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$250k CFPB Penalty For Blatantly False Advertising

by devteam April 11th, 2015 | Share

This story can be adequately summed up with the internet meme: ‘facepalm.’ rnYet another ethically challenged lender is going to pay for implying a<bgovernment agency sponsors or endorses its products.  If there’s a gray area here, it’s hard to see what it would be.</p

This time it is RMK Financial Corporation, arnCalifornia-based mortgage lender which decided it was a good idea to market itsrnproducts to tens of thousands of military personnel and veterans using Departmentrnof Veterans Affairs and FHA logos. Not surprisingly, they were caught. </p

The Consumer Financial Protection Bureau (CFPB) announced onrnThursday it had taken action against the company, which also does business asrnMajestic Home Loans, for deceptive mortgage advertising including using adsrnthat led consumers to believe it was affiliated with the U.S. government.  Under a consent order with the Bureau RMKrnwill end its illegal practices and pay a civil penalty of $250,000.</p

CFPB claims that RMK mailed misleading print advertisementsrnto more than 100,000 consumers in several states.  The ads falsely implied that that they were sentrnby VA or FHA or that the agencies endorsed or sponsored the loans.</p

A typical company ad for VA mortgages featured the VA logornand described RMK’s loan products as part of arn”distinctive program offered by the U.S. government.”  Recipients were instructed to call the “VArnInterest Rate Reduction Department” at an RMK owed phone number. Those whorncalled were sometimes given misleading information over the phone or were toldrnby employees that RMK was endorsed by the VA or FHA. While there could–at one time–have been an argument that a lenders’ underwriters were ‘endorsed’ due to the ‘direct endorsement’ (DE) designation, HUD no longer conducts DE certification directly.</p

Other mailers were labeled “FHA Benefits” andrnincluded an image of the Statue of Liberty on the outside, along with warningsrnciting the U.S. Code and threatening fines and imprisonment for tampering withrnthe letter. CFPB said both FHA and VA ads also contained misrepresentations</babout interest rates, estimated monthly payments, and whether rates werernvariable or fixed.  </p

Deceptive advertising has no place in thernmortgage marketplace, and the Consumer Bureau will continue to take actionrnagainst companies that mislead consumers with false claims of governmentrnaffiliation,” said CFPB Director Richard Cordray. “Today’s action sends a clearrnmessage that misleading consumers is illegal, unacceptable, and will not berntolerated.”  </p

The CFPB’s investigation found that RMK’srnpractices violated the Truth in Lending Act, the Mortgage Acts and PracticesrnAdvertising Rule, and other federal consumer laws.  The 2011 Mortgage Actsrnand Practices Advertising Rule prohibits misleading claims in mortgagernadvertising, including implying a government affiliation.  

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About the Author

devteam

Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

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