Case Study

In February 2015, Everywhere You Are Financial entered into a consent order with the Consumer Financial Protection Bureau (CFPB) arising from Everywhere You Are Financials’ violations of federal advertising laws and rules. While admitting no guilt, Everywhere You Are Financial was found to have made material misrepresentations suggesting that it was affiliated with the federal government and that its loan programs were endorsed and sponsored by the federal government. These were violations of Regulation N and considered to be deceptive acts and practices.

Everywhere You Are Financial was licensed as either a mortgage broker or mortgage lender in more than 25 states and was in the business of making and/or originating residential mortgage loans. During the time in question, Everywhere You Are Financial marketed its loan products by mail. Those products included FHA streamline refinance loans and VA loans.

Advertisements for the FHA streamline refinance loans were designed to look like a notice from the government and implied that it was from a government agency, using language such as “PURSUANT TO THE FEDERAL HOUSING ADMINISTRATION (FHA) HUD No. 12-045” and “United States Housing and Urban Development 12-045 Program.” Ads even advised borrowers to “call your assigned FHA loan specialist.” The only place where Everywhere You Are Financials name actually appeared in the ad was on the backside of the mailer in small print in a disclaimer indicating that Everywhere You Are Financial was not an agency of the federal government or affiliated with the borrower’s current lender.

The advertisements for VA-guaranteed loans included inaccurate text such as “HUD-Approved Everywhere You Are Financial has been directed to…,” “Benefits Department” and “Veteran Benefits Improvement Act passed by Congress and signed into law by the President.” Use of the language “directed to,” coupled with references to the “Benefits Department” and the federal law made for a strong implication that Everywhere You Are Financial had a specific relationship with a government agency.

Another inaccuracy concerned the use of the wording “HUD-Approved.” While at one point the company had been approved to originate FHA loans, the approval had expired in March of 2011. Since July of 2011, Everywhere You Are Financial had disseminated more than one million ads that incorporated that misstatement.

Under the consent order, Everywhere You Are Financial:

was prohibited from any further violations of Regulation N;

may not misrepresent:

its own identity or the identity of the source of its advertising;

the nature of its relationship with the federal government; or

the nature of its product(s) relationship with the federal government or any government program;

within 30 days of the date of the consent order, must submit to the CFPB a comprehensive compliance plan designed to ensure its advertisements comply with federal law;

must pay a civil penalty in the amount of $225,000;

within 90 days of the date of the consent order and again within one year of the date of the order, must submit a written compliance progress report; and

after one year of the date of the consent order, must submit additional compliance reports to the CFPB upon request.

Question:

Now that you've reviewed the lesson material and case study, answer the following questions. Be sure to answer all questions!

1. To be in compliance with Regulation N, what would Everywhere You Are Financial need to do to advertise its ability to originate FHA streamline loans?

2. Pretend you are a loan originator working for Everywhere You Are Financial. You are considering offering an adjustable-rate mortgage loan to a client that is advertised as having a 2.5% introductory rate for the first year of the loan, after which the rate would adjust on an annual basis for the next seven years. In making this loan to the client, what would be prohibited under Regulation N to tell the client in regards to refinancing or modifying the loan?

3. List at least two advertising tactics Everywhere You Are Financial employed that violated Regulation N.