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.
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