With instant access to online information, it seems that financial institutions should be able to find clear and concise definitions for nearly any term or phrase. But interpreting what might constitute a prohibited Unfair, Deceptive, or Abusive Act or Practice (UDAAP) in advertising can be an exercise in frustration. The Consumer Financial Protection Bureau (CFPB) sheds some light in its Examination Procedures Manual issued in October, 2012, where descriptions of prohibited acts and practices are followed by examples. While illustrative, the examples don’t provide a bright line rule that financial institutions long for. Indeed, these terms can be subject to a variety of interpretations.
Enforcement actions taken by the CFPB can provide guidance as to what will be considered a UDAAP violation. In December, 2016, the CFPB issued Consent Orders against three reverse mortgage companies for deceptive advertising. (Click here, here and here). These companies’ actions were found to be violations of Reg. N (12 C.F.R. Part 1014, applicable to entities under Federal Trade Commission jurisdiction and not to financial institutions). Financial institutions are subject to provisions of the Truth in Lending Act (Reg. Z, 12 C.F.R. Part 1026) regarding advertising. Though the regulations differ, both are designed to protect consumers from unfair, deceptive, or abusive acts or practices declared by the Dodd-Frank Act of 2010 to be illegal.
What the CFPB found to be UDAAP violations of Reg. N may illustrate what would constitute UDAAP violations of Reg. Z. Both regulations deal with acceptable and unacceptable representations with respect to the extension of mortgage credit. The statements and how they were violations included:
- that a consumer with a reverse mortgage would “always retain complete ownership of their home,” and could “live in [the] home for the rest of [his] life” or “for as long as [he] wishes” misrepresented the potential for default and the circumstances under which the consumer could default for nonpayment of taxes, insurance or maintenance or for failure to meet other obligations, and misrepresented the right of the consumer to reside in the dwelling, for how long, or under what conditions;
- that consumers with a reverse mortgage would have “no monthly payments” and could convert the equity in their homes into “tax-free income” misrepresented the terms, amounts, payments or other requirements relating to taxes or insurance, and that no payments are required; and
- that a consumer with a reverse mortgage could be “debt free,” “completely out of debt,” or “able to . . . pay off all debts” misrepresented that the mortgage credit product could reduce, eliminate or restructure debt.
Reviewing these statements may help financial institutions avoid violations in their own advertisements. To learn more about compliance for bank advertising, be sure to attend the Davenport Evans Banking Seminar on April 28, 2017 to hear a presentation on the topic.
Davenport, Evans, Hurwitz & Smith, LLP, located in Sioux Falls, South Dakota, is one of the state’s largest law firms. The firm’s attorneys provide business and litigation counsel to individuals and corporate clients in a variety of practice areas. For more information about Davenport Evans, visit www.dehs.com.