Banking and Finance Law Daily Companies penalized for deceptive reverse mortgage ads; must take corrective action
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Wednesday, December 7, 2016

Companies penalized for deceptive reverse mortgage ads; must take corrective action

By John M. Pachkowski, J.D.

The Consumer Financial Protection Bureau has entered into consent orders with three reverse mortgage companies to settle claims that their advertisements for those mortgages were deceptive under the Mortgage Acts and Practices Advertising Rule which is codified at 12 CFR Part 1014 and the provisions of the Consumer Financial Protection Act that prohibit unfair, deceptive, or abusive acts or practices. The consent orders were entered into between the CFPB and American Advisors GroupReverse Mortgage Solutions, and Aegean Financial.

American Advisors Group. The CFPB found that, since January 2012, advertisements made by American Advisors Group, the largest reverse mortgage lender in the United States, misrepresented that consumers could not lose their home and that they would have the right to stay in their home for the rest of their lives. The company also falsely told potential customers that they would have no monthly payments and that with a reverse mortgage they would be able to pay off all debts. In fact, consumers with a reverse mortgage still have payments and can default and lose their home if they fail to comply with the loan terms.

The bureau’s consent order with American Advisors Group requires the company to make clear and prominent disclosures in its reverse mortgage advertisements and implement a system to ensure it is following all laws. It will also pay a civil penalty of $400,000.

Reverse Mortgage Solutions. Texas-based Reverse Mortgage Solutions was found to have misrepresented that consumers could not lose their home and that they would have the right to stay in their home for the rest of their lives. The CFPB also found that the company also falsely told potential customers that they would have no payments with a reverse mortgage and that they would "always retain ownership" and "can’t be forced to leave." Finally, the CFPB also claimed that the company misrepresented that heirs would inherit the home, without disclosing any conditions of the inheritance. In fact, heirs frequently are not able to keep the home after the death of a consumer with a reverse mortgage.

The terms of the Reverse Mortgage Solutions consent order requires it to provide clear and prominent disclosures in its reverse mortgage advertisements and implement a system to ensure it is following all laws. The company will also pay a civil penalty of $325,000.

Aegean Financial. Finally, Aegean Financial, which is headquartered in El Segundo, Calif., was also found to have mispresented claims to consumers that they could not lose their home and that they would have the right to stay in their home for the rest of their lives. The CFPB also found that Aegean Financial falsely affiliated itself with the government in its Spanish-language advertisements and failed to keep records of its advertisements as required by law.

Under the terms of its consent order, Aegean Financial cannot imply affiliation with the government. In addition, the company will be required to make clear and prominent disclosures in its reverse mortgage advertisements, implement a system to ensure it is following all laws, and maintain complete and accurate records. The consent order also requires that Aegean Financial pay a civil penalty of $65,000.

Tricked consumers. Commenting on the consent orders, CFPB Director Richard Cordray stated, "These companies tricked consumers into believing they could not lose their homes with a reverse mortgage," said CFPB Director Richard Cordray. "All mortgage brokers and lenders need to abide by federal advertising disclosure requirements in promoting their products."

Dangers of advertising. Since 2012, the bureau has warned of the dangers associated with misleading and deceptive reverse mortgage advertising given the complexity of the product and the consumers to whom the product is offered. For example, in a June 2012 Report to Congress on Reverse Mortgages, the CFPB stated that "[f]alse and misleading advertising poses a serious risk to consumers."

The CFPB also published a June 2015 study, and a Consumer Advisory warning, reaffirming the risk to consumers as a result of deceptive and misleading reverse mortgage advertising (see Banking and Finance Law DailyJune 4, 2015).

Companies: Aegean Financial; American Advisors Group; Reverse Mortgage Solutions

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