U.S. regulators are investigating 19 mortgage-related companies over potentially misleading advertisements, including some that used Facebook Inc. (FB:US)’s website, the agencies announced today.
“Misrepresentations in mortgage products can deprive consumers of important information while making one of the biggest financial decisions of their lives,” Richard Cordray, the Consumer Financial Protection Bureau director, said in an e- mailed statement announcing the probes. “Baiting consumers with false ads to buy into mortgage products would be illegal.”
The consumer bureau said in the statement it had opened investigations into six companies. The Federal Trade Commission, the other agency involved in the probes is looking at 13 firms, Thomas Pahl, the FTC’s assistant director in the division of financial practices, told reporters on a conference call.
Neither agency released the names of the companies.
The CFPB and the FTC also announced they had sent warning letters to 32 mortgage-related companies that the agencies said may be violating the Mortgage Acts and Practices Advertising Rule. Of the 32 letters, 12 came from the CFPB and went to mortgage lenders and brokers, the agency said.
The rule, which was approved by the FTC in 2011 and is jointly enforced by both agencies, does not apply to traditional depositories, so today’s actions affect only non-banks.
The agencies’ warning letters from the agencies urge the companies to review the rule to assess compliance, and do not accuse them of legal wrongdoing.
Since the housing bubble burst, mortgage advertising has been down and may rise in the future, Pahl said.
“One of the things we wanted to do through conducting this sweep was to make sure that when mortgage advertisers start disseminating claims again, that they are aware of their obligations to make sure that none of those ads contain deceptive claims,” Pahl said.
The actions grew out of a joint review of about 800 randomly selected mortgage-related advertisements that appeared in newspapers, on the Internet and in direct mail and e-mail, Pahl said. The Internet ads included ones on Facebook, he said.
Some were provided by state attorneys general including Kamala Harris of California and Lisa Madigan of Illinois, Kent Markus, the CFPB’s enforcement director, told reporters.
The CFPB focused its review on mortgage advertisements, particularly ones targeting older Americans or veterans, according to the agency’s statement. The FTC looked at ads by home builders, real estate agents and lead generators, services that collect consumers’ information and sell it to service providers.
The review turned up four potentially illegal practices, according to CFPB. Some ads contained seals that appeared to imply a government affiliation, while others promoted potentially misleadingly low interest rates. Some understated the costs of reverse mortgages, and others may have misrepresented the amount of cash available to consumers by for example, including a mock check.
Markus said the dividing line between warning letter and enforcement action depended on the severity of the potential violation. A “clearly false” statement brought an investigation, while something that might be technically true would prompt a warning letter, Markus said.
“It’s not a technical reading of the ad,” Pahl told reporters. “It’s as if an average person is reading the ad.”
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