Those overly aggressive mortgage ads might be going away after all.
On Tuesday, the Federal Trade Commission announced it had informed 200 mortgage advertisers and media companies that they had published at least one mortgage ad that was "potentially deceptive" and warned them to change their ways.
Without discussing any specific advertisements, FTC officials said the law governing mortgage loans is clear: If any interest rate is quoted in an ad, the true annual percentage rate must also be quoted "as conspicuously" as any other rate. That means any loan promising 1 or 2 percent teaser rates or small monthly payments and then publishes the real rates and payments in smaller print is in violation of the law, according to Lucy Morris, senior attorney in the FTC's Bureau of Consumer Protection.
Anyone who's seen Internet mortgage ads recently will no doubt be surprised by that strict interpretation.
Meanwhile, mortgage advertisements published by LowerMyBills.com and featured last week in a recent Red Tape Chronicles story were changed significantly on Monday. Last week, the ads hawked loans with extremely low monthly payments that critics called misleading, such as a $145,000 loan for under $499 per month. The ads, which appeared on MSNBC.com and on many other Internet sites, also included the words "As featured on the Oprah Winfrey Show." The advertisements have now dropped the reference to Oprah, and offer more modest terms, such as $90,000 for $499 each month.
LowerMyBills.com did not respond to requests for comment. It is unclear if LowerMyBills, which is owned by credit bureau Experian, received a letter from the FTC letter.
There was no shortage of potential targets. FTC officials found this summer that mortgage ads potentially in violation of both the Truth in Lending Act and the Federal Trade Commission Act were being widely published. That finding led the agency to write the stern warning letter sent out this week.
"Advertisements that promote only the most attractive loan terms, such as low payments or rates during a loan's initial period, without adequate disclosure of other important terms, may violate the FTC Act and/or the TLA," the letter said. "We have not determined whether your company is in violation of the law. However ... your advertisement has been preserved for future reference. By sending you this notice, we do not waive the right of the Commission to take action against you."
"We focused on advertisements that were touting very low rates or very low payments," Morris said. "And that weren't disclosing the full story as required under the law."
Small print not good enough
Morris said she couldn't discuss any specific advertisement, adding that "every ad is different."
But because the FTC Act requires that important terms be displayed "clearly and conspicuously," small print disclosures of terms and high-speed radio disclaimers often don’t satisfy legal requirements, she said.
Consumers who feel they've seen a deceptive advertisement can fill out a complaint at FTC.gov.
Consumers cannot, however, sue over deceptive advertising. Truth in advertising laws can only be enforced by government regulators, said Michael Calhoun, director of the Center for Responsible Lending.
That means consumers should "ask lots of questions" about mortgages and pay particular attention to any loan's annual percentage rate, Morris said. The agency has posted a consumer alert with much more information on deceptive mortgage ads.
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