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Financial Services Law Insights and Observations

CFPB settles with two mortgage companies over misleading VA loan advertisements

Federal Issues CFPB Mortgages Department of Veterans Affairs Mortgage Broker Mortgage Lenders CFPA UDAAP MAP Rule Regulation Z Enforcement

Federal Issues

On August 26, the CFPB announced a settlement with a mortgage company to resolve allegations that the company, which is licensed as a mortgage broker or lender in approximately 11 states, sent false, misleading, and inaccurate direct-mail advertisements to servicemembers and veterans for its VA-guaranteed loans in violation of the CFPA, Mortgage Acts and Practices – Advertising Rule (MAP Rule), and Regulation Z. According to the Bureau, among other things, the mortgage company (i) advertised credit terms that the lenders were not actually prepared to offer; (ii) failed to clearly and conspicuously disclose payment terms; (iii) made numerous “misrepresentations about the existence, nature, or amount of cash available to the consumer in connection with the mortgage credit product”; and (iv) misrepresented the consumer’s repayment obligations by failing to state the amount of each payment that would apply over the term of the loan or failing to clearly and conspicuously state that actual payment obligations would be greater. In addition to a $260,000 civil money penalty, the consent order requires the company to enhance its compliance functions, designate a compliance official to review mortgage advertisements for compliance with consumer protection laws, and comply with certain enhanced disclosure requirements. Additionally, the company is prohibited from making similar misrepresentations in the future.

Earlier on August 21, the CFPB also announced a settlement with a mortgage company to resolve allegations that the company sent false, misleading, and inaccurate direct-mail advertisements to servicemembers and veterans for its VA-guaranteed loans in violation of the CFPA, Mortgage Acts and Practices – Advertising Rule (MAP Rule), and Regulation Z. According to the Bureau, among other things, the mortgage company (i) advertised credit terms that the lenders were not actually prepared to offer; (ii) described variable-rate loans as “fixed,” when in fact the rates were adjustable; (iii) falsely stated or implied that consumers with “FICO scores as low as 500” would qualify for advertised rates; and (iv) gave the false impression the lenders were affiliated with the government. In addition to a $150,000 civil money penalty, the consent order prohibits the company from making similar misrepresentations and requires the company to designate a compliance official to review mortgage advertisements for compliance with consumer protection laws.

The latest enforcement actions are part of the Bureau’s “sweep of investigations” related to deceptive VA-mortgage advertisements. In July, the Bureau issued consent orders with two other mortgage lenders for similar violations, covered by InfoBytes here.

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