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New FTC Rule Goes After Mortgage Advertisers

A rule recently finalized by the ""Federal Trade Commission"":http://ftc.gov/ (FTC) will take effect this month, prohibiting mortgage brokers, servicers, and nonbank lenders from advertising 19 practices it calls deceptive. The rule will enable the FTC, newly opened ""Consumer Financial Protection Bureau"":http://www.consumerfinance.gov (CFPB), and state regulators to issue civil monetary fines and penalties against wayward mortgage advertisers.

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""The Rule is designed to create a level playing field for legitimate businesses to compete in the marketplace,"" Elizabeth Lordan, an FTC spokesperson, says.

The Mortgage Acts and Practices (MAP) Rule prescribes a number of penalties for deceptive claims about mortgages, which include mortgage fees and costs for consumers, terms and conditions that apply to mortgage taxes and insurance, loan interest and payments, and mortgage refinancing ability.

According to Lordan, the rule expands on Section 5 under the FTC Act, which on the whole bars advertisers from issuing false and misleading claims to mortgage consumers.

Congress initially required the FTC to launch rulemaking proceedings for mortgage loans in the 2009 Omnibus Appropriations Act. In proposing the MAP Rule, the federal agency received 22 public comments on the issue of alternatives that would otherwise shield consumers from deceptive advertising at lower costs.

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In ""commentary"":http://www.ftc.gov/os/comments/mapadrule/00021-56138.pdf, Bill Himpler, EVP at the ""American Financial Services Association"":http://www.afsaonline.org/, praised the rule for the fact that it went after deception in advertising but called for restraint on the part of the FTC.

Taking issue with certain penalties under the rule, Himpler requested ""that the FTC not make lenders liable for violations committed by persons giving substantial assistance or support. Lenders are in no position to police these persons, be they lead generators or brokers, and cannot be responsible for what they may say about a lender's product that a lender has not specifically authorized.""

Virginia O'Niell, senior counsel for the Center for Regulatory Compliance at the ""American Bankers Association"":http://www.aba.com/default.htm, chimed in with ""commentary"":http://www.ftc.gov/os/comments/mapadrule/00018-56135.pdf that said the rule missed the intent of the Dodd-Frank Act by reaching finalization before it transferred to the CFPB. She also said that it would prevent the coordination of regulatory reform.

""We cautioned the FTC to ensure that any rules it promulgates are clearly focused on identified abuses and their non-bank sources and do not result in duplicative and potentially conflicting rules applicable to bank-affiliated mortgage lenders, brokers, and servicers,"" O'Niell said.

The five-member commission overseeing the FTC unanimously voted to approve the rule. In a ""joint statement"":http://www.ftc.gov/os/2011/07/110719mortgagead-ramirez-leib-brill.pdf, FTC chairman Jon Leibowitz and commissioners Edith Ramirez and Julie Brill praised their decision.

""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,"" the chairman and commissioners said.

Asked how many enforcement actions the FTC plans to continue making, Lordan declines to speculate, but says the agency ""has noted an increase in scams targeting financially vulnerable consumers during the recession├â┬ó├óÔÇÜ┬¼├é┬ª. The agency has put an emphasis on bringing cases against those who perpetrate this kind of fraud.""

The MAP Rule will take effect August 18.

About Author: Ryan Schuette

Ryan Schuette is a journalist, cartoonist, and social entrepreneur with several years of experience in real-estate news, international reporting, and business management. He currently lives in the Washington, D.C., area, where he freelances for DS News and MReport.
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