Notice of Proposed Rulemaking: Mortgage Acts and Practices - Advertising Rule, 60352-60371 [2010-24353]

Agencies

• FEDERAL TRADE COMMISSION

[Federal Register Volume 75, Number 189 (Thursday, September 30, 2010)]
[Proposed Rules]
[Pages 60352-60371]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-24353]


=======================================================================
-----------------------------------------------------------------------

FEDERAL TRADE COMMISSION

16 CFR Part 321

[RIN 3084-AB18]


Notice of Proposed Rulemaking: Mortgage Acts and Practices - 
Advertising Rule

AGENCY: Federal Trade Commission (FTC or Commission).

ACTION: Notice of proposed rulemaking; request for comment.

-----------------------------------------------------------------------

SUMMARY: Pursuant to the 2009 Omnibus Appropriations Act (Omnibus 
Appropriations Act), as clarified by the Credit Card Accountability, 
Responsibility and Disclosure Act of 2009 (Credit CARD Act), the 
Commission issues a Notice of Proposed Rulemaking (NPRM) relating to 
unfair or deceptive acts and practices that may occur with regard to 
mortgage advertising, the Mortgage Acts and Practices (MAP) - 
Advertising Rule (proposed rule). The proposed rule published for 
comment, among other things, would prohibit any misrepresentation in 
any commercial communication regarding any term of any mortgage credit 
product; and impose recordkeeping requirements.

DATES: Comments must be received by November 15, 2010.

ADDRESSES: Interested parties are invited to submit written comments

[[Page 60353]]

electronically or in paper form by following the instructions in the 
Requests for Comments part of the SUPPLEMENTARY INFORMATION section 
below. Comments in electronic form should be submitted at (https://ftcpublic.commentworks.com/ftc/mapadrulenprm) (and following the 
instructions on the web-based form). Comments in paper form should be 
mailed or delivered to the following address: Federal Trade Commission, 
Office of the Secretary, Room H-135 (Annex W), 600 Pennsylvania Avenue, 
NW, Washington, DC 20580, in the manner detailed in Part IV of the 
SUPPLEMENTARY INFORMATION section below.

FOR FURTHER INFORMATION CONTACT: Laura Johnson or Carole Reynolds, 
Attorneys, Division of Financial Practices, Federal Trade Commission, 
600 Pennsylvania Avenue, NW, Washington, DC 20580, (202) 326-3224.

SUPPLEMENTARY INFORMATION:

I. Background

A. Statutory Authority

    On March 11, 2009, President Obama signed the Omnibus 
Appropriations Act.\1\ Section 626 of this Act directed the Commission 
to commence, within 90 days of enactment, a rulemaking proceeding with 
respect to mortgage loans.\2\ Section 626 also directed the FTC to use 
the notice and comment rulemaking procedures specified by Section 553 
of the Administrative Procedure Act,\3\ in this proceeding, rather than 
the rulemaking procedures set forth in Section 18 of the Federal Trade 
Commission Act (FTC Act).\4\
---------------------------------------------------------------------------

    \1\ 2009 Omnibus Appropriations Act, Pub. L. 111-8, 123 Stat. 
524 (2009).
    \2\ Section 626(a), Pub. L. 111-8, 123 Stat. 524, 678 (2009) 
(codified at 15 U.S.C. 1638 note).
    \3\ 5 U.S.C. 553.
    \4\ 15 U.S.C. 57a.
---------------------------------------------------------------------------

    On May 22, 2009, President Obama signed the Credit Card 
Accountability Responsibility and Disclosure Act of 2009 (Credit CARD 
Act).\5\ Section 511 of the Credit CARD Act clarified the conduct and 
types of entities for which the Commission may promulgate rules to 
implement the Omnibus Appropriations Act.\6\
---------------------------------------------------------------------------

    \5\ Pub. L. 111-24, 123 Stat. 1734 (2009) (codified in scattered 
sections of 15 U.S.C.).
    \6\ Pub. L. 111-24, 123 Stat. 1734, 1763-64 (2009) (codified at 
15 U.S.C. 1638 note).
---------------------------------------------------------------------------

1. Covered Acts and Practices
    Section 511 of the CARD Act specified that the FTC rulemaking 
``shall relate to unfair or deceptive acts or practices regarding 
mortgage loans, which may include unfair or deceptive acts or practices 
involving loan modification and foreclosure rescue services.''\7\ The 
Omnibus Appropriations Act, as clarified by the Credit CARD Act, does 
not otherwise specify what the Commission should include in, or exclude 
from, a rule, but rather directs the FTC to issue mortgage rules that 
``relate to'' unfairness or deception.\8\
---------------------------------------------------------------------------

    \7\ Section 511(a)(1)(B), Pub. L. 111-24, 123 Stat. 1734, 1763 
(2009) (codified at 15 U.S.C. 1638 note). The Commission is 
conducting a separate rulemaking with respect to mortgage assistance 
relief services. See infra note 19.
    \8\ Section 511(a)(1)(B), Pub. L. 111-24, 123 Stat. 1734, 1763 
(2009) (codified at 15 U.S.C. 1638 note).
---------------------------------------------------------------------------

    Section 5 of the FTC Act broadly proscribes unfair or deceptive 
acts or practices in or affecting commerce. An act or practice is 
deceptive if there is a representation, omission of information, or 
practice that is likely to mislead consumers who are acting reasonably 
under the circumstances, and the representation, omission, or practice 
is one that is material, i.e., likely to affect consumers' decisions to 
purchase or use the product or service at issue.\9\ Section 5(n) of the 
FTC Act sets forth a three-part test to determine whether an act or 
practice is unfair. First, the practice must be one that causes or is 
likely to cause substantial injury to consumers. Second, the injury 
must not be outweighed by countervailing benefits to consumers or to 
competition. Third, the injury must be one that consumers could not 
reasonably have avoided.\10\
---------------------------------------------------------------------------

    \9\ Federal Trade Commission Policy Statement on Deception, 
appended to In re Cliffdale Assocs., Inc., 103 F.T.C. 110, 174-84 
(1984) (Deception Policy Statement).
    \10\ 15 U.S.C. 45(n). Section 5(n) of the FTC Act also provides 
that ``[i]n determining whether an act or practice is unfair, the 
Commission may consider established public policies as evidence to 
be considered with all other evidence. Such public policy 
considerations may not serve as a primary basis for such 
determination.''
---------------------------------------------------------------------------

    The express statutory language of the Credit CARD Act allows the 
FTC to promulgate rules that ``relate to'' unfairness or deception. The 
Commission interprets this language to allow it to issue rules that 
prohibit or restrict unfair or deceptive conduct or that are reasonably 
related to the goal of preventing unfair or deceptive practices. The 
FTC, however, also notes that all of the conduct prohibited by the 
proposed rule is itself deceptive.
2. Covered Entities
    Section 511 of the Credit CARD Act also clarified that the 
Commission's rulemaking authority is limited to entities over which the 
FTC has jurisdiction under the FTC Act.\11\ Under the FTC Act, the 
Commission has jurisdiction over any person, partnership, or 
corporation that engages in unfair or deceptive acts or practices in or 
affecting commerce, except, among others:\12\ banks,\13\ savings and 
loan institutions, federal credit unions,\14\ non-profits,\15\ and 
common carriers. The proposed rule does not cover the practices of 
entities that are excluded from the FTC's jurisdiction.
---------------------------------------------------------------------------

    \11\ Credit CARD Act Sec.  511(a)(1)(C).
    \12\ See 15 U.S.C. 44, 45(a)(2).
    \13\ The FTC Act defines ``banks'' by reference to a listing of 
certain distinct types of depository institutions. See 15 U.S.C. 44, 
57a(f)(2). That list includes: national banks, federal branches of 
foreign banks, member banks of the Federal Reserve System, branches 
and agencies of foreign banks, commercial lending companies owned or 
controlled by foreign banks, banks insured by the Federal Deposit 
Insurance Corporation (FDIC), and insured state branches of foreign 
banks. The Commission has jurisdiction over entities that are 
affiliated with banks, such as parent or subsidiary companies, that 
are not themselves banks. This jurisdiction is held concurrently 
with the federal bank regulatory agencies (the Board of Governors of 
the Federal Reserve System (Federal Reserve Board or Board), the 
Office of the Comptroller of the Currency (OCC), the FDIC, and the 
Office of Thrift Supervision (OTS)) and the National Credit Union 
Administration (NCUA) as to their respective institutions. See 
Section 133(a) of the Gramm-Leach-Bliley Act, Pub. L. 106-102, 113 
Stat. 1383 (1999) (codified at 15 U.S.C. 41 note (a)); Minnesota v. 
Fleet Mortg. Corp., 181 F. Supp. 2d 995 (D. Minn. 2001). The FTC 
also has jurisdiction over non-bank entities that provide services 
to or on behalf of a bank, such as credit card marketing. See, e.g., 
FTC v. CompuCredit Corp., No. 08-1976, at 6-15 (N.D. Ga. Oct. 8, 
2008) (magistrate judge's non-final report and recommendation) 
(finding that the FTC has jurisdiction under FTC Act against entity 
that contracted to provide services to a bank); FTC v. Am. Std. 
Credit Sys., 874 F. Supp. 1080, 1086 (C.D. Cal. 1994) (dismissing 
argument that entity that contracted to perform credit card 
marketing and other services for a bank is not subject to FTC Act).
    \14\ The exclusion is limited to federal credit unions; thus, 
the FTC has jurisdiction over state-chartered credit unions, among 
others. See infra notes 116-118 and accompanying text.
    \15\ Section 4 of the FTC Act, 15 U.S.C. 44, specifies that the 
Commission's jurisdiction over ``corporations'' is limited to 
entities that are organized to carry on business for their own 
profit or that of their members. Thus, the non-profit exemption does 
not apply to ostensible non-profits that operate for the profit of 
their ``members,'' a term that courts have interpreted to include 
affiliates and corporate officials. See, e.g., FTC v. AmeriDebt, 
Inc., 343 F. Supp. 2d 451 (D. Md. 2004); Am. Med. Ass'n v. FTC, 638 
F.2d 443 (2d Cir. 1980), aff'd by an equally divided court, 455 U.S. 
676 (1982).
---------------------------------------------------------------------------

3. Enforcement
    The Omnibus Appropriations Act, as clarified by the Credit CARD 
Act, also permits both the Commission and the states to enforce the 
rules the FTC issues.\16\ The Commission can use its powers under the 
FTC Act to conduct investigations and bring law enforcement actions 
against those who violate FTC rules. In such actions, the Commission 
may seek injunctive relief, as well as civil penalties if the defendant 
committed the violations

[[Page 60354]]

with actual knowledge or knowledge fairly implied on the basis of 
objective circumstances that its practices were unfair or deceptive and 
violated the rule.\17\ In addition, states can enforce the rules by 
bringing civil actions in federal district court or another court of 
competent jurisdiction to obtain civil penalties and other relief. 
Before bringing such an action, however, a state must give 60 days 
advance notice to the ``primary federal regulator'' of the proposed 
defendant (unless such notice is not feasible), and the regulator has 
the right to intervene in the action.
---------------------------------------------------------------------------

    \16\ Omnibus Appropriations Act Sec.  626; Credit CARD Act Sec.  
511(a)(1)(C) and (a)(2).
    \17\ See 15 U.S.C. 45(m)(1)(A). The Commission must refer any 
action for civil penalties to the Department of Justice, which may 
file the case or return it to the Commission for filing. See 15 
U.S.C. 56.
---------------------------------------------------------------------------

B. Advance Notice of Proposed Rulemaking

    On June 1, 2009, the Commission published in the Federal Register 
an Advance Notice of Proposed Rulemaking (ANPR) soliciting comments on 
the contours of a possible rule that would prohibit or restrict unfair 
and deceptive acts and practices that may occur throughout the life-
cycle of a mortgage loan,\18\ i.e., in the advertising and marketing of 
the loan, at the time of loan origination, in the home appraisal 
process, and during the servicing of the loan.\19\ The ANPR described 
these services generically as ``Mortgage Acts and Practices,'' and the 
rulemaking proceeding was entitled the Mortgages Acts and Practices 
(MAP) Rulemaking. In response to the ANPR, the Commission received a 
total of 55 comments, of which 46 were germane.\20\ About half of the 
comments were from individuals, with the rest from industry trade 
associations or groups, consumer advocacy groups, credit unions, a 
government-sponsored enterprise (GSE), a state attorney general, a 
group of state credit union regulators, and a labor union. Most of the 
comments express support for FTC regulatory action regarding various 
aspects of the mortgage loan life-cycle.\21\ Several comments, however, 
urge the FTC to focus its resources on enforcement or wait to gauge the 
effectiveness of other mortgage-related rules promulgated recently by 
other federal agencies before proceeding with its own regulations.\22\
---------------------------------------------------------------------------

    \18\ The Omnibus Appropriations Act and the Credit CARD Act use 
the term ``loan'' in referring to mortgage credit generally and do 
not limit that term in any way. Accordingly, this NPRM and the 
proposed rule use the term ``loan'' to refer to any form of mortgage 
credit.
    \19\ Mortgage Acts and Practices, ANPR, 74 FR 26118 (June 1, 
2009). On the same date, the Commission issued another ANPR, the 
Mortgage Assistance Relief Services Rulemaking, addressing the acts 
and practices of for-profit companies that offer to work with 
lenders or servicers on behalf of consumers seeking to modify the 
terms of their loans or to avoid foreclosure on their loans. 
Mortgage Assistance Relief Services (MARS), ANPR, 74 FR 26130 (June 
1, 2009). The Commission has issued an NPRM on the MARS Rule. 75 FR 
10707 (Mar. 9, 2010).
    \20\ The other nine comments are duplicates, replacements, 
blank, or ``test'' submissions. Public comments associated with the 
MAP ANPR are available at (https://www.ftc.gov/os/comments/map/index.shtm). In addition, a list of commenters cited in this NPRM, 
along with their short citation names or acronyms used throughout 
the NPRM, is attached to this document. See Table A - List of 
Commenters and Short-names/Acronyms, infra.
    \21\ See, e.g., MICA at 9; NAR at 2; AG Mass. at 1; NCLC at 1; 
NCRC at 1; CRL at 1.
    \22\ See, e.g., MBA at 1; ABA at 6.
---------------------------------------------------------------------------

    The Commission received several comments that focus specifically on 
mortgage advertising; these are addressed below.\23\ Six of these 
discuss various advertising issues,\24\ while three additional comments 
refer to other federal advertising regulations.\25\ Several commenters 
expressed various degrees of support for FTC rules on mortgage 
advertising generally or specific aspects of mortgage advertising or 
marketing.\26\ Others urged the Commission to incorporate through this 
rulemaking aspects of Regulation Z under the Truth in Lending Act 
(TILA)\27\ to enable the Commission to obtain civil penalties for 
violations of those provisions.\28\ Commenters representing banks and 
credit unions, and a group of state credit union regulators, raised 
questions about the application of the prospective rules to banking 
subsidiaries or affiliates,\29\ or to state-chartered credit 
unions.\30\
---------------------------------------------------------------------------

    \23\ See infra Parts III and IV.
    \24\ See CMC/AFSA at 7; HPC at 3; ABA at 5; MBA at 5; MICA at 3; 
CUNA at 2.
    \25\ See BECU at 3; NASCUS at 2; GCUA at 2.
    \26\ See, e.g., HPC at 3; MICA at 3; CMC/AFSA at 7; ABA at 6.
    \27\ 12 CFR 226. The Federal Reserve Board issued Regulation Z, 
which implements TILA, 15 U.S.C. 1601-1666j. The Home Ownership and 
Equity Protection Act (HOEPA), 15 U.S.C. 1639, is part of TILA.
    \28\ See, e.g., ABA at 6 (certain aspects of advertising rules 
for nonbank entities); CRL at 19.
    The Commission has authority to obtain civil penalties for 
violations of rules that the Board promulgates under Section 
129(l)(2) of TILA (part of HOEPA), 15 U.S.C. 1639(l)(2). See Omnibus 
Appropriations Act Sec.  626(c). As discussed further below, see 
infra note 56, the Board issued mortgage-related rules in July 2008, 
some of which were promulgated under Section 129(l)(2) of TILA. See 
generally 73 FR 44522 (July 30, 2008).
    In contrast, the Commission does not have specific authority to 
obtain civil penalties for violations of rules that the Board 
promulgates under Section 105 of TILA. 15 U.S.C. 1604. See generally 
Omnibus Appropriations Act Sec.  626(c). Some provisions of the 
Board's July 2008 mortgage rules were promulgated under Section 105. 
See 73 FR 44522-23. Incorporating the Board's Section 105 rules into 
the proposed MAP - Advertising Rule would give the Commission 
authority to seek civil penalties for violations of the Section 105 
rules. The advantages and disadvantages of incorporating the Section 
105 rules, which include technical and complex advertising 
requirements, are discussed below. See infra Parts III.C.2 and 
IV.C.2.
    \29\ See, e.g., CMC/AFSA at 3; ABA at 4-5. For a discussion of 
the FTC's jurisdiction, see supra Part I.A.2.
    \30\ See generally CUNA; NASCUS; BECU; Zager; GCUA. Among other 
things, various comments note that the Commission lacks jurisdiction 
to issue rules for federally-chartered credit unions. Some comments 
assert that credit union advertising is already regulated.
---------------------------------------------------------------------------

    As discussed more fully below, advertising is the initial step and 
often a crucial part of the mortgage process. Consumers may not make 
well-informed decisions if the information they receive through 
advertising is deceptive. The Commission therefore has determined to 
issue this NPRM focused exclusively on mortgage advertising practices. 
The Commission may issue additional proposed rules regarding other 
aspects of the mortgage process in the future.

II. Mortgage Advertising Practices

A. Overview

    As discussed in the ANPR, the mortgage life-cycle begins when a 
consumer initially shops for a mortgage, whether to purchase a home or 
real property,\31\ refinance an existing mortgage, or obtain a home 
equity loan or line of credit (known as a HELOC) based on the 
consumer's equity in the home.\32\ In this process, the consumer may 
encounter diverse types of mortgage products. The loan may either be a 
forward mortgage, the most prevalent type of loan, where the homeowner 
borrows funds and remits payments for principal, interest, and in some 
cases other charges; or a reverse mortgage, a home-secured loan 
typically offered to senior citizens which the borrower is not required 
to repay as long as he or she remains in the home and which only 
becomes due when the homeowner moves out of or sells the home, dies, or 
fails to satisfy certain loan conditions.\33\ Forward mortgages may be 
traditional, such as 30-year

[[Page 60355]]

fixed-rate or adjustable rate amortizing mortgages (ARMs),\34\ or 
nontraditional,\35\ the latter having proliferated in the mortgage 
marketplace in recent years.
---------------------------------------------------------------------------

    \31\ Traditional mortgages are considered ``closed-end credit,'' 
generally consisting of installment financing where the amount 
borrowed and repayment schedule are set at the transaction's outset. 
TILA and Regulation Z set various advertising and other requirements 
for closed-end credit. See, e.g., 12 CFR 226.17-.24.
    \32\ HELOCs typically are ``open-end credit,'' which TILA 
defines as credit extended to a consumer under a plan in which: (1) 
the consumer reasonably contemplates repeated transactions; (2) the 
creditor may impose a finance charge from time to time on the 
outstanding unpaid balance; and (3) the amount of credit that may be 
extended to the consumer during the plan's term is generally made 
available to the extent that any unpaid balance is repaid. See 15 
U.S.C. 1602(i); 12 CFR 226.2(a)(10) and (20).
    \33\ See generally 12 CFR 226.33 (reverse mortgages under 
Regulation Z), and U.S. Department of Housing and Urban Development 
(HUD), Glossary, definition of ``reverse mortgage,'' available at 
(https://www.hud.gov/offices/hsg/sfh/buying/glossary.cfm).
    \34\ In an amortizing loan, the borrower pays principal and the 
full amount of interest that is due each month throughout the life 
of the loan.
    \35\ Nontraditional mortgages include loan products that may 
offer consumers financial options but also pose substantial risk. 
These include, for example, interest-only (I/O) loans and payment 
option ARMs (option ARMs). I/O loans involve an initial loan period 
in which the borrower pays only the interest accruing on the loan 
balance; after the initial period, the borrower either makes 
increased payments of principal and interest and/or remits a large 
payment, sometimes referred to as a ``balloon payment.'' Option ARMs 
offer borrowers several choices each month during the loan's 
introductory period, including a minimum payment that is smaller 
than the interest accruing on the principal. After the introductory 
period, the loan is recast, and the borrower's payments increase to 
amortize and repay principal and the adjustable interest rate over 
the remaining loan term. See generally FTC, Comment To Jennifer L. 
Johnson, Secretary, Board of Governors of the Federal Reserve System 
(Sept. 14, 2006), at 5-13 (providing comments on the home equity 
lending market and summarizing the Commission's May 2006 alternative 
mortgage workshop, Protecting Consumers in the New Mortgage 
Marketplace), available at (https://www.ftc.gov/opa/2006/09/fyi0661.shtm) (FTC Comment on Home Equity Lending and Alternative 
Mortgage Workshop).
---------------------------------------------------------------------------

    Consumers receive information about mortgages through many 
different channels of communication. Some consumers seek out mortgage 
information on their own, for example, on the Internet or by contacting 
a real estate broker, mortgage lender, mortgage broker, or others. 
Marketers and advertisers widely disseminate mortgage advertisements to 
consumers through print media (such as newspapers and magazines), 
television, radio, the Internet, billboards, and other methods. 
Marketers and advertisers also send targeted information to particular 
consumers through direct mail or electronic communications such as e-
mail or text messages.
    Many types of entities market and advertise mortgage products. 
Mortgage lenders, mortgage brokers, mortgage servicers, and real estate 
brokers advertise and market mortgage products. In addition, 
advertising agencies, home builders, lead generators,\36\ rate 
aggregators,\37\ and others also may market and advertise mortgage 
products to consumers. Mortgage lenders and servicers in particular may 
market products to their current customers, in addition to prospective 
customers.
---------------------------------------------------------------------------

    \36\ Lead generators are business entities that provide, in 
exchange for consideration, consumer information to a seller or 
telemarketer for use in the marketing of goods or services. See, 
e.g., Quik Payday, Inc. v. Stork, 549 F.3d 1302, 1304 (10th Cir. 
2008); FTC v. Connelly, No. SA CV 06-701 DOC (RNBx), 2006 U.S. Dist. 
LEXIS 98263, at *11 (C.D. Cal. Dec. 20, 2006); United States v. 
Ameriquest Mortg. Co., No. 8:07-cv-01304 CJC-MLG (C.D. Cal. 2007) 
(stipulated judgment and order).
    \37\ Rate aggregators regularly collect and publish rates and 
other information from numerous mortgage lenders, mortgage brokers, 
or other sources. Consumers typically can compare mortgage credit 
product terms for free by searching or viewing this information 
sorted by rate, loan amount, mortgage credit product, or other 
criteria. Rate aggregators may supply the lenders' or brokers' 
contact information, so the consumer can reach them directly, or 
they may act as a lead generator and provide the consumer's 
information to lenders or brokers.
---------------------------------------------------------------------------

B. Deception in Mortgage Advertising

    Advertising and marketing can provide consumers with valuable 
information about mortgage options, costs, and features. This 
information is critical to the decisions consumers make throughout the 
mortgage origination process and is especially important because 
mortgage products typically are complex.\38\ Information is useful for 
decision making, however, only if it is truthful and non-
misleading.\39\ Preventing and deterring deception in advertisements 
for mortgages, therefore, is a primary objective of FTC law enforcement 
and of the proposed rule.
---------------------------------------------------------------------------

    \38\ This is particularly true for nontraditional mortgages, the 
terms of which are often unfamiliar to consumers. See generally FTC 
Comment on Home Equity Lending and Alternative Mortgage Workshop, 
supra note 35.
    \39\ Conversely, deceptive claims in marketing information 
undermine the ability of consumers to make well-informed decisions. 
See generally Prepared Statement of the Federal Trade Commission: 
Hearing Before the Senate Committee on Commerce, Science, and 
Transportation, Subcommittee on Consumer Protection, Product Safety, 
and Insurance, July 14, 2009, available at (https://www.ftc.gov/os/2009/07/P094492antifraudlawtest.pdf); Prepared Statement of the 
Federal Trade Commission on ``Foreclosure Rescue and Loan 
Modification Scams'': Hearing Before the House Committee on 
Financial Services, Subcommittee on Housing and Community 
Opportunity, May 6, 2009, available at (https://www.ftc.gov/os/2009/05/P064814foreclosuretescue.pdf); see also Interagency Guidance on 
Nontraditional Mortgage Products Risks (Interagency Nontraditional 
Mortgage Guidance), 71 FR 58609 (Oct. 4, 2006) (federal bank 
regulatory agencies' guidance to address risks associated with 
growing use of mortgage products that allow borrowers to defer 
payment of principal and sometimes interest); Interagency Statement 
on Subprime Mortgage Lending (Interagency Subprime Mortgage 
Statement), 72 FR 37569 (July 10, 2007) (federal bank regulatory 
agencies' guidance to address risks with subprime mortgage products 
and lending practices, including adjustable rate mortgages with low 
initial payments that expire after a short period and could result 
in payment shock); Federal Financial Institutions Examination 
Council (FFIEC); Reverse Mortgage Products: Guidance for Managing 
Compliance and Reputation Risks (FFIEC Reverse Mortgage Guidance), 
75 FR 50801 (Aug. 17, 2010) (guidance issued by federal and state 
bank regulatory agencies on need for adequate information and other 
consumer protections regarding reverse mortgage products); and Press 
Release, FTC, FTC Warns Mortgage Advertisers and Media That Ads May 
Be Deceptive, Sept. 11, 2007, available at (https://www.ftc.gov/opa/2007/09/mortsurf.shtm).
---------------------------------------------------------------------------

    In 1984, the FTC issued its Deception Policy Statement, setting 
forth the elements of deception. An act or practice is deceptive if: 
(1) there is a representation, omission of information, or practice 
that is likely to mislead consumers acting reasonably under the 
circumstances; and (2) that representation, omission, or practice is 
material to consumers.\40\
---------------------------------------------------------------------------

    \40\ See Deception Policy Statement, supra note 9, at 175-183; 
see also FTC v. Tashman, 318 F.3d 1273, 1277 (11th Cir. 2003); FTC 
v. Gill, 265 F.3d 944, 950 (9th Cir. 2001); FTC v. QT, Inc., 448 F. 
Supp. 2d 908, 957 (N.D. Ill. 2006), aff'd, 512 F.3d 858 (7th Cir. 
2008); FTC v. Think Achievement Corp., 144 F. Supp. 2d 993, 1009 
(N.D. Ind. 2000); FTC v. Minuteman Press, 53 F. Supp. 2d 248, 258 
(E.D.N.Y. 1998).
---------------------------------------------------------------------------

    A representation may be express or implied. ``Express claims 
directly represent the fact at issue, while implied claims do so in an 
oblique or indirect way.''\41\ Whether an implied claim is made depends 
on the overall net impression that consumers take away from an 
advertisement or other representation based on all its elements 
(language, pictures, graphics, etc.).\42\ The FTC evaluates whether 
consumers' impression or interpretation of a representation or omission 
is reasonable. Reasonableness is evaluated based on the sophistication 
and understanding of consumers in the group to which the representation 
is targeted, which may be a general audience or a specific group, such 
as children or the elderly.\43\ A claim may be susceptible to more than 
one reasonable interpretation, and if one such interpretation is 
misleading, then the advertisement is deceptive, even if other, non-
deceptive interpretations are possible.\44\
---------------------------------------------------------------------------

    \41\ FTC v. QT, Inc., 448 F. Supp. 2d at 957.
    \42\ See FTC v. Cyberspace.com, 453 F.3d 1196, 1200 (9th Cir. 
2006) (``A solicitation may be likely to mislead by virtue of the 
net impression it creates even though the solicitation also contains 
truthful disclosures.''); FTC v. Gill, 265 F.3d at 956 (affirming 
deception finding based on ``overall `net impression''' of 
statements); Removatron Int'l Corp. v. FTC, 884 F.2d 1489, 1497 (1st 
Cir. 1989) (advertisement was deceptive despite written 
qualification); Thompson Med. Co. v. FTC, 791 F.2d 189, 197 (D.C. 
Cir. 1986) (literally true statements may nonetheless be deceptive); 
FTC v. QT, Inc., 448 F. Supp. 2d at 958.
    \43\ See Deception Policy Statement, supra note 9, at 177-79.
    \44\ See id. at 178.
---------------------------------------------------------------------------

    A disclaimer or qualifying statement may correct a misleading 
impression, but only if it is sufficiently clear and prominent to 
convey the qualifying information effectively, i.e., it is both noticed 
and understood by consumers. ``[I]n many circumstances, reasonable 
consumers do not read the entirety of an ad or are directed away from 
the importance of the qualifying phrase by

[[Page 60356]]

the acts or statements of the seller;''\45\ thus, a fine print 
disclosure at the bottom of a print advertisement or a brief video 
superscript in a television advertisement is unlikely to qualify a 
claim effectively.\46\ Similarly, because consumers ``may glance only 
at the headline'' of an advertisement, ``accurate information in the 
text may not remedy a false headline.''\47\
---------------------------------------------------------------------------

    \45\ Id. at 181.
    \46\ See, e.g., id. at 180; see also In re Stouffer Food Corp., 
118 F.T.C. 746 (1994); In re Kraft, Inc., 114 F.T.C. 40, 124 (1991), 
aff'd, 970 F.2d 311 (7thCir. 1992).
    \47\ Deception Policy Statement, supra note 9, at 180.
---------------------------------------------------------------------------

    A representation, omission, or practice is material if it is likely 
to affect a consumer's choice of or conduct regarding a product.\48\ If 
consumers are likely to have chosen differently but for the claim, the 
claim is likely to have caused consumer injury.\49\ Express claims are 
presumed material.\50\ Similarly, information regarding the cost of a 
product or service is presumed material.\51\ Intentional implied 
claims,\52\ and claims about the purpose and efficacy of a product or 
service,\53\ are also presumed material.
---------------------------------------------------------------------------

    \48\ See Kraft, Inc. v. FTC, 970 F.2d 311, 322 (7th Cir. 1992); 
In re Cliffdale Assocs., Inc.,103 F.T.C. 110, 165 (1984); see also 
FTC v. SlimAmerica, Inc., 77 F. Supp. 2d 1263, 1272 (S.D. Fla. 
1999).
    \49\ See Deception Policy Statement, supra note 9, at 183.
    \50\ See FTC v. Pantron I Corp., 33 F.3d 1088, 1095-96 (9th Cir. 
1994).
    \51\ See In re Peacock Buick, 86 F.T.C. 1532, 1562 (1975), 
aff'd, 553 F.2d 97 (4th Cir. 1977); Deception Policy Statement, 
supra note 9, at 182-83.
    \52\ See In re Thompson Med. Co., Inc., 104 F.T.C. 648, 816 
(1984), aff'd, 791 F.2d 189 (D.C. Cir. 1986).
    \53\ Novartis Corp. v. FTC, 223 F.3d 783, 786-87 (D.C. Cir. 
2000).
---------------------------------------------------------------------------

C. Other Mortgage Advertising Requirements\54\
---------------------------------------------------------------------------

    \54\ This discussion is not intended as a comprehensive list of 
all potentially applicable mortgage advertising and marketing laws.
---------------------------------------------------------------------------

    In addition to the FTC Act, mortgage advertisers and marketers are 
subject to TILA (including HOEPA) and Regulation Z, among other legal 
requirements.\55\ In July 2008, the Federal Reserve Board issued many 
new mortgage advertising rules under Regulation Z; these rules took 
effect on October 1, 2009.\56\
---------------------------------------------------------------------------

    \55\ These other requirements include mortgage advertising 
mandates under the Helping Families Save Their Homes Act of 2009, 
Pub. L. 111-22, Sec.  203, 123 Stat. 1632 (2009) (codified at 12 
U.S.C. 5201 note), which HUD enforces, and advertising regulations 
and guidance for Federal Housing Administration programs, which HUD 
has issued. For example, FHA-approved lenders or mortgagees must use 
their HUD-registered business names in advertisements and 
promotional materials for FHA programs and maintain copies of their 
materials for two years. See 75 FR 20718 (Apr. 20, 2010), to be 
codified at 24 CFR 202. Lenders and others are permitted to 
distribute the FHA and fair housing logos in marketing materials to 
prospective FHA borrowers. HUD-approved mortgagees are required to 
establish procedures for compliance with FHA program requirements, 
including to avoid engaging in false or misrepresentative 
advertising. See HUD Mortgagee Letters 2009-02 and 2009-12, 
available at (https://www.hud.gov/offices/adm/hudclips/letters/mortgagee/2009ml.cfm); see also infra note 116 (discussing NCUA and 
OTS advertising regulations).
    \56\ See 73 FR at 44599-602, codified generally at 12 CFR 
226.16, 226.24; see also supra note 28. On August 16, 2010, the 
Board proposed additional protections and disclosure requirements 
for mortgage advertisements. See Press Release, Board, Federal 
Reserve Board Proposes Enhanced Consumer Protections and Disclosures 
for Home Mortgage Transactions, (https://www.federalreserve.gov/newsevents/press/bcreg/20100816e.htm) (Aug. 16, 2010).
---------------------------------------------------------------------------

    For example, for closed-end credit, TILA and Regulation Z contain 
four basic requirements for mortgage advertisements.\57\ First, an 
advertisement must reflect terms actually available to the 
consumer.\58\ Second, required disclosures must be made clearly and 
conspicuously in the advertisement.\59\ Third, any advertisement that 
includes any credit rate must state the annual percentage rate, or 
``APR.''\60\ The APR must be stated at least as conspicuously as a 
stated interest rate.\61\ Fourth, if any major triggering loan term 
(e.g., a monthly payment amount) is advertised, other major terms, 
including the APR, must also be advertised.\62\
---------------------------------------------------------------------------

    \57\ See 15 U.S.C. 1661-62, 1664-65a; 12 CFR 226.24. For TILA 
and Regulation Z open-end credit advertising requirements, see 15 
U.S.C. 1661-63, 1665-65b; 12 CFR 226.16.
    \58\ See 15 U.S.C. 1662; 12 CFR 226.24(a).
    \59\ See 15 U.S.C. 1664; 12 CFR 226.24(b).
    \60\ See 15 U.S.C. 1664; 12 CFR 226.24(c). For closed-end credit 
advertisements, the Board also expressly prohibits advertising any 
rate that is lower than the rate at which interest is accruing, such 
as an effective rate, payment rate, or qualifying rate. See 74 FR 
44581-82, 44608, codified at Federal Reserve Board Official Staff 
Commentary (Regulation Z Commentary), 12 CFR 226.24(c)-2, Supp. I. 
The Board promulgated this rule using its authority under TILA 
Section 105. Id. In some circumstances, for closed-end credit 
secured by a dwelling, advertisements must provide other disclosures 
relating to rates. See, e.g., 12 CFR 226.24(f).
    \61\ See 15 U.S.C. 1664; 12 CFR 226.24(c).
    \62\ See 15 U.S.C. 1664; 12 CFR 226.24(d). In some 
circumstances, for closed-end credit secured by a dwelling, 
advertisements must provide other disclosures relating to payments. 
See, e.g., 12 CFR 226.24(f).
---------------------------------------------------------------------------

    For closed-end credit secured by a dwelling, Regulation Z also 
prohibits the following advertising claims based on the Board's 
conclusion that they are misleading or deceptive: (1) advertising as 
``fixed'' a rate or payment that will change after a period of time, 
unless the advertisement meets certain criteria, such as having an 
equally prominent and closely proximate disclosure that the rate or 
payment is ``fixed'' for only a limited period of time; (2) comparing 
actual or hypothetical rates or payments to the rates or payments on an 
advertised loan, unless the advertisement discloses the rates or 
payments that will apply over the full term of the advertised loan; (3) 
misrepresenting an advertised loan as part of a ``government loan 
program'' or otherwise endorsed or sponsored by a government entity; 
(4) using the name of the consumer's current lender, unless the 
advertisement has an equally prominent disclosure of the person 
actually disseminating the advertisement and includes a clear and 
conspicuous statement that the advertiser is not associated with the 
consumer's current lender; (5) making any misleading claim that an 
advertised loan will eliminate debt or result in a waiver or 
forgiveness of a consumer's existing loan terms with, or obligations 
to, another creditor; (6) using the term ``counselor'' in an 
advertisement to refer to a for-profit mortgage broker or mortgage 
lender; and (7) advertising mortgages in a language other than English 
while providing critical advertising disclosures only in English.\63\
---------------------------------------------------------------------------

    \63\ See 12 CFR 226.24(i); see also 73 FR at 44586-590, 44602, 
44610. As noted above, the Board promulgated these rules using its 
authority under TILA Section 129(l)(2), which is part of HOEPA. See 
supra note 28.
---------------------------------------------------------------------------

    TILA and Regulation Z require certain other advertising disclosures 
for HELOCs, a type of open-end credit.\64\ HELOC advertisements may not 
refer to a home equity plan as ``free money'' or contain a similarly 
misleading term.\65\ For example, such an advertisement could not state 
``no closing costs'' or ``we waive closing costs'' if consumers may be 
required to pay any closing costs.\66\
---------------------------------------------------------------------------

    \64\ See, e.g., 12 CFR 226.16(d). The Board promulgated these 
rules using its authority under TILA Section 105(a). See supra note 
28.
    \65\ See 16 CFR 226.16(d)(5).
    \66\ See Regulation Z Commentary, 12 CFR 226.16(d)-4, Supp. I; 
75 FR 7658, 7898 (Feb. 22, 2010); see also 12 CFR 226.16(f).
---------------------------------------------------------------------------

    The states also have enacted various laws or regulations that 
address aspects of deceptive mortgage advertising practices,\67\ 
including laws implementing the federal Secure and Fair Enforcement for 
Mortgage Licensing Act of 2008 (SAFE Act), which requires a nationwide 
licensing and/or registration system for mortgage loan originators.\68\
---------------------------------------------------------------------------

    \67\ State advertising requirements differ from one another in 
the practices, types of credit, and entities covered. See, e.g., Me. 
Rev. Stat. Ann. tit. 9-A, 9-301 (2009); Md. Code Regs. 09.03.06.05 
(2009); Nev. Rev. Stat. Ann. 645B.196 (2009); N.Y. Bank. Law 595-a 
(Consol. 2010).
    \68\ Title V of the Housing and Economic Recovery Act of 2008, 
Pub. L. 110-289 (2008) (codified at 12 U.S.C. 5101). Since the SAFE 
Act's enactment on July 30, 2008, the states have been moving to 
enact or amend laws to license mortgage loan originators. See 
generally (https://www.csbs.org); see also HUD SAFE Mortgage 
Licensing Act, available at (https://hud.gov/offices/hsg/rmra/safe/sfea.cfm). Various new state SAFE laws address advertising in 
different ways. See, e.g., H.B. 1085, 67th Gen. Assem., Reg. Sess. 
(Colo. 2009); S.B. 948, 2009 Gen. Assem., Reg. Sess. (Conn. 2009); 
S.B. 1218, 25th Leg., 1st Spec. Sess. (Haw. 2009); H.B. 4011, 96th 
Gen. Assem., Reg. Sess. (Ill. 2009); A.B. 3816, 213th Leg., 2nd Ann. 
Sess. (N.J. 2009). The federal banking agencies and Farm Credit 
Administration also are implementing a registration system and other 
requirements for mortgage loan originators. See 74 FR 27386 (June 9, 
2009).

---------------------------------------------------------------------------

[[Page 60357]]

    None of these federal or state measures duplicates the specificity 
and breadth of practices, and diversity of entities\69\ covered in the 
proposed rule.
---------------------------------------------------------------------------

    \69\ See infra Part III.B.4.
---------------------------------------------------------------------------

D. Consumer Protection Problems in Mortgage Advertising

    The FTC has substantial law enforcement experience with mortgage 
advertising practices. Since 1995, the Commission has brought 18 law 
enforcement actions, including three in 2009, against individuals or 
companies that allegedly engaged in unfair or deceptive practices and/
or violations of TILA in connection with mortgage advertising.\70\ 
These actions have targeted large and small mortgage lenders, mortgage 
brokers, and others, located throughout the country.\71\ The cases have 
involved advertisements and marketing materials in various media, 
including print advertisements,\72\ unsolicited emails,\73\ direct mail 
marketing,\74\ Internet advertisements and websites,\75\ 
telemarketing,\76\ and in-person sales presentations.\77\ The alleged 
violations have included deceptive claims - often made to subprime 
borrowers - about key terms and other aspects of the loans, such as:
---------------------------------------------------------------------------

    \70\ See Table B - List of FTC Mortgage Advertising Enforcement 
Actions, infra.
    \71\ See, e.g., FTC v. Mortgages Para Hispanos.com Corp., No. 
4:06-cv-19 (E.D. Tex. 2006); FTC v. Ranney, No. 04-F-1065 (MJW) (D. 
Colo. 2004); FTC v. Chase Fin. Funding, Inc., No. SACV04-549 GLT 
(ANx) (C.D. Cal. 2004); FTC v. OSI Fin. Servs., Inc., No. 02-C-5078 
(N.D. Ill. 2002); United States v. Mercantile Mortg. Co., No. 02-C-
5079 (N.D. Ill. 2002); FTC v. Assocs. First Capital Corp., No. 1:01-
00606 JTC (N.D. Ga. 2001); FTC v. First Alliance Mortg. Co., No. 
SACV 00-964 DOC (EEx) (C.D. Cal. 2000).
    \72\ See, e.g., FTC v. Safe Harbour Found. of Fla., Inc., No. 
08-C-1185 (N.D. Ill. 2008); FTC v. Ranney, No. 04-F-1065 (MJW) (D. 
Colo. 2004).
    \73\ See, e.g., FTC v. 30 Minute Mortg., Inc., No. 03-60021 
(S.D. Fla. 2003); FTC v. Chase Fin. Funding, Inc., No. SACV04-549 
GLT (ANx) (C.D. Cal. 2004).
    \74\ See, e.g., In re Am. Nationwide Mortg. Co., Inc., F.T.C. 
Dkt. No. C-4249 (2009); In re Michael Gendrolis, F.T.C. Dkt. No. C-
4248 (2009); FTC v. Chase Fin. Funding, Inc., No. SACV04-549 GLT 
(ANx) (C.D. Cal. 2004); FTC v. First Alliance Mortg. Co., No. SACV 
00-964 DOC (EEx) (C.D. Cal. 2000); United States v. Unicor Funding, 
Inc., No. SACV99-1228 (C.D. Cal. 1999); FTC v. Assocs. First Capital 
Corp., No. 1:01-00606 JTC (N.D. Ga. 2001); FTC v. Safe Harbour 
Found. of Fla., Inc., No. 08-C-1185 (N.D. Ill. 2008); In re 
FirstPlus Fin. Group, Inc., F.T.C. Dkt. No. C-3984 (2000).
    \75\ See, e.g., In re Shiva Venture Group, Inc., F.T.C. Dkt. No. 
C-4250 (2009); FTC v. Ranney, No. 04-F-1065 (MJW) (D. Colo. 2004).
    \76\ See, e.g., FTC v. First Alliance Mortg. Co., No. SACV 00-
964 DOC (EEx) (C.D. Cal. 2000).
    \77\ See, e.g., id.; FTC v. Assocs. First Capital Corp., No. 
1:01-00606 JTC (N.D. Ga. 2001).
---------------------------------------------------------------------------

     misrepresentations of the loan amount or the amount of 
cash disbursed;\78\
---------------------------------------------------------------------------

    \78\ See, e.g., id.; FTC v. OSI Fin. Servs., Inc., No. 02-C-5078 
(N.D. Ill. 2002); United States v. Mercantile Mortg. Co., No. 02-C-
5079 (N.D. Ill. 2002); In re FirstPlus Fin. Group, Inc., F.T.C. Dkt. 
No. C-3984 (2000).
---------------------------------------------------------------------------

     claims for loans with specified terms, when no loans with 
those terms were available from the advertiser;\79\
---------------------------------------------------------------------------

    \79\ See, e.g., FTC v. 30 Minute Mortg., Inc., No. 03-60021 
(S.D. Fla. 2003).
---------------------------------------------------------------------------

     claims of low ``teaser'' rates and payment amounts, 
without disclosing that the rates and payments would increase 
substantially after a limited period of time;\80\
---------------------------------------------------------------------------

    \80\ See, e.g., In re Am. Nationwide Mortg. Co., Inc., F.T.C. 
Dkt. No. C-4249 (2009); In re Shiva Venture Group, Inc., F.T.C. Dkt. 
No. C-4250 (2009); In re Michael Gendrolis, F.T.C. Dkt. No. C-4248 
(2009). The FTC also sent over 200 warning letters in 2007 to 
mortgage lenders, mortgage brokers, and media outlets regarding 
mortgage advertising claims, including teaser rates, that could be 
deceptive or violate TILA. See Press Release, FTC, FTC Warns 
Mortgage Advertisers and Media That Ads May Be Deceptive (Sept. 11, 
2007), available at (https://www.ftc.gov/opa/2007/09/mortsurf.shtm).
---------------------------------------------------------------------------

     misrepresentations that rates were fixed for the full term 
of the loan;\81\
---------------------------------------------------------------------------

    \81\ See, e.g., In re Am. Nationwide Mortg. Co., Inc., F.T.C. 
Dkt. No. C-4249 (2009).
---------------------------------------------------------------------------

     misrepresentations about, or failure to adequately 
disclose, the existence of a prepayment penalty\82\ or large balloon 
payment due at the end of the loan;\83\
---------------------------------------------------------------------------

    \82\ See, e.g., FTC v. Chase Fin. Funding, Inc., No. SACV04-549 
(GLT (ANx) C.D. Cal. 2004); FTC v. OSI Fin. Servs., Inc., No. 02-C-
5078 (N.D. Ill. 2002).
    \83\ See, e.g., FTC v. OSI Fin. Servs., Inc., No. 02-C-5078 
(N.D. Ill. 2002).
---------------------------------------------------------------------------

     claims about the monthly payment amounts that the borrower 
would owe, without disclosing the existence, cost, and terms of credit 
insurance products ``packed'' into the loan;\84\
---------------------------------------------------------------------------

    \84\ See, e.g., FTC v. Assocs. First Capital Corp., No. 1:01-
00606 JTC (N.D. Ga. 2001). The complaint in that case alleged, among 
other things, that the defendants included credit insurance products 
in the loan package without the borrower's knowledge.
---------------------------------------------------------------------------

     claims that the loans were amortizing, when, in fact, they 
involved interest-only transactions;\85\
---------------------------------------------------------------------------

    \85\ See, e.g., FTC v. Capital City Mortg. Corp., No. 1:98CV237 
(D.D.C. 1998).
---------------------------------------------------------------------------

     claims of mortgage payment amounts that failed to include 
loan fees and closing costs of the kind typically included in loan 
amounts; \86\
---------------------------------------------------------------------------

    \86\ See, e.g., FTC v. Assocs. First Capital Corp., No. 1:01-
00606 JTC (N.D. Ga. 2001). In addition, in making these statements, 
the lender allegedly did not reveal that the loans were interest-
only and that borrowers would owe the entire principal amount in a 
large balloon payment at the end of the loan term.
---------------------------------------------------------------------------

     false or misleading savings claims in high loan-to-value 
loans;\87\
---------------------------------------------------------------------------

    \87\ See, e.g., In re FirstPlus Fin. Group, Inc., F.T.C. Dkt. 
No. C-3984 (2000).
---------------------------------------------------------------------------

     false or misleading claims regarding the terms or nature 
of interest rate lock-ins;\88\
---------------------------------------------------------------------------

    \88\ See, e.g., In re Lomas Mortg. U.S.A., Inc., 116 F.T.C. 1062 
(1993).
---------------------------------------------------------------------------

     false claims that an entity was a national mortgage 
lender;\89\
---------------------------------------------------------------------------

    \89\ See, e.g., FTC v. 30 Minute Mortg. Inc., No. 03-60021 (S.D. 
Fla. 2003).
---------------------------------------------------------------------------

     failure to disclose adequately that the advertiser, not 
the consumer's current lender, was offering the mortgage;\90\ and
---------------------------------------------------------------------------

    \90\ See, e.g., In re Michael Gendrolis, F.T.C. Dkt. No. C-4248 
(2009).
---------------------------------------------------------------------------

     false or misleading claims that consumers were ``pre-
approved'' for mortgage loans.\91\
---------------------------------------------------------------------------

    \91\ See, e.g., United States v. Unicor Funding, Inc., No. 
SACV99-1228 (C.D. Cal. 1999).
---------------------------------------------------------------------------

    In addition, the Commission has brought actions against mortgage 
companies that allegedly deceptively offered loans to consumers whose 
primary language was a language other than English. One action 
challenged as deceptive a mortgage company's alleged practice of 
stating loan terms orally to Spanish-speaking consumers in Spanish, 
only to provide loan documents with different and less favorable terms 
in English.\92\ In a second case, the company allegedly offered certain 
mortgage terms in both Chinese and English advertisements, but failed 
to disclose a large balloon payment.\93\
---------------------------------------------------------------------------

    \92\ See FTC v. Mortgages Para Hispanos.com Corp., No. 4:06-cv19 
(E.D. Tex. 2006).
    \93\ See In re Felson Builders, Inc., 119 F.T.C. 652 (1995).
---------------------------------------------------------------------------

    Numerous states have brought enforcement actions under state laws 
alleging deceptive mortgage advertising and marketing, challenging 
misrepresentations about: (1) the lack of closing costs;\94\ (2) low 
fixed or teaser rates or payments;\95\ (3) the advertiser's

[[Page 60358]]

affiliation with the consumer's current lender;\96\ (4) the 
availability of government grants for home repairs;\97\ (5) the savings 
available by refinancing;\98\
---------------------------------------------------------------------------

    \94\ See, e.g., In re Lenox Fin. Mortg., LLC, No. 2007-017383 
(Ariz. Sup. Ct. 2007) (assurance of discontinuance), available at 
(https://www.azag.gov/press_releases/sept/2007)/
LenoxFinancialAssurance&Approval.pdf.
    \95\ See, e.g., State v. Lifetime Fin., Inc., No. LC080829 (Cal. 
Super. Ct. 2008), available at (https://www.ag.ca.gov/cms_attachments/press/pdfs/n1533_complaint_for_civil_penalties.pdf); 
State v. Green River Mortg., No. 2009CV89 (Colo. Dist. Ct. 2009), 
press release available at (https://www.coloradoattorneygeneral.gov/press/news/2009/05/12/attorney_general_announces_settlement_barring_mortgage_broker_operating_inside); State v. One Source 
Mortg., Inc., No. 07CH34450 (Ill. Cir. Ct. 2007), press release 
available at (https://www.ag.state.il.us/pressroom/2007_11/20071126.html); In re Paramount Equity Mortg., Inc., No. C-07-405-
08-SC01 (Wash. Dep't of Fin. Inst. 2008), available at (https://www.dfi.wa.gov/CS%20Orders/C-07-405-08-SC01.pdf).
    \96\ See, e.g., State v. Sroka, No. 2007-16-61 (Idaho Dep't of 
Fin. 2007), available at (https://finance.idaho.gov/ConsumerFinance/Actions/Administrative/2007-16-61_Sroka_Terrazas_Order_Cease_and_Desist.pdf); State v. Sage, No. 2007-8-45 (Idaho Dep't of 
Finance 2007), press release available at (https://finance.idaho.gov/PR/2007/PressRel_Sage_CDOrder.pdf);State v. Goldstar Home Mortg., 
No. 09AB-CV02310 (Mo. Cir. Ct. 2009) press release available at 
(https://ago.mo.gov/newsreleases/2009/AG_Koster_files_lawsuits_after_mortgage_fraud/).
    \97\ See, e.g., State v. Ellis, No. 07CH34451 (Ill. Cir. Ct. 
2007), press release available at (https://www.ag.state.il.us/pressroom/2007_11/20071126.html).
    \98\ See, e.g., State v. Advantage Mortg. Serv., Inc., No. C107 
(Neb. Dist. Ct. 2007), available at (https://www.ndbf.ne.gov/forms/Advantage_Mortgage_Complaint.pdf).
---------------------------------------------------------------------------

    (6) reverse mortgage terms and government affiliation;\99\ (7) the 
availability of rates compared to competitors;\100\ and (8) the 
advertiser's self-description as a ``bank.''\101\
---------------------------------------------------------------------------

    \99\ See, e.g., State v. Upstate Capital, Inc., No. 08-036 (N.Y. 
Office of Att'y Gen. 2008), press release available at (https://www.ag.ny.gov/media_center/2008/apr/apr24a_08.html). Other cases 
have charged other entities with deceptive advertising, including 
using the words ``United States of America'' or an image of the 
Statute of Liberty, when the advertiser had no affiliation with the 
government (see State v. Island Equity Mortg., Inc., (N.Y. Banking 
Dep't 2007), available at (https://www.banking.state.ny.us/ea070412.htm), and falsely representing that the advertisers were 
affiliated with a government program (see In re Assurity Fin. 
Servs., LLC, No. C-07-320-08-SC01 (Wash. Dep't of Fin. Inst. 2008), 
available at (https://www.dfi.wa.gov/CS%20Orders/C-07-320-08-SC01.pdf); see also State v. Am. Advisors Group, Inc., No. 
2010CH00158 (Ill Cir. Ct. filed Feb. 8, 2010), available at (https://www.scribd.com/doc/33748621/People-Illinois-v-American-Advisors-Group-Complaint); State v. Hartland Mortg. Ctrs., Inc., No. 
10CH05339 (Ill. Cir. Ct. filed Feb. 8, 2010), press release 
available at (https://www.ag.state.il.us/pressroom/2010_02/20100208.html). HUD also recently took action against two lenders 
for deceptive advertising of HUD-insured reverse mortgages. See 
Press Release, HUD, FHA Withdraws Three Lenders, Suspends a Fourth 
(Feb. 25, 2010), available at (https://portal.hud.gov/portal/page/portal/HUD/press/press_releases_media_advisories/2010/HUDNo.10-019).
    \100\ See, e.g., In re Paramount Equity Mortg., Inc., No. C-07-
405-08-SC01 (Wash. Dep't of Fin. Inst. 2008), available at (https://www.dfi.wa.gov/CS%20Orders/C-07-405-08-SC01.pdf).
    \101\ See, e.g., id.
---------------------------------------------------------------------------

III. Discussion of the Proposed Rule

    The Commission's law enforcement experience, state law enforcement 
activities and legislation, and the comments received in response to 
the ANPR demonstrate that deceptive claims in mortgage advertising and 
marketing pose a risk of significant harm to consumers. In addition to 
continuing to engage in aggressive law enforcement against those who 
make such claims, the FTC believes that a rule prohibiting 
misrepresentations in mortgage advertising would enable the agency to 
protect prospective borrowers more effectively by establishing clear 
standards for advertisers, increasing the efficiency of law enforcement 
efforts, and serving as a deterrent to unlawful behavior. In 
particular, as discussed above, the proposed rule would allow the 
Commission to seek civil penalties for violations, thereby enhancing 
the effect of the Commission's law enforcement actions. Civil penalties 
may be an especially useful deterrent in cases in which consumer 
redress or disgorgement is not available or not feasible.

A. Section 321.1: Scope

    As detailed in Part I.A, the scope of this rulemaking is set forth 
in the Omnibus Appropriations Act, as clarified by the Credit CARD Act. 
These statutes direct the Commission to commence a rulemaking 
proceeding to issue rules ``related to unfair or deceptive acts or 
practices.'' The Commission's rulemaking authority also is limited by 
the Credit CARD Act to persons over whom the FTC has enforcement power 
under the FTC Act.

B. Section 321.2: Definitions

1. Sections 321.2(e): ``mortgage credit product;'' 321.2(d): 
``dwelling;'' and 321.2(b): ``consumer''
    The proposed rule would prohibit any person from making any 
material misrepresentation in any commercial communication regarding 
any term of any mortgage credit product. Proposed Sec.  321.2(f) 
defines ``mortgage credit product.'' To fall within that definition, 
the product must meet three criteria. First, it must be a form of 
``credit.'' The term ``credit'' is defined as ``the right to defer 
payment of debt or to incur debt and defer its payment.''\102\ Second, 
the credit must be secured either by real property or a dwelling. The 
term ``dwelling'' is defined as ``a residential structure that contains 
one to four units, whether or not that structure is attached to real 
property'' and includes ``an individual condominium unit, cooperative 
unit, mobile home, and trailer, if it is used as a residence.''\103\ 
Third, the credit must be offered to a consumer primarily for personal, 
family, or household purposes. ``Consumer'' is defined as a ``natural 
person to whom a mortgage credit product is offered or extended.''\104\ 
Personal, family or household purposes would include, for example, home 
purchase or improvement loans, debt consolidation or home equity 
transactions, credit for medical or dental expenses, and educational 
loans. Credit offered or extended primarily for a business purpose 
would not be covered, even if it is secured by a lien on a dwelling. 
The determination of whether the credit is ``primarily'' for personal, 
family, or household use, rather than ``primarily'' for business use, 
requires an assessment of all of the facts of a particular transaction.
---------------------------------------------------------------------------

    \102\ Proposed Sec.  321.2(c). This definition is largely based 
on that in Regulation Z. See 12 CFR 226.2(a)(14). One difference is 
that the proposed rule covers all shared equity and shared 
appreciation mortgages offered to consumers, whereas certain types 
of such mortgages may not be considered ``credit'' under Regulation 
Z. See Regulation Z Commentary, 12 CFR 226.2(a)(14)-1 and 
226.17(c)(1)-11, Supp. I. In shared equity and shared appreciation 
mortgages, the consumer receives cash, a lower interest rate, or 
other favorable terms in exchange for agreeing to share with the 
lender or other company all or part of the consumer's total equity 
or the appreciation in the consumer's equity when the loan comes 
due, or at some other point during the loan.
    \103\ Proposed Sec.  321.2(e). Both primary and secondary (or 
vacation) homes are covered if they are used as collateral for the 
loan. The term ``dwelling'' in the proposed rule is based on that 
used in TILA and Regulation Z. See 15 U.S.C. 1602(v) and 12 CFR 
226.2(a)(19).
    Note that some aspects of the Regulation Z advertising rules 
apply only to credit secured by a dwelling and not by real property. 
See 12 CFR 226.16(d); 12 CFR 226.24(f) and (i).
    \104\ Proposed Sec.  321.2(b). Thus, credit offered or extended 
to an organization or governmental entity is not covered.
---------------------------------------------------------------------------

    Assuming they meet the above criteria, the proposed definition 
covers both closed-end credit (e.g., installment financing) \105\ and 
open-end credit (e.g., HELOCs);\106\ traditional, fully amortizing 
loans and nontraditional or

[[Page 60359]]

alternative financing;\107\ and forward and reverse mortgages.\108\
---------------------------------------------------------------------------

    \105\ Construction financing and other forms of credit in which 
multiple advances may be common are also covered. In these 
transactions, some or all of the advances may be estimates (as to 
their dollar amount or the date on which they will occur).
    \106\ The proposed rule's prohibitions apply uniformly to 
closed-end and open-end credit. In contrast, the Regulation Z 
advertising provisions (including restrictions on deceptive claims) 
are different for closed-end and open-end credit. See, e.g.,12 CFR 
226.24(i) and 12 CFR 226.16(d)(5) and (f).
    \107\ Covered alternative loans include, for example, hybrid 
ARMs, teaser rate or teaser payment loans with low rates or payments 
that expire after a short period, interest-only and balloon 
mortgages, negative amortization mortgages, shared equity and shared 
appreciation mortgages, buydowns, and payment option ARMs. For a 
discussion of the various types of mortgage loans and their 
features, see generally Interagency Subprime Mortgage Stat