President & Managing Director
Lenders Compliance Group
We
are often asked about what is or is not permitted in nonbank advertisements.
Many people are aware of the federal guidelines set forth in Regulation Z, the
implementing regulation of the Truth in Lending Act. However, some people are
not familiar with the state requirements. The lack of familiarity with state
advertising requirements happens a lot with multi-state lenders. They have a
good grasp of their home state advertising rules, but this becomes less so as
they add more and more states to their geographical footprint. Multi-state residential mortgage loan originators do alright
in home state banking examinations in the review of advertisements, but advertising
in other states can, and often does, pose a threat to a clean examination audit
in this category.
In
our Advertising Manual, we have a whole section devoted to “Do’s” and “Don’ts”
relating to advertisements. But it might be helpful to look at one state in
particular, as a kind of guide, to see how that state’s advertising rules stack
up against similar rules in other states. Of course, taking one state’s
guidelines as a template is not suggested. Many states differ from one another
with respect to advertising requirements. So, a licensee should research the statutory
mandates in each state.
Advertising
covers a very broad array of media, including Social Media. The range includes,
but is certainly not limited to, any written or verbal message, such as:
- Newspapers, magazines, or catalog advertisements
- Brochures, direct mail literature, messages on customer statements, or other printed materials, including applications
- Electronic media, including Internet home pages and electronic billboards
- Signs, either interior or exterior, and displays, and billboards
- Radio, television, or public address system broadcasts
- Oral communications between financial institution employees and actual or potential customers, including telephonic and face-to-face solicitations or response to inquiries
- Communications made through Facebook, LinkedIn, Twitter, text messaging, and other social media avenues
Under
Regulation Z, an advertisement is “a commercial message in any medium that
promotes, directly or indirectly, a credit transaction.”[i]
Additionally,
there are so-called “triggering terms,” which are specific terms used in
various advertising media that "trigger" additional disclosure
mandates.
Regulatory
frameworks and rules most associated with advertising are the Fair Housing Act,
Equal Credit Opportunity Act, Truth in Lending Act, Fair Credit Reporting Act, Federal Trade Commission rules, Mortgage
Advertising Rules, FHA Regulations, Real Estate Settlement Procedures Act, and,
of course, state requirements.
I
could pick a bevy of states that have comprehensive and nuanced advertising guidelines.
I thought it might be worthwhile to look at Virginia’s requirements, as a hermeneutical
exercise in getting a sense for what to consider as possible de minimis guidelines. Requirements may vary
from state to state. For instance, a state may require an advertisement to have
a specific licensee category and the state’s own banking department name (i.e.,
“Licensed Mortgage Banker, [Name of] State Banking Department”). Doing more
disclosure than is minimally required by the applicable statute, in order to
ensure proper disclosure to the consumer, is a fine way to ensure a ‘best
efforts’ approach toward a financial institution’s safety and soundness.
Virginia’s
advertising statute goes back a long way.[ii]
For our purposes of extracting some interpretive applications for other states’
advertising guidelines, let’s take a look at Virginia’s guidelines.
There
are nine separate categories in Virginia’s statute, and I will paraphrase and describe
each of them. Assume that the requirements must be met by mortgage lenders and
mortgage brokers alike, which I will refer to as “RMLO,” for Residential Mortgage
Loan Originator. Use the categories as a basic checklist and then go to each state’s
advertising statute to do a comparative analysis.
1.
Every
advertisement used by, or published on behalf of an RMLO
must clearly and conspicuously disclose the following information:
a.
The
name of the RMLO as set forth in the license
issued by the banking department.
b.
The
abbreviation "NMLS ID #" followed immediately by both the unique
identifier assigned by the Registry to the RMLO
and the address for the NMLS Consumer Access website in parenthesis. For
example: NMLS ID # 999999 (www.nmlsconsumeraccess.org).
c.
If
an advertisement contains a rate of interest, a statement that the stated rate
may change or not be available at the time of the loan commitment or lock-in.
d.
If
an advertisement contains specific information about a consumer's existing
mortgage loan and such information was not obtained from the consumer, a statement
identifying the source of such information (i.e., public court records, credit
reporting agency, and so forth).
2.
The
RMLO may not deceptively
advertise a mortgage loan, make false or misleading statements or
representations, or misrepresent the terms, conditions, or charges incident to
obtaining a mortgage loan.
3.
An
RMLO may not use or cause to be
published an advertisement that states or implies the following:
a.
It
is affiliated with, or an agent or division of, a governmental agency,
depository institution, or other entity with which no such relationship exists;
or
b.
A
consumer has been or will be "preapproved'' or "pre-approved'' for a
mortgage loan, unless the RMLO
i. discloses on the face
of the advertisement in at least 14-point bold type that "THIS IS NOT A
LOAN APPROVAL'' and
ii. clearly and
conspicuously discloses the conditions and/or qualifications associated with
such preapproval. This provision is intended to supplement the requirements of
the Fair Credit Reporting Act (FCRA),[iii] relating to firm
offers of credit.
4.
The
RMLO is not permitted to use or
cause to be published any advertisement that gives a consumer the false
impression that the advertisement is being sent by the consumer's current
noteholder or lienholder. If an advertisement contains the name of the
consumer's current noteholder or lienholder, it may not be more conspicuous
than the name of the RMLO using the advertisement.
5.
An
RMLO may not deliver or cause to be delivered to a consumer any envelope or
other written material that gives the false impression that the mailing or
written material is an official communication from a governmental entity,
unless required by the United States Postal Service.
6.
If
an advertisement states or implies that a consumer can reduce the monthly
payment by refinancing the current mortgage loan, but as a result of such
refinancing, the consumer's total finance charges may be higher over the life
of the loan, an RMLO must clearly and conspicuously disclose to the consumer
that by refinancing the consumer's existing loan, the consumer's total finance
charges may be higher over the life of the loan.
7.
Every
advertisement used by, or published on behalf of, an RMLO must comply with the
disclosure requirements for advertisements contained in the Truth in Lending
Act and Regulation Z.[iv]
8.
For
purposes of advertising, the term "clearly and conspicuously'' means that
a required disclosure is reasonably understandable, prominently located, and
readily noticeable by a potential borrower of ordinary intelligence.
9.
Every
RMLO must retain for at least three years after it is last published,
delivered, transmitted, or made available, an example of every advertisement
used, including but not limited to solicitation letters, commercial scripts,
and recordings of all radio and television broadcasts, but excluding copies of
Internet web pages.
Note that this state’s statute
invokes the application of Regulation Z’s advertising rules as well as the FCRA’s
guidelines relating to Firm Offers of Credit. In conducting a thorough review
of advertising requirements state by state, it is tempting to see a state’s
rules as an overlay to the federal rules. They are not overlays at all, but
carefully promulgated guidelines that are enforced meticulously by state
banking departments.
Where there is a difference between the state and federal
rules, the rule that is more restrictive will prevail. Always go beyond the
minimum advertising requirements, as the best protection to the nonbank financial
institution and the consumer is based on comprehensive disclosure.
[i] 12 CFR, PART 226, Subpart A, §226.2(a)(1)(2)
[ii] 10 VAC
5-160-60. Advertising, Official Virginia Administrative Code, current through
31:22 VA.R June 15, 2015. Fast-track regulations current through 31:11, January
26, 2015 [§§ 6.2-1613 and 12.1-13, Code of Virginia] Virginia Register, Volume
22, Issue 18, which was first effective on September 1, 2006, then amended on
January 28, 2013, in Virginia Register, Volume 29, Issue 12. January 26, 2015
it was continued.
[iii] 15 USC § 1681 et seq.
[iv] 12 CFR, Part 226
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