Federal Advertising Guidelines: Understanding and Compliance

1. Understanding Federal Advertising Guidelines Chapter 4: Federal Advertising Guidelines Chapter 4

2. Disclaimer: Names of all persons, companies, and entities in any documented example have been changed. Therefore, if further research is desired, names will differ in the actual case law from that presented within the course. If further research is desired in regards to specific case law, research is best performed by visiting each specific state’s department of financial institutions website. Each state may use varying versions of this department name. Some case law may be easily researched and other states are extremely protective of case law and extended research may be required. As an example, to research Florida case law, first visit the Florida Office of Financial Regulation website and proceed to the Final Administrative Actions page where a search engine will be presented. For California, the Consumer Affairs agency must be selected from their state website (www.ca.gov). Researchers must then move through the following pages, Licenses, Press Release, and Board of Real Estate to arrive at the Disciplinary Actions page to research the case law. Chapter 4: Federal Advertising Guidelines Disclaimer

3. Abusive Act or Practices Advertisement Deceptive Act False Advertising Finance Charge Hyperlinks Misleading Advertising Significant Injury Unfair Advertising Chapter 4: Federal Advertising Guidelines Key Terms Refer to page 95

4. Advertisement - a commercial message in any medium that promotes, directly or indirectly, a credit transaction The Truth In Lending Act and the Federal Trade Commission have supervisory authority for all media advertising that is placed for the mortgage industry. The section of the Truth in Lending Act that regulates advertising is found in Regulation Z: Regulation Z, 12 CFR § 1026.16 Advertising. Failing to follow the advertising regulations and rules applicable to loan origination in ANY format – including social media - will lead to serious repercussions. Chapter 4: Federal Advertising Guidelines Advertising Requirements Refer to page 96

5. The product, service or loan must be available to a reasonable amount of qualified individuals who seek to purchase/apply for advertised products/services. • When regulators come to audit the mortgage entity, the mortgage entity must be able to prove to the examiners that the rate advertised was available via: • Rate sheets with the advertised rate appearing as available. • A rate lock in sheet for a client who actually locked the advertised rate. • A closing statement showing that a client did, in fact, close a mortgage loan at that rate. Chapter 4: Federal Advertising Guidelines Reg Z Advertising Requirements See Regulation Z, 12 CFR § 1026.16 Advertising Refer to page 96

6. If a qualified borrower responds to an advertisement with a certain rate or loan feature, the creditor is prohibited from: • Disparaging the rate or feature. • Discouraging the borrower to apply for the loan program. • Failing to offer that rate or product. • Originators must be aware of the requirements imposed by the CFPB and FTC to provide clear, conspicuous, and compliant advertisements. Chapter 4: Federal Advertising Guidelines Reg Z Advertising Requirements See Regulation Z, 12 CFR § 1026.16 Advertising Refer to page 96

7. Finance charge - the cost of consumer credit as a dollar amount. It includes any charge payable directly or indirectly by the consumer and imposed directly or indirectly by the creditor as an incident to or a condition of the extension of credit • An advertisement may not refer to an annual percentage rate as “fixed,” or use a similar term, unless: • The advertisement also specifies a time period that the rate will be fixed and the rate will not increase during that period. • No such time period is provided, and the rate will not increase while the plan is open. Chapter 4: Federal Advertising Guidelines Reg Z Advertising Requirements: APR See Regulation Z, 12 CFR § 1026.16 Advertising &§1026.4 Finance Charge Refer to page 97

8. APR can be increased after consummation for credit not secured by dwelling: advertisement must not state any other rate, except that a simple annual rate or periodic rate that is applied to an unpaid balance may be stated in conjunction with, but not more conspicuously than, the APR. APR can be increased after consummation for credit secured by dwelling: the advertisement must not state any other rate, except that a simple annual rate that is applied to an unpaid balance may be stated in conjunction with, but not more conspicuously than, the APR. That is, an advertisement for credit secured by a dwelling may not state a periodic rate, other than a simple annual rate that is applied to an unpaid balance. Chapter 4: Federal Advertising Guidelines Reg Z Advertising Requirements: APR See Regulation Z, 12 CFR §1026.24 Closed-End Advertising Refer to page 97

9. Additional disclosure for following triggering terms: • Amount or percentage of any down payment • Number of payments or period of repayment • Amount of any payment • Amount of any finance charge • Must state the following terms as applicable: • Amount or percentage of any down payment • Terms of repayment, which reflect repayment obligations over full term of the loan, including any balloon payment • The annual percentage rate, using that term. If rate may be increased after consummation, that numerical fact must be stated Chapter 4: Federal Advertising Guidelines Reg Z Advertising Requirements: Disclosure See Regulation Z, 12 CFR §1026.24 Closed-End Advertising Refer to page 97

10. Advertisements must be clear and conspicuous Disclose the consumer’s true cost of the credit transaction, the APR, expressed as a percentage Must state only those credit terms that actually are or will be arranged or offered by the creditor For for credit secured by a dwelling, required information is disclosed with equal prominence and in close proximity to the advertised rates or payments triggering the required disclosures Chapter 4: Federal Advertising Guidelines Reg Z Advertising Requirements Refer to page 98

11. 1. Upon examination by a regulatory agency, a licensee must be able to prove that the advertised interest rate was actually available by providing any of the following EXCEPT a • closing statement showing a loan closing at the advertised interest rate. • Good Faith Estimate showing the availability of the advertised rate. • rate lock confirmation at the advertised interest rate. • rate sheet from an investor showing the availability of the interest rate. Chapter 4: Federal Advertising Guidelines Knowledge Check Refer to page 98

12. The Federal Trade Commission has been a part of the U.S. Government for over 100 years. Their mission is twofold: • Protect consumers • Promote competition between businesses • The Commission continues to share responsibility for mortgage advertising with the Consumer Financial Protection Bureau, making sure that all advertising is truthful, fair, and not deceptive to the consumer public. Chapter 4: Federal Advertising Guidelines Federal Trade Commission Guidelines See Federal Trade Commission Act, Policy Statement 1983 Refer to page 98

13. Advertising must be truthful and non-deceptive • Advertisers must have evidence to back up their claims • Advertisements cannot be unfair Unfair or deceptive acts occur when a consumer can be misled by misrepresentation or omission of a material fact that would have likely caused a different decision by the consumer, had the fact been known. Chapter 4: Federal Advertising Guidelines FTC Guidelines – Deceptive Advertising See Federal Trade Commission Act, Policy Statement 1983 Refer to page 99

14. False advertising is any published claim that is deceptive in fact. • Misleading advertising is a claim in any medium that gives the consumer an incorrect understanding of the service or product he is interested in obtaining. False or misleading claims in an advertisement may cause a consumer to suffer financial loss, or another form of damage to the consumer. Chapter 4: Federal Advertising Guidelines FTC Guidelines – Misleading Advertising See Federal Trade Commission Act, Policy Statement 1983 Refer to page 99

15. Techniques: • Bait and switch • Deceptive forms provided to the consumer in the loan process • Failing to disclose all information that would lead the consumer to a different decision Chapter 4: Federal Advertising Guidelines FTC Guidelines – Misleading Advertising See Federal Trade Commission Act, Policy Statement 1983 Refer to page 99

16. Unfair advertising exists when the advertisement injures the borrower, violates established public policy, and is unethical and unscrupulous. The injury from unfair advertising must be substantial. 7 deceptive or misleading acts/practices in advertisements for closed-end mortgage loans Chapter 4: Federal Advertising Guidelines FTC Guidelines: Unfair Advertising See Federal Trade Commission Act, Policy Statement 1983 Refer to page 100

17. If a creditor fails to comply with any requirements of TILA, he may be held liable to the consumer for: • Actual damages. • Cost of any successful legal action together with reasonable attorney’s fees. • May be liable to consumers for greater of actual damages or amount equal to 3 times the total amount of direct and indirect compensation or gain to the mortgage originator in connection with loan, plus costs, including reasonable attorney’s fees Chapter 4: Federal Advertising Guidelines Non-Compliance Liability See Civil Liability – TILA Sections 129B, 129C, 130 and 131 Section 129 of TILA, 15 U.S.C. section 1639 Refer to page 100

18. Federal Trade Commission in the FTC.com Disclosures booklet. Emphasizes that consumer protection laws apply equally to all medium forms Sets forth guidelines for additional disclosure to correct any deceptive or unfair inference Great caution when using hyperlinks Chapter 4: Federal Advertising Guidelines Internet Advertising Refer to page 101

19. On July 10, 2013, CFPB issued CFPB Bulletin 2013-07 regarding implementation of the Dodd-Frank Act; legally required to refrain from acts that are • Unfair • Deceptive • Abusive Acts, and • Practices in violation of the Act This implementation of the Act is often referenced as UDAAP. Chapter 4: Federal Advertising Guidelines UDAAP See “Prohibition of Unfair, Deceptive, or Abusive Acts or Practices in the Collection of Consumer Debts, July 10, 2013, CFPB Bulletin 2013-07 Refer to page 102

20. An unfair act or practice is unfair when: • It causes or is likely to cause substantial injury to consumers. • The injury is not reasonable avoidable by consumers. • The injury is not outweighed by countervailing benefits to consumers or to competition. Chapter 4: Federal Advertising Guidelines UDAAP See “Unfair, Deceptive, or Abusive Acts or Practices,” CFPB Supervision and Examination Manual, October 2012 Refer to page 102

21. Significant injury, which is defined as a monetary injury, such as fees or costs paid by consumers because of the unfair practice. Deceptive act, which is defined as an act or practice that misleads or is likely to mislead the consumer; the consumer’s interpretation is reasonable under the circumstances and the misleading act or practice is material. Abusive acts or practices, which are deemed abusive when they materially interfere with the ability of a consumer to understand a term or condition of a consumer product of service, or take unreasonable advantage of a consumer’s lack of understanding, the consumer’s inability to protect his interest in selecting a product or service, or a consumer’s reasonable reliance on a covered person to act in his interests. Chapter 4: Federal Advertising Guidelines UDAAP See “Unfair, Deceptive, or Abusive Acts or Practices,” CFPB Supervision and Examination Manual, October 2012 Refer to page 102

22. Makes it illegal to discriminate in the sale or lease of residential property, including vacant land intended for residential housing Prohibits discrimination in advertising, real estate brokerage, lending, and some other services associated with residential transactions Chapter 4: Federal Advertising Guidelines Fair Housing Act Refer to page 102

23. Include the “equal housing lender” slogan in any broadcast advertisement Display the Equal Housing Opportunity poster in every branch where mortgage loans are made Display the Equal Housing Opportunity logo on all printed promotional material Chapter 4: Federal Advertising Guidelines FHA – Equal Housing Opportunity See 54 FR 3308 § 109.20 Refer to page 102

24. According to Part 109: • The Equal Housing Opportunity logo must be used in all advertising of residential real estate for sale, rent, or financing. • The choice of size and type is at the discretion of the advertiser; however, the clear and conspicuous rule would apply when choosing an appropriate size for the advertisement. • The logo should be at least as large as the font size of the largest logo type. • The phrase “equal housing opportunity” or “equal housing lender” must be used as well. Chapter 4: Federal Advertising Guidelines FHA – Equal Housing Opportunity See 54 FR 3308 § 109.20 Refer to page 102

25. Use of FHA Logos Use of HUD’s Names and Acronyms* Use of Words, Phrases and Cues** Chapter 4: Federal Advertising Guidelines FHA – Equal Housing Opportunity *See HUD Mortgagee Letters, ML 2011-17, http://portal.hud.gov/hudportal/HUD?src=/ program_offices/administration/hudclips/letters/mortgagee/2011ml **See 54 FR 3308 § 109.20 Refer to page 103

26. The Fair Housing Act makes it illegal “to make, print or publish, or cause to be made, printed or published any notice or statement with respect to the sale or rental of a dwelling that indicates any preference, limitation, or discrimination based on race, color, religion, national origin, sex, disability , or familial status.” Chapter 4: Federal Advertising Guidelines FHA – Equal Housing Opportunity See 24 CFR § Subpart A, Fair Housing, Parts 100 and 103 Refer to page 104

27. 1. The FTC protects consumers by stopping all of the following in the marketplace EXCEPT • deceptive practices. • fraudulent practices. • lender tolerance practices. • unfair practices. Chapter 4: Federal Advertising Guidelines Knowledge Check Refer to page 104

28. 2. UDAAP prohibits all of the following EXCEPT • abusive acts and practices. • deceptive advertising. • unfair advertising. • violations of TILA. Chapter 4: Federal Advertising Guidelines Knowledge Check Refer to page 104

29. 3. A mortgage broker is creating an advertisement for FHA insured business. UDAAP allows him to use all of the following in his ad EXCEPT • the FHA approved lender logo. • the phrase “Annual Percentage Rate: 4.749%.” • the phrase “FHA Government Sponsored Loan Program.” • the phrase “Low Monthly Payments.” Chapter 4: Federal Advertising Guidelines Knowledge Check Refer to page 104

30. FHA makes it unlawful to advertise or make any statement that indicates a limitation or preference based on race, color, national origin, religion, sex, familial status, or handicap. This prohibition applies to all advertising media, including social media. The Equal Housing Opportunity logo must be displayed on a financial institution’s Facebook page. A MLO’s Facebook, LinkedIn page or other social media will not be scrutinized by regulators as long as the site is used for personal use only. Chapter 4: Federal Advertising Guidelines ECOA See 12 CFR § 128.4 Nondiscriminatory Advertising, 12 CFR §338.3 Nondiscriminatory Advertising, see also 12 CFR §390.145 Nondiscriminatory Advertising Refer to page 105

31. Stay Informed! Chapter 4: Federal Advertising Guidelines Federal Advertising Guidelines Refer to page 105

32. Several guidelines regulate various portions of an advertisement. Regulation Z provides direction for loan originators regarding disclosure in and advertisement of mortgage loans costs. • The Truth In Lending Act and the Federal Trade Commission have supervisory authority for all media advertising that is place for the mortgage industry. • Making a statement giving advice to mislead the consumer is a violation of Regulation Z. Chapter 4: Federal Advertising Guidelines Summary Refer to page 106

33. A triggering term is a specific term that gives details about the mortgage loan, such as the amount of down payment, the terms of repayment, the annual percentage rate, and if the loan interest rate is fixed or adjustable rate. • The FTC .com booklet addresses how to make disclosures clear and conspicuous to avoid deception of the consumer for mobile and online advertisers. • The FTC protects consumers by stopping unfair, deceptive, or fraudulent practices. • Approved mortgagees and lenders may use HUD’s logos, stating they are an approved lending institution, but must not use the department’s HUD logo. Chapter 4: Federal Advertising Guidelines Summary Refer to page 106

34. 1. An advertisement is defined as a commercial message in any medium that promotes, directly and indirectly, a • compliant mortgage loan. • credit transaction. • letter to the consumer to purchase a home. • savings investment. Chapter 4: Federal Advertising Guidelines Chapter 4 Quiz Refer to page 107

35. 2. If an advertisement states that a certain product, service, or loan is available, the product service or loan must be made available • to all applicants, regardless of their credit characteristics. • to no party, because the advertisement stated all “rates and programs to change without notice.” • to a reasonable amount of qualified applicants. • within ten business days as it appears on the GFE. Chapter 4: Federal Advertising Guidelines Chapter 4 Quiz Refer to page 107

36. 3. An advertiser must provide proof that an interest rate in an advertisement was, in fact, available. All of the following will be acceptable to a regulator requesting proof EXCEPT a • closing statement showing a loan closing at the advertised rate. • competitor’s rate sheet or ad showing the advertised rate. • lock in confirmation for a borrower showing the advertised rate. • rate sheet showing the advertised rate. Chapter 4: Federal Advertising Guidelines Chapter 4 Quiz Refer to page 107

37. 4. A violation of Regulation Z’s requirement for an advertisement to be clear and conspicuous would include all of the following EXCEPT • deductibility of mortgage insurance. • deductibility of mortgage interest. • making a statement to mislead the consumer. • providing an APR within three (3) business days of application. Chapter 4: Federal Advertising Guidelines Chapter 4 Quiz Refer to page 107

38. 5. If an advertisement states a rate of finance charge, it must state the rate as • an actual interest rate. • an APR. • available to all borrowers. • a total interest percentage. Chapter 4: Federal Advertising Guidelines Chapter 4 Quiz Refer to page 107

39. 6. All of the following are considered by TILA to be triggering terms in an advertisement EXCEPT • 3% down conventional loans available. • 30-year term loans available. • payments to meet your budget. • rates from the low 3’s. Chapter 4: Federal Advertising Guidelines Chapter 4 Quiz Refer to page 107

40. 7. If a triggering term is used in an advertisement, all of the following must be disclosed EXCEPT the • information regarding whether the loan is a fixed rate or and adjustable rate loan. • loan amount. • loan-to-value of the advertised loan. • term of repayment for the advertised loan. Chapter 4: Federal Advertising Guidelines Chapter 4 Quiz Refer to page 107

41. 8. The UDAAP was issued in 2013 by the Consumer Financial Protection Bureau. The regulation informs all covered persons or service providers that they are legally required to refrain from committing all of the following EXCEPT • abusive acts. • practices that harm the consumer. • streamlined acts. • unfair acts. Chapter 4: Federal Advertising Guidelines Chapter 4 Quiz Refer to page 107

42. 9. An act or practice is considered unfair (as classified by UDAAP) EXCEPT when • the consumer files a complaint with the CFPB. • the injury is not reasonably avoidable by consumers. • the injury is not outweighed by countervailing benefits to consumers or to competition. • it causes or is likely to cause substantial injury to consumers. Chapter 4: Federal Advertising Guidelines Chapter 4 Quiz Refer to page 107

43. 10. An approved lender for FHA insured loans may use the term _____, which would NOT be considered deceptive in nature. • approved lender • federal • government • national Chapter 4: Federal Advertising Guidelines Chapter 4 Quiz Refer to page 107