............................. Advocates for Basic Legal Equality
AFSA.............................. American Financial Services
Association
ABA............................... American Bankers Association
BECU.............................. Boeing Employees' Credit Union
Britz............................. Britz, Suzy
Coe............................... Coe, D
CMC/MBA........................... Consumer Mortgage Coalition and
Mortgage Bankers Association
CUAO.............................. Credit Union Association of Oregon
CUNA.............................. Credit Union National Association
CSBS/ACSSS/NACCA.................. Conference of State Bank
Supervisors, American Council of
State Savings Supervisors, and
National Association of Consumer
Credit Administrators
Gorbey............................ Gorbey, Jacqueline
HSA............................... HomeServices of America, Inc.
HPC............................... Housing Policy Council of The
Financial Services Roundtable
IDF............................... Idaho Department of Finance
Johnson........................... Johnson, Sondra
NAR............................... National Association of REALTORS
NASCUS............................ National Association of State Credit
Union Supervisors
NRMLA............................. National Reverse Mortgage Lenders
Association
OMNI.............................. OMNI Community Credit Union
PCUA.............................. Pennsylvania Credit Union
Association
Swider............................ Swider, Keith
WCUL.............................. Washington Credit Union League
------------------------------------------------------------------------
[[Page 43845]]
Table B--List of FTC Mortgage Advertising Enforcement Actions
------------------------------------------------------------------------
-------------------------------------------------------------------------
FTC v. Assocs. First Capital Corp., No. 1:01-00606 (N.D. Ga.
2001)
FTC v. Capital City Mortg. Corp., No. 1:98CV237 (D.D.C. 1998)
FTC v. Chase Fin. Funding, Inc., No. SACV04-549 GLT (ANx) (C.D.
Cal. 2004)
FTC v. First Alliance Mortg. Co., No. SACV 00-964 DOC (EEx)
(C.D. Cal. 2000)
FTC v. Mortgages Para Hispanos.com Corp., No. 4:06-cv-19 (E.D.
Tex. 2006)
FTC v. Ranney, No. 04-F-1065 (MJW) (D. Colo. 2004)
FTC v. Ryan, No. 1:09-cv-00535-HHK (D.D.C. 2009)
FTC v. OSI Fin. Servs., Inc., No. 02-C-5078 (N.D. Ill. 2002)
FTC v. Safe Harbour Found. of Fla., Inc., No. 08-C-1185 (N.D.
Ill. 2008)
FTC v. 30 Minute Mortg., Inc., No. 03-60021 (S.D. Fla. 2003)
In re Am. Nationwide Mortg. Co., F.T.C. Dkt. No. C-4249 (2009)
In re Felson Builders, Inc., 119 F.T.C. 642 (1995)
In re FirstPlus Fin. Group, Inc., F.T.C. Dkt. No. C-3984 (2000)
In re Lomas Mortg. U.S.A., Inc., 116 F.T.C. 1062 (1993)
In re Michael Gendrolis, F.T.C. Dkt. No. C-4248 (2009)
In re Shiva Venture Group, Inc., F.T.C. Dkt. No. C-4250 (2009)
United States v. Mercantile Mortg. Co., No. 02-C-5079 (N.D.
Ill. 2002)
United States v. Unicor Funding, Inc., No. 9901228 (C.D. Cal.
1999)
------------------------------------------------------------------------
VI. Final Rule
List of Subjects in 16 CFR Part 321
Advertising, Communications, Consumer protection, Credit,
Mortgages, Trade practices.
For the reasons set forth in the preamble, the Federal Trade
Commission amends title 16, Code of Federal Regulations, by adding a
new part 321, to read as follows:
PART 321--MORTGAGE ACTS AND PRACTICES--ADVERTISING
Sec.
321.1 Scope of regulations in this part.
321.2 Definitions.
321.3 Prohibited representations.
321.4 Waiver not permitted.
321.5 Recordkeeping requirements.
321.6 Actions by states.
321.7 Severability.
Authority: Public Law 111-8, section 626, 123 Stat. 524, as
amended by Pub. L. 111-24, section 511, 123 Stat. 1734.
Sec. 321.1 Scope of regulations in this part.
This part implements the 2009 Omnibus Appropriations Act, Public
Law 111-8, section 626, 123 Stat. 524 (Mar. 11, 2009), as amended by
the Credit Card Accountability Responsibility and Disclosure Act of
2009, Public Law 111-24, section 511, 123 Stat. 1734 (May 22, 2009).
This part applies to persons over which the Federal Trade Commission
has jurisdiction under the Federal Trade Commission Act.
Sec. 321.2 Definitions.
(a) ``Commercial communication ''means any written or oral
statement, illustration, or depiction, whether in English or any other
language, that is designed to effect a sale or create interest in
purchasing goods or services, whether it appears on or in a label,
package, package insert, radio, television, cable television, brochure,
newspaper, magazine, pamphlet, leaflet, circular, mailer, book insert,
free standing insert, letter, catalogue, poster, chart, billboard,
public transit card, point of purchase display, film, slide, audio
program transmitted over a telephone system, telemarketing script,
onhold script, upsell script, training materials provided to
telemarketing firms, program-length commercial (``infomercial''), the
Internet, cellular network, or any other medium. Promotional materials
and items and Web pages are included in the term ``commercial
communication.''
(b) ``Consumer'' means a natural person to whom a mortgage credit
product is offered or extended.
(c) ``Credit'' means the right to defer payment of debt or to incur
debt and defer its payment.
(d) ``Dwelling'' means a residential structure that contains one to
four units, whether or not that structure is attached to real property.
The term includes any of the following if used as a residence: an
individual condominium unit, cooperative unit, mobile home,
manufactured home, or trailer.
(e) ``Mortgage credit product'' means any form of credit that is
secured by real property or a dwelling and that is offered or extended
to a consumer primarily for personal, family, or household purposes.
(f) ``Person'' means any individual, group, unincorporated
association, limited or general partnership, corporation, or other
business entity.
(g) ``Term'' means any of the fees, costs, obligations, or
characteristics of or associated with the product. It also includes any
of the conditions on or related to the availability of the product.
Sec. 321.3 Prohibited representations.
It is a violation of this part for any person to make any material
misrepresentation, expressly or by implication, in any commercial
communication, regarding any term of any mortgage credit product,
including but not limited to misrepresentations about:
(a) The interest charged for the mortgage credit product, including
but not limited to misrepresentations concerning:
(1) The amount of interest that the consumer owes each month that
is included in the consumer's payments, loan amount, or total amount
due; or
(2) Whether the difference between the interest owed and the
interest paid is added to the total amount due from the consumer;
(b) The annual percentage rate, simple annual rate, periodic rate,
or any other rate;
(c) The existence, nature, or amount of fees or costs to the
consumer associated with the mortgage credit product, including but not
limited to misrepresentations that no fees are charged;
(d) The existence, cost, payment terms, or other terms associated
with any additional product or feature that is or may be sold in
conjunction with the mortgage credit product, including but not limited
to credit insurance or credit disability insurance;
(e) The terms, amounts, payments, or other requirements relating to
taxes or insurance associated with the mortgage credit product,
including but not limited to misrepresentations about:
(1) Whether separate payment of taxes or insurance is required; or
(2) The extent to which payment for taxes or insurance is included
in the loan payments, loan amount, or total amount due from the
consumer;
(f) Any prepayment penalty associated with the mortgage credit
product, including but not limited to misrepresentations concerning the
existence, nature, amount, or terms of such penalty;
(g) The variability of interest, payments, or other terms of the
mortgage credit product, including but not limited to
misrepresentations using the word ``fixed;''
(h) Any comparison between:
(1) Any rate or payment that will be available for a period less
than the full length of the mortgage credit product; and
(2) Any actual or hypothetical rate or payment;
(i) The type of mortgage credit product, including but not limited
to misrepresentations that the product is or involves a fully
amortizing mortgage;
(j) The amount of the obligation, or the existence, nature, or
amount of cash or credit available to the consumer in connection with
the mortgage credit product, including but not limited to
[[Page 43846]]
misrepresentations that the consumer will receive a certain amount of
cash or credit as part of a mortgage credit transaction;
(k) The existence, number, amount, or timing of any minimum or
required payments, including but not limited to misrepresentations
about any payments or that no payments are required in a reverse
mortgage or other mortgage credit product;
(l) The potential for default under the mortgage credit product,
including but not limited to misrepresentations concerning the
circumstances under which the consumer could default for nonpayment of
taxes, insurance, or maintenance, or for failure to meet other
obligations;
(m) The effectiveness of the mortgage credit product in helping the
consumer resolve difficulties in paying debts, including but not
limited to misrepresentations that any mortgage credit product can
reduce, eliminate, or restructure debt or result in a waiver or
forgiveness, in whole or in part, of the consumer's existing obligation
with any person;
(n) The association of the mortgage credit product or any provider
of such product with any other person or program, including but not
limited to misrepresentations that:
(1) The provider is, or is affiliated with, any governmental entity
or other organization; or
(2) The product is or relates to a government benefit, or is
endorsed, sponsored by, or affiliated with any government or other
program, including but not limited to through the use of formats,
symbols, or logos that resemble those of such entity, organization, or
program;
(o) The source of any commercial communication, including but not
limited to misrepresentations that a commercial communication is made
by or on behalf of the consumer's current mortgage lender or servicer;
(p) The right of the consumer to reside in the dwelling that is the
subject of the mortgage credit product, or the duration of such right,
including but not limited to misrepresentations concerning how long or
under what conditions a consumer with a reverse mortgage can stay in
the dwelling;
(q) The consumer's ability or likelihood to obtain any mortgage
credit product or term, including but not limited to misrepresentations
concerning whether the consumer has been preapproved or guaranteed for
any such product or term;
(r) The consumer's ability or likelihood to obtain a refinancing or
modification of any mortgage credit product or term, including but not
limited to misrepresentations concerning whether the consumer has been
preapproved or guaranteed for any such refinancing or modification; and
(s) The availability, nature, or substance of counseling services
or any other expert advice offered to the consumer regarding any
mortgage credit product or term, including but not limited to the
qualifications of those offering the services or advice.
Sec. 321.4 Waiver not permitted.
It is a violation of this part for any person to obtain, or attempt
to obtain, a waiver from any consumer of any protection provided by or
any right of the consumer under this part.
Sec. 321.5 Recordkeeping requirements.
(a) Any person subject to this part shall keep, for a period of
twenty-four months from the last date the person made or disseminated
the applicable commercial communication regarding any term of any
mortgage credit product, the following evidence of compliance with this
part:
(1) Copies of all materially different commercial communications as
well as sales scripts, training materials, and marketing materials,
regarding any term of any mortgage credit product, that the person made
or disseminated during the relevant time period;
(2) Documents describing or evidencing all mortgage credit products
available to consumers during the time period in which the person made
or disseminated each commercial communication regarding any term of any
mortgage credit product, including but not limited to the names and
terms of each such mortgage credit product available to consumers; and
(3) Documents describing or evidencing all additional products or
services (such as credit insurance or credit disability insurance) that
are or may be offered or provided with the mortgage credit products
available to consumers during the time period in which the person made
or disseminated each commercial communication regarding any term of any
mortgage credit product, including but not limited to the names and
terms of each such additional product or service available to
consumers.
(b) Any person subject to this part may keep the records required
by paragraph (a) of this section in any legible form, and in the same
manner, format, or place as they keep such records in the ordinary
course of business. Failure to keep all records required under
paragraph (a) of this section shall be a violation of this part.
Sec. 321.6 Actions by states.
Any attorney general or other officer of a state authorized by the
state to bring an action under this part may do so pursuant to Section
626(b) of the 2009 Omnibus Appropriations Act, Public Law 111-8,
section 626, 123 Stat. 524 (Mar. 11, 2009), as amended by the Credit
Card Accountability Responsibility and Disclosure Act of 2009, Public
Law 111-24, section 511, 123 Stat. 1734 (May 22, 2009).
Sec. 321.7 Severability.
The provisions of this part are separate and severable from one
another. If any provision is stayed or determined to be invalid, it is
the Commission's intention that the remaining provisions shall continue
in effect.
By direction of the Commission.
Donald S. Clark,
Secretary.
Note: The following appendices will not appear in the Code of
Federal Regulations.
Appendix A--Concurring Statement of Commissioner Ramirez, in Which
Chairman Leibowitz and Commissioner Brill Join
Final Rule: Mortgage Acts and Practices--Advertising
We support the final rule the Commission issues today concerning
the advertising of home mortgages (Mortgage Acts and Practices--
Advertising Rule or ``MAP Rule''). The MAP Rule is narrow in scope--
addressing only the advertising phase of the mortgage lifecycle by
those subject to the Federal Trade Commission's jurisdiction--and
does not render unlawful any conduct that is not already banned by
the prohibition on deception in Section 5 of the FTC Act.\1\ At the
same time, the MAP Rule accomplishes several important objectives
by: (1) Giving the FTC and the states authority to seek civil
penalties for deceptive mortgage advertising, broadly defined, by
entities subject to the FTC's jurisdiction; (2) providing guidance
and clarity as to what constitutes deceptive mortgage advertising;
and (3) imposing record-keeping requirements on mortgage advertisers
to facilitate law enforcement. We write separately to underscore the
importance of one issue addressed by the MAP Rule: Communications
about mortgages to consumers whose native language is not English.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 45(a).
---------------------------------------------------------------------------
The United States population today is highly diverse,
representing cultures and languages from all over the world.
According to the Census Bureau, of the 281 million people age five
and older in the United States in 2007, 55.4 million individuals, or
nearly 20 percent, reported speaking a language
[[Page 43847]]
other than English at home.\2\ Marketers are well-aware of this
trend, and today they often tout a wide array of products and
services, including home loans, in languages other than English.
---------------------------------------------------------------------------
\2\ U.S. Census Bureau, Language Use in the United States: 2007
(Apr. 2010), available at http://www.census.gov/prod/2010pubs/acs-12.pdf.
---------------------------------------------------------------------------
It is essential that our consumer protection laws keep pace with
such marketplace realities, and we are pleased that the MAP Rule
broadly bans deception in commercial communications concerning
residential mortgages regardless of the language or languages in
which they are made. For example, under the MAP Rule it can be
unlawful to offer a consumer one set of terms in her native language
but then deliver different terms in loan documents written in
English.\3\ In addition, because the ``net impression'' of an
advertisement is the lynchpin of deception analysis,\4\ a fine print
disclaimer or qualifying statement may be insufficient to cure an
otherwise misleading advertisement.\5\ This principle, as applied to
advertising that uses multiple languages, means that, in advertising
that targets consumers in a language other than English, a
disclaimer in English may be insufficient to cure misleading claims
in another language.\6\
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\3\ In fact, the FTC has challenged such a practice as deceptive
under Section 5 of the FTC Act. See FTC v. Mortgages Para
Hispanos.com Corp., No. 4:06-cv19 (E.D. Tex. 2006) (alleging
mortgage broker engaged in deceptive practices by orally offering
Spanish-speaking customers one thing in Spanish and then delivering
something else in loan documents written entirely in English).
\4\ See, e.g., FTC v. Cyberspace.com, LLC, 453 F.3d 1196, 1200
(9th Cir. 2006); FTC v. Nat'l Urological Group, Inc., 645 F. Supp.
2d 1167, 1189 (N.D. Ga. 2008), aff'd, 356 Fed. App'x (11th Cir.
2009).
\5\ See, e.g., Cyberspace.com, 453 F.3d at 1200.
\6\ In 2008, the Board of Governors of the Federal Reserve
System amended Regulation Z under the Truth in Lending Act to
prohibit advertising certain information only in a foreign language
while providing, in the same advertisement, other critical
information in English. See Final Rule, Truth in Lending, 73 FR
44522, 44601 (Jul. 30, 2008) (codified at 12 CFR 226.24(i)(7)). This
approach is consistent with longstanding FTC requirements that
mandatory disclosures be made in the language of the target
audience. See 16 CFR 14.9 (under FTC rules, cease-and-desist orders,
and guides that require the ``clear and conspicuous'' disclosure of
information, such disclosure must be made in the language of the
target audience); 16 CFR 610.4(a)(3)(ii) (in marketing free credit
reports, mandatory disclosures must be made in the same language as
that principally used in the advertisement); 16 CFR 429.1(a) (in
door-to-door sales, failure to furnish a completed receipt or
contract in the same language as the oral sales presentation is an
unfair and deceptive act or practice); 16 CFR 455.5 (where used car
sales pitches are conducted in Spanish, mandatory disclosures must
be made in Spanish); 16 CFR 308.3(a)(1) (mandatory disclosures about
pay-per-call services must be made in the same language as that
principally used in the advertisement); see also FTC Final Rule,
Free Annual File Disclosures, 75 FR 9726, 9733 (Mar. 3, 2010)
(noting ``the Commission's belief that a disclosure in a language
different from that which is principally used in an advertisement
would be deceptive'').
---------------------------------------------------------------------------
But there are many questions about the communication of mortgage
loan terms that go beyond the scope of this rulemaking, among them
whether mortgage disclosure documents should be provided to non-
English speakers in languages other than English.\7\ Congress has
charged the Consumer Financial Protection Bureau with the long-
overdue task of simplifying and clarifying mortgage disclosure
documents,\8\ and has granted the new agency broad rulemaking
authority with respect to the advertising and communication of
mortgage loan terms. We look forward to the results of the CFPB's
work in this area, including its consideration of the needs of non-
native English speaking consumers when carrying out that important
mandate.\9\
---------------------------------------------------------------------------
\7\ The CFPB has begun testing draft prototype mortgage
disclosure documents in English and Spanish in advance of a formal
rulemaking process. See CFPB, Consumer Financial Protection Bureau
Announces Initiative to Combine Mortgage Loan Disclosures (May 18,
2011), available at http://www.consumerfinance.gov/pressrelease/consumer-financial-protection-bureau-announces-initiative-to-combine-mortgage-loan-disclosures/.
\8\ See generally James M. Lacko & Janis K. Pappalardo, Federal
Trade Commission Staff Report, Improving Consumer Mortgage
Disclosures: An Empirical Assessment of Current And Prototype
Mortgage Disclosure Forms (2007), available at http://www.ftc.gov/os/2007/06/P025505MortgageDisclosureReport.pdf.
\9\ Our colleague, Commissioner Rosch, expresses concern that we
may be advancing an argument about mortgage disclosures that is not
supported by the record before us. But far from prejudging the
outcome of any work to be performed by the CFPB, we are simply
highlighting some of the important consumer protection issues that
may arise in connection with mortgage advertisements targeting
consumers whose primary language is not English. As we noted above,
the matters before the Commission in this rulemaking were narrow,
and the evidence received on the issue of the use of multiple
languages in advertising--a mere four comments--does not address the
questions to be examined by the CFPB concerning improvements to
mortgage disclosure documents. While this limited record does not
purport to address such issues, we have no doubt that in considering
this and other questions, the CFPB will develop a full and complete
record that properly takes into account the impact on all
stakeholders of any measure that is designed to ensure that
consumers receive clear and accurate information to assist them in
making sound decisions about mortgages.
---------------------------------------------------------------------------
More generally, given our country's changing demographics, we
believe that government and industry alike will need to pay greater
attention to ensuring that consumers, no matter what language they
speak, have access to important information regarding their
purchases and are protected from unfair and deceptive practices.
Appendix B--Response of Commissioner J. Thomas Rosch to the Concurring
Statement of Commissioner Ramirez, in Which Chairman Leibowitz and
Commissioner Brill Join
Final Rule: Mortgage Acts and Practices--Advertising
July 19, 2011
I agree with the concurring statement of Commissioner Ramirez
concerning the Mortgages Acts and Practices--Advertising Rule to the
extent it reiterates the assertions of the Statement of Basis and
Purpose that the ``net impression'' of an advertisement is a
touchstone of FTC deception analysis regardless of the language or
combination of languages. It is also axiomatic that government and
industry need to be vigilant that all consumers, regardless of what
language they speak, are not victims of unfair and deceptive
practices.
However, insofar as the concurring statement suggests that the
Consumer Financial Protection Bureau should require that mortgage
disclosure documents be provided to non-English speaking consumers
in their native language, I disagree. There is no basis for making
any recommendation to ``go beyond'' the MAP Rule or Section 5 as
respects requirements that lenders furnish ``non-English speakers''
with disclosures that are not in English. See Concurring Statement
at 3. Specifically, Census Bureau data showing that nearly 20
percent of people in the United States in 2007 ``reported speaking a
language other than English at home'' (id. at 1) does not suggest
that they could not read or understand English. Indeed, so far as
the rulemaking record for the MAP Rule is concerned, it is my
understanding that a majority of the comments received favored
making disclosures only in English. Thus, there is currently no
basis for the Federal government to burden this industry with
disclosure requirements that would oblige the industry to make
disclosures in a language other than English except when the ``net
impression'' left by not doing so would violate Section 5.
[FR Doc. 2011-18605 Filed 7-20-11; 11:15 am]
BILLING CODE 6750-01-P