What All Reverse Mortgage Lenders Must Know to Avoid the CFPB’s Clutches

Like many other financial services products, reverse mortgages have not been entirely immune from the scrutiny of federal regulators.

Some, like the Consumer Financial Protection Bureau (CFPB), have already taken aim at the way reverse mortgage lenders advertise their products and services—even taking action against some lenders for misleading marketing.

And with so many many enforcement actions against mortgage lenders making the headlines these days, it is important for reverse mortgage professionals to be mindful of their regulatory compliance, for both themselves as well as their industry partners.


“Point of sale is under regulatory attack, specifically by the CFPB,” said Jim Milano, partner in the Washington, D.C. office of Weiner Brodsky Kider PC, a law firm serving the financial services industry.

Speaking during a panel discussion on compliance for reverse mortgage brokers at the National Reverse Mortgage Lenders Association eastern regional conference in New York City earlier this month, Milano shared several insights into the most pressing regulatory concerns facing reverse mortgage professionals today and the legal implications for how they market and advertise their products.

The MAP rule

Within the last decade, one of the newer regulations that the CFPB has armed itself with in its ongoing pursuit of bringing enforcement actions to the mortgage industry is the Mortgage Acts and Practices (MAP) rule.

Part of this rule, known as “Regulation N,” specifically targets the advertising practices of non-depository mortgage lenders, as well as entities that advertise and market mortgage products but aren’t necessarily considered lenders, including brokers, advertising agencies, lead generators and rate aggregators.

“The MAP rule sets forth specific deceptive acts and practices in the advertising of mortgage loan products, and prohibits the misrepresentation in any commercial communication regarding the terms of a mortgage loan product,” Milano said during the NRMLA gathering in early April.

The rule, which was first promulgated by the Federal Trade Commision in the midst of the mortgage crisis in 2009, transferred over to the CFPB in July 2011 when the agency was formed.

Under the MAP rule, it is a violation for any person to make any material misrepresentation in a commercial communication regarding a mortgage loan product. It is also a violation for a company or advertiser to state that it is affiliated with the government, or that its product is government-approved, or constitutes a government benefit.

“In talking about reverse mortgages, it’s a violation to talk about the consumer’s right to remain in the home, unless you outline the conditions of continued occupancy,” Milano said.

Keep proper records

The MAP rule also requires mortgage lenders and brokers to keep proper records of their advertising, regardless of accuracy.

“Even if your advertisements are not false or misleading, if you do not keep proper records of your advertising, upon investigation you could be found in violation of the law,” Milano said.

When the CFPB investigates advertising practices, they want to see robust record-keeping beyond just providing advertisement copy. As part of these efforts, Milano said the CFPB might ask for copies of advertisements, as well as when and where the ads appeared, and whether or not—and how much—traffic, calls, applications or loans resulted from those ads.

‘Abusiveness’ standard

Another law that is relatively new in the area of advertising, which the CFPB is using in its enforcement actions, is the Unfair, Deceptive, or Abusive Acts or Practices (UDAAP) regulation.

This rule was added by Dodd-Frank and placed in Title 10—the title that gives the CFPB the authority to bring enforcement actions to consumer financial services law violations.

The concept of Unfair, or Deceptive Acts or Practices (UDAP)—note the single “A”—is not entirely new, as many states have similar laws on their books.

UDAAP provisions in Dodd-Frank, however, define “abusiveness” as an act that materially interferes with the ability of a consumer to understand a term or condition of a financial service product, or an act that takes unreasonable advantage of a consumer’s lack of understanding or inability to protect themselves.

Putting certain disclosures into marketing materials and advertisements is one way to combat claims of deceptiveness, however, this might not be enough as the Bureau levies enforcement actions against companies under the abusiveness standard.

“It’s almost a species of social engineering that the CFPB is trying to regulate by enforcement,” Milano said. “They are trying to regulate certain parts of the business out of existence, and it’s hard to combat allegations of unfairness or abusiveness just through more robust disclosures.”

Reverse lenders on radar

Most states have laws prohibiting unfair and deceptive advertising for mortgage products. Many have adopted the Secure and Fair Enforcement for Mortgage Licensing Act of 2008, which requires companies to disclose their NMLS identification in their advertising.

“We still see people skipping over this,” Milano said, adding that in a number of states, fewer than half of companies meet the tagline or “mouse print” requirements, which require a mortgage company to include licensing information in their advertising.

Other pertinent information lenders must include in their marketing materials include language about in which states the company is licensed as an approved broker. Some states may also require lenders to explicitly say that neither they nor their products are government benefits—a common area of misunderstanding for reverse mortgages particularly, as revealed by a CFPB focus group study last year.

Results from the focus group revealed certain false impressions perceived by consumers after viewing several reverse mortgage advertisements. Aside from this study, the CFPB has remained quiet on the reverse mortgage front, compared the Bureau’s recent enforcement actions that have largely focused on debt collection, student loans, payday and auto lenders.

Last year, however, the CFPB took action against All Financial Services, a company that describes its goal as educating clients about reverse mortgage products available today. This lawsuit, which is ongoing in the U.S. District Court for the District of Maryland, alleges that All Financial Services employed deceptive misrepresentations in its advertisements in violation of Regulation N (The MAP rule).

Such allegations claim that All Financial impersonated the government in its marketing, misrepresented certain time limits regarding reverse mortgages, as well as misrepresentations related to required loan payments. The Bureau also claimed that the company didn’t abide by the proper record-keeping provisions under Reg N.

The case against All Financial Services is just one example of how the CFPB is targeting perceived wrongdoing in the reverse mortgage industry. But while AFS might not be the first reverse lender to get caught in the compliance snare of CFPB regulations, it likely won’t be the last.

Through its enforcement actions, the CFPB has secured over $10.8 billion dollars in relief for more than 25 million consumers harmed by illegal practices, according to a bulletin the Bureau posted in July 2015. Since 2012, however, there have been 108 enforcement actions through the end of 2015, with an average of 2.7 enforcements per month, Milano noted.

“The CFPB is big,” Milano said. “They are serious. They are out there. And they are active.”

Written by Jason Oliva

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  • Let’s face it partners — the CFPB doesn’t want your prospects to be independent. Government thrives on illicit dependency — whatever it takes.

    • Warren,

      One of the most popular politicians alive, Senator (Warren) Mann, the self-proclaimed Cherokee Indian, created and oversaw the creation and foundation of the CFPB.

      The problem is the Senator has always had a proclivity against reverse mortgages even if she is not as outspoken as the original Senator supporting President Obama’s first run for the presidency, Senator McCaskill. So why wouldn’t the CFPB reflect that proclivity?

      You are stating the obvious.

  • This article needs to be taken very seriously as Jim Milano points out, The CFPB is a committee spin off from the Financial Regulatory Reform Bill (Dodd – Frank) to pretty much take over our entire financial system.

    Yes, our industry is being targeted heavily, the strong emphasis started about close to two years ago and has been steadily increasing.

    The community banks have been hit the hardest, this is the main reason for many of the failures and mergers of small banks around the country. Regulation after regulation has literally brought many to their knees and more to come.

    This is NOT a committee that truly understands our capitalistic ways. This is not a committee that truly understands the reverse mortgage space and what is best for seniors.

    Yes, it is true that some good has come out of the CFPB’s existence and they have intervened and protected many seniors from harmful and wrong doing.

    However, we must ask ourselves, does the presence of the CFPB in the financial industry as a whole, with all of its new found regulations and increased man hour requirements, help or hurt?

    My opinion is that it is hurting more than helping, we could have done it differently by enforcing many laws and regulations already on the books but no, that would be to simple of a task.

    If we have to live with the Dodd-Frank bill and its enforcing ARM, the CFPB, we must be prepared for more regulations, more targeting of our industry in months and years to come.

    Then, we will have to look someday at our product to see if we have regulated it to the point that it may not be any longer useful as the retirement life saver tool for our seniors?

    John A. Smaldone

    • John,

      The Dodd-Frank Act has been the law of the land since July 2010. The CFPB is not a spin off of anything. It was created by law under Dodd-Frank.

      The CFPB is not a committee, it is a Board with a Director. By law it is not governed by any other body. Both our President and Senator Elizabeth Warren Mann (a Cherokee Indian by self-proclamation), are the architects of this well defined Board.

      The CFPB has been with us for almost 6 years and, unlike Obamacare, there seems to be less opposition to it. The CFPB gave a lot of stature to Senator Mann who is one of the most popular politicians in the country. President Obama seems to be regaining his popularity as well and the Act is considered one of his greatest legacies so unless a Republican is elected President and the Republicans retains control over both chambers of Congress, both Dodd-Frank and the CFPB will be with us for at least another 4 years and most likely much longer.

      Be prepared and pick your battles carefully.

      • Cynic,

        My terminology saying the CFBP was a spin off of the Dodd-Frank bill was wrong, you are right about that. What I should have said that the CFPB was crated as law being part of the bill when it was passed.

        However, regardless if the CFPB is a committee or a board, although I yield to you on that front as well but I don’t give the board the credibility you seem to be giving it.

        The CFPB has been nothing but a freight train packed with regulations and new rules on the entire financial industry. Rules and regulation that for most parts were and are not needed!

        Yes, some has done good for our industry and the rest of the financial industry. On the other hand, the bill has created a great deal more harm than good.

        I could go on and on about the damage the CFPB has done to capitalism, the small community banks and so on but I think you get my point.

        I do appreciate you straightening me out about my terminology but understand where I am coming from as well.



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