Background
Low Rates is a mortgage lender and broker providing mortgages guaranteed by the United States Department of Veteran Affairs that engages in direct-mail advertising campaigns to military servicemembers and their families. Millions of advertisements were sent out that, according to the consent order, were deceptive, misleading and violated Regulation Z.
Miscellaneous Representations
Credit Terms: The lender was found to not offer mortgages with the credit terms promoted in its advertisements. For example, Low Rates sent 573,500 mailers to consumers advertising a mortgage with a simple-interest rate of 2.25 % for three years and an annual percentage rate( APR) of 3.196 %. However, the advertised APR was not actually offered.
CFPB Issues Advertising Consent Orders
On Oct. 26, 2020, the Consumer Financial Protection Bureau( CFPB) issued a consent order against Low VA Rates, LLC( Low Rates) for direct-mail mortgage advertising violations. Low Rates was ordered to pay a civil money penalty of $ 1,800,000. The 51-page consent order is similar to the previous eight consent orders issued to entities advertising VA-guaranteed mortgages. So far, $ 4.4 million in civil money penalties has been assessed to nine entities for mortgage advertising compliance violations.
Doeren Mayhew will take a closer look at the ninth consent order and examine the violations committed in this article to help your institution avoid committing the same violations.
Cash-Outs: Low Rates sent 151,675 mailers advertising a“ cash-out” credit terms, which it did not actually arrange or offer. The advertisement stated the borrower could“ take $ 20,000 cash-out for only $ 87.48 per month!” However, obtaining any cash-out amount against the consumer’ s home equity was possible only if the consumer had an existing mortgage and refinanced the entire amount owed as part of a cash-out refinance mortgage, resulting in a total monthly payment larger than $ 87.48.
Fixed Rates: At one point, 1,141,690 mailers prominently referring to a 1.75 % fixed simple annual interest rate were mailed in an envelope that stated,“ Payment Reduction Entitlement Notice.” The mailer used rhetorical questions to advertise a 1.75 % fixed rate, such as“ Does your VA loan have a fixed rate of over 1.75 %?”,“ Why stay at a rate that is higher than 1.75 %?” and“ These low rates can’ t last long!”. In reality, Low Rates did not offer a 1.75 % fixed rate, which the mailer’ s fine print confirmed.
Cash Refunds: Mailers sent to 26,241 individuals promoted a“ CASH refund from current lender.” The lender failed to disclose the cash refund would be limited to the funds in the consumer’ s escrow account and they would be required to fund a new escrow account with Low Rates.
Comparisons
Low Rates violated Regulation Z( 12 C. F. R. § 1026.24( i)( 2)( i)) by misleadingly comparing consumers’ payments and
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