August 12, 2011 –
Deceptive Mortgage Advertisements Targeted by the FTC

The Federal Trade Commission recently issued a new rule targeting deceptive claims about consumer mortgages in advertising and other types of commercial communications.  Although this rule does not mandate any affirmative disclosures, it does contain potentially onerous recordkeeping requirements.

This rule prohibits any person from making “any material misrepresentation, expressly or by implication, in any commercial communication, regarding any term of any mortgage credit product”.  Commercial communication means “any written or oral statement, illustration or depiction, whether in English or any other language, that is designed to effect a sale or create interest in purchasing goods or services . . .  .”  This rule also provides a non-exclusive list of prohibited deceptive claims.  These prohibited deceptive claims include, among other things, claims about the following items: (1) the existence, nature or amount of fees or costs to the consumer associated with a mortgage; (2) the terms, amounts, payments or other requirements relating to taxes or insurance associated with a mortgage; (3) the variability of interest, payments or other terms of a mortgage; (4) the type of mortgage offered; and (5) the consumer’s ability or likelihood of obtaining a refinancing or modification of a mortgage or any of its terms.

Notably, this rule does not include any affirmative disclosure requirements.  The FTC reasoned that requiring advertising disclosures in the rule would cause potential conflicts and inconsistencies with other disclosure provisions such as the Truth in Lending Act and Regulation Z.  This rule would provide sufficient protection to consumers through its prohibition of misrepresentations in commercial communications dealing with mortgage credit products.

This rule also contains recordkeeping requirements, which may prove to be its most burdensome feature.  Any person subject to this rule is required to keep records demonstrating that it has complied with this rule.  These records must be retained for 24 months “from the last date the person made or disseminated the applicable commercial communication regarding the term of any commercial credit product”.  Fortunately, this rule does provide some flexibility as to how these records are maintained, permitting them to be kept “in any legible form, and in the same manner, format, or place as they keep such records in the ordinary course of business.”

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