The Consumer Financial Protection Bureau (CFPB) has brought action against three lenders – All Financial Services, American Preferred Lending and Flagship Financial Group – for misleading consumers with advertisements implying U.S. government affiliation.
According to a CFPB press release, American Preferred Lending, a California lender that originates Federal Housing Administration (FHA) and Veterans Affairs (VA) loans, sent mailings to potential borrowers that were made to appear as U.S. government notices from August 2011 to February 2013.
Specifically, the lender sent more than 100,000 mailings that had an FHA-approved lending institution logo and referenced an FHA Web address. This gave the impression that the mailings were from the U.S. government or an entity affiliated with the government. As a result, the CFPB fined the company $85,000 and ordered it to discontinue falsely implying a government affiliation in future advertisements.
The CFPB alleges that All Financial Services, based in Maryland, made similar deceptive claims when advertising several kinds of mortgages, including reverse mortgages, from November 2011 to December 2012. Not only did All Financial make it appear that it was affiliated with a governmental entity, it also misrepresented that the FHA-insured reverse mortgage program was time-limited or had a deadline, the CFPB says.
The bureau says one mailer sent mailings to nearly 200,000 consumers advertising All Financial Services' reverse mortgages had an eagle resembling the Great Seal of the U.S. Furthermore, the header read, ‘GOVERNMENT LENDING DIVISION’ and ‘Housing and Recovery Act of 2008 Eligibility Notice.’
In addition, the company falsely claimed that no monthly payments were required ‘whatsoever’ under a reverse mortgage ‘as long as you and your spouse live in the home.’ The CFPB alleges this ad was misleading for two reasons. First, homeowners who take out a reverse mortgage are still required to pay taxes and insurance. Second, at the time the ads were disseminated, the reverse mortgages they advertised could be due upon the death of the last borrower, regardless of whether a non-borrowing spouse still lived in the home.
The CFPB's release says it is suing All Financial Services in the U.S. District Court for the District of Maryland, seeking a civil fine and a permanent injunction to prevent future violations, meaning that the amount of the fine is yet to be determined. It, too, must cease and desist the deceptive marketing and advertising practices.
Flagship Financial Group, headquartered in Utah, faces similar allegations. The bureau says this lender sent mailings from August 2011 to December 2012 implying that its VA loans were endorsed or sponsored by the U.S. Department of Housing and Urban Development (HUD).
The company claimed, in more than 1 million mailers, that it was ‘HUD-Approved.’ For example, the ads included text about federal legislation and said, ‘HUD-Approved Flagship Financial Group has been directed to get VA homeowners instant relief by lowering their monthly payments.’ However, as the bureau points out, the lender has no unique affiliation beyond that of other lenders to originate VA-guaranteed loans and was not ‘HUD-Approved’ at the time.
The CFPB says Flagship Financial Group also sent tens of thousands of mailers advertising mortgage credit products that looked like a government notice. For example, the mailings had a heading, ‘PURSUANT TO THE FEDERAL HOUSING ADMINISTRATION (FHA) HUD No. 12-045,’ instructed consumers to call their ‘assigned FHA loan specialist’ and obscured the company's name as the source of the advertisements.
As a result of these violations, Flagship Financial Group will pay a $225,000 fine and is also prohibited from falsely implying a government affiliation in future advertisements.
The CFPB points out that the 2011 Mortgage Acts and Practices Advertising Rule prohibits misleading claims in mortgage advertising.