Mortgage Advertising: Keeping Your Promotions Compliant

Presented by:

Steve Van Beek, Esq. Howard & Howard Attorneys PLLC

(248)723-0521 svb@h2law.com

© 2013 Howard & Howard Attorneys PLLC

Overview

• Different Rules for Different Products

• Open-end (HELOC) Requirements

• Closed-end Mortgage Requirements

• Equal Housing Disclosures

• Website and Social Media Issues

• Very easy to create an “informal ad”

• NEW – Written Estimate of Terms/Costs

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© 2013 Howard & Howard Attorneys PLLC

What is an Advertisement?

Regulation Z – 12 CFR 1026.2(a)(2):

“(2) Advertisement means a commercial message in any medium that promotes, directly or indirectly, a credit transaction.”

• Commercial message

• “any medium”

• Promotes credit – directly or indirectly

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What is an Advertisement?

Examples:

• Print advertisements;

• TV, radio, video, YouTube;

• Electronic ads – including Internet;

• Marketing flyers, letters, campaigns; and

• Signs – including exterior & interior.

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What is an Advertisement?

Examples:

• On-hold messages;

• Member newsletters; and

• Brochures and inserts.

Exclusions:

• Very limited situations - DOCUMENT

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Every Ad is Unique (this is bad)

• What type of mortgage product?

• What are the product terms?

• Have we used any trigger terms?

• What type of mortgage product?

• Where will the ad be used?

• Clear and conspicuous?

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Open-End versus Closed-End

• This distinction is crucial

– Determines which advertising rules apply

• Home Equity Lines of Credit (HELOCs)

• Open-end rules – 12 CFR 1026.16

• Closed-End Home Equity Loans

• Closed-end rules – 12 CFR 1026.24

• Other Closed-End Mortgage Loans

• Closed-end rules – 12 CFR 1026.24

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HELOC Advertising

• Clear and conspicuous standard

• Internet disclosures cannot be obscured by graphics, shading, or have “invisible links”

• TV disclosures cannot be in small print. Consumers must be able to see and read the information.

• Radio disclosures cannot be spoken rapidly or at a low volume – must be reasonable

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HELOC Advertising

• 12 CFR 1026.16(b)(1):

“Any term required to be disclosed under §1026.6(a)(1) or (a)(2) set forth affirmatively or negatively in an advertisement for a home-equity plan subject to the requirements of §1026.40 triggers additional disclosures under this section.”

• Trigger Terms include negative terms

• “We waive closing costs” or “no closing costs”

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HELOC Advertising

• 12 CFR 1026.6(a)(1) or (a)(2)

• Disclosure of when finance charges begin to accrue (as well as any “grace period”);

• The annual percentage rate (APR);

• Explanation of how balance is calculated;

• “Explanation of how the amount of any finance charge will be determined, including a description of how any finance charge other than the periodic rate will be determined”;

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HELOC Advertising

• 12 CFR 1026.6(a)(1) or (a)(2) • [OSC to 1026.6(a)(1)(iv)] – 1. Finance charges. In addition to disclosing

the periodic rate(s) under §1026.6(a)(1)(ii), creditors must disclose any other type of finance charge that may be imposed, such as minimum, fixed, transaction, and activity charges; required insurance; or appraisal or credit report fees (unless excluded from the finance charge under §1026.4(c)(7)). Creditors are not required to disclose the fact that no finance charge is imposed when the outstanding balance is less than a certain amount or the balance below which no finance charge will be imposed.

• [1026.6(a)(2)] – (2) Other charges. The amount of any charge other than a finance charge that may be imposed as part of the plan, or an explanation of how the charge will be determined.

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HELOC Advertising When trigger term is used, must disclose:

• Any minimum, fixed, transaction, activity or similar charge that is a finance charge;

• Any membership or participation fees;

• Any loan fee that is a percentage of the credit limit and any other fees to open the plan;

• Statement if property insurance is required;

• Annual percentage rate (APR) and if a variable rate, must include that fact; and

• Maximum APR, if variable-rate plan.

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HELOC Advertising Both 1026.16(b) and 1026.16(d) rules apply:

7. Relation to other sections. Advertisements for home-equity plans must comply with all provisions in §1026.16, not solely the rules in §1026.16(d). If an advertisement contains information (such as the payment terms) that triggers the duty under §1026.16(d) to state the annual percentage rate, the additional disclosures in §1026.16(b) must be provided in the advertisement. While §1026.16(d) does not require a statement of fees to use or maintain the plan (such as membership fees and transaction charges), such fees must be disclosed under §1026.16(b)(1)(i) and (b)(1)(iii).

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HELOC Advertising

• If ad mentions tax deductibility….

• Include statement that member should contact tax advisor for more information

• If loan amount can exceed the fair market value of the dwelling, clearly indicate that the portion above the value is not tax deductible…..

• Include statement that member should contact tax advisor for more information

• Be care with these statements (check website)

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HELOC Advertising

• Discounted or Introductory Rate

• Initial APR is not based on the index and margin used to make later adjustments

•Advertisement must state:

• Period of time of initial rate; and

• Reasonably current APR using the index and margin for the plan

• Equal Prominence & Close Proximity

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HELOC Advertising

• Promotional Rates (existing HELOCs)

• An APR that is not based on the index and margin for the plan

•Advertisement must include:

• Period of time for promotional rate; and

• The “go-to” APR after the promo

• Equal Prominence & Close Proximity

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HELOC Advertising

• Flexibility for TV and Radio

• Disclose the APR and include a toll-free number for additional information

•“call 1-800-XXX-XXXX for details about credit costs and terms.”

• Make sure the information is readily available through the phone number

•Must be early in sequence

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HELOC Advertising

• Equal Prominence & Close Proximity*

• Same type size and located immediately next to or directly above or below the promotional rate

• Without intervening text or graphics

*A footnote disclosure would not be in compliance

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Closed-End Mortgage Advertising

• Different trigger terms

• APR is not a trigger term for closed-end advertisements

• Different “additional disclosures”

• If trigger term used, then the APR is required to be disclosed

• Same clear and conspicuous rules

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Closed-End Mortgage Advertising

(1) Triggering terms.

– (i) The amount or percentage of any downpayment. (credit sales only)

– (ii) The number of payments or period of repayment.

– (iii) The amount of any payment.

– (iv) The amount of any finance charge.

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Closed-End Mortgage Advertising

Trigger term examples:

• 10, 20 or 30 year mortgages;

• Only $300 origination fee; or

• “Payments as low as _____”;

Most likely is the “number of payments or period of repayment”

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Closed-End Mortgage Advertising

2. Payment period. i. The number of payments required or the total period of repayment includes such statements as:

A. 48-month payment terms.

B. 30-year mortgage.

C. Repayment in as many as 36 monthly installments.

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Closed-End Mortgage Advertising

(2) Additional terms.

– (i) The amount or percentage of the downpayment. (credit sales only)

– (ii) The terms of repayment, which reflect the repayment obligations over the full term of the loan, including any balloon payment.

– (iii) The “annual percentage rate,” using that term, and, if the rate may be increased after consummation, that fact.

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Closed-End Mortgage Advertising

2. Disclosure of repayment terms. The phrase “terms of repayment” generally has the same meaning as the “payment schedule” required to be disclosed under §1026.18(g). Section 1026.24(d)(2)(ii) provides flexibility to creditors in making this disclosure for advertising purposes. Repayment terms may be expressed in a variety of ways in addition to an exact repayment schedule; this is particularly true for advertisements that do not contemplate a single specific transaction.

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© 2013 Howard & Howard Attorneys PLLC

Closed-End Mortgage Advertising

For example:

i. A creditor may use a unit-cost approach in making the required disclosure, such as “48 monthly payments of $27.83 per $1,000 borrowed.”

ii. In an advertisement for credit secured by a dwelling, when any series of payments varies because of the inclusion of mortgage insurance premiums, a creditor may state the number and timing of payments, the fact that payments do not include amounts for mortgage insurance premiums, and that the actual payment obligation will be higher.

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© 2013 Howard & Howard Attorneys PLLC

Closed-End Mortgage Advertising

5. Use of examples. A creditor may use illustrative credit transactions to make the necessary disclosures under §1026.24(d)(2). That is, where a range of possible combinations of credit terms is offered, the advertisement may use examples of typical transactions, so long as each example contains all of the applicable terms required by §1026.24(d). The examples must be labeled as such and must reflect representative credit terms made available by the creditor to present and prospective customers.

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© 2013 Howard & Howard Attorneys PLLC

Closed-End Mortgage Advertising

“30-year mortgage as low as 4.00% APR”

• Trigger term? Yes – the 30-year term.

• Must include repayment terms

•Use “payment example”

•Mortgage insurance premium disclosure*

• Must disclose the APR

•If can increase, must include that fact

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© 2013 Howard & Howard Attorneys PLLC

Closed-End Mortgage Advertising

Additional requirements for ARMs

• Be careful with term “Fixed”

•Could be misleading

• Indicate the APR is fixed for X years and disclose how often the APR can change and that the payment amount may increase

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© 2013 Howard & Howard Attorneys PLLC

Closed-End Mortgage Advertising

Be very careful with “teaser” rates

• 12 CFR 1026.24(f) – including special “clear and conspicuous” standards.

• Comment 2 of OSC to 1026.24(b) • 2009 Final Rule: “The primary purpose of these provisions

is to ensure that advertisements do not place undue emphasis on low promotional ``teaser'' rates or payments, but adequately disclose the rates and payments that the will apply over the term of the loan.”

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© 2013 Howard & Howard Attorneys PLLC

Closed-End Mortgage Advertising

What about ARM advertisements?

Comment 5 to OSC to 1026.24(f): 5. Application to variable-rate transactions—disclosure

of rates. In advertisements for variable-rate transactions, if a simple annual rate that applies at consummation is not based on the index and margin that will be used to make subsequent rate adjustments over the term of the loan, the requirements of §1026.24(f)(2)(i) apply.

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Closed-End Mortgage Advertising

Preamble to 2009 Final Rule: “Comment 24(f)-5, renumbered but otherwise as proposed, specifically addresses how this requirement applies in the context of advertisements for variable-rate transactions. For such transactions, if the simple annual rate that applies at consummation is based on the index and margin that will be used to make subsequent rate adjustments over the term of the loan, then there is only one simple annual rate and the requirements of Sec. 226.24(f)(2) do not apply. If, however, the simple annual rate that applies at consummation is not based on the index and margin that will be used to make subsequent rate adjustments over the term of the loan, then there is more than one simple annual rate and the requirements of Sec. 226.24(f)(2) apply.”

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© 2013 Howard & Howard Attorneys PLLC

Equal Housing Disclosures

Fair Housing Act requirements

• FCUs – 12 CFR 701.31

• State-Chartered

•Guidelines: 24 CFR 109.30

•Poster: 24 CFR 110.25

•Follow 12 CFR 701.31?

•Lender versus Opportunity?

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Equal Housing Disclosures

12 CFR 701.32(d)(1): (1) Advertising notice of nondiscrimination

compliance. Any federal credit union that advertises real estate-related loans must prominently indicate in such advertisement, in a manner appropriate to the advertising medium and format used, that the credit union makes such loans without regard to race, color, religion, national origin, sex, handicap, or familial status.

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Equal Housing Disclosures

(3) Real estate-related loan means any loan for which application is made to finance or refinance the purchase, construction, improvement, repair, or maintenance of a dwelling.

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Equal Housing Disclosures

(2) Dwelling [means]“Any building, structure, or portion thereof which is occupied as, or designed or intended for occupancy as, a residence by one or more families, and any vacant land which is offered for sale or lease for the construction or location thereon of any building, structure, or portion thereof”;

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Equal Housing Disclosures

Written and visual ads:

– Newspaper ads;

– Newsletters;

– Inserts;

– Billboards;

– Website and internet ads; and

– Much more…….Twitter; Facebook…

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Equal Housing Disclosures

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Written and visual ads:

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Equal Housing Disclosures

Oral advertisements:

– Radio; Pandora; Podcast; etc.

– “a credit union may satisfy the notice requirement by a spoken statement that the credit union is an ‘Equal Housing Lender’ or an ‘Equal Opportunity Lender.’”

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Equal Housing Disclosures

Written + Oral Advertisements:

– TV; YouTube; Website video, etc.

– “the use of either of the methods specified in paragraphs (d)(1)(i) or (ii) of this section will satisfy the notice requirement.”

– Logo or spoken statement (or BOTH)

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Equal Housing Disclosures

Catch-All – 12 CFR 701.31(d)(1)(iv)

• “A credit union may use any other method reasonably calculated to satisfy the notice requirement.”

• Reasonably calculated…by whom?

• Any guidance?

• #EHL

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Equal Housing Disclosures

Don’t Forget: Lobby Poster – 701.31(d)(2) “(2) Lobby notice of nondiscrimination. Every federal

credit union that engages in real estate-related lending must display a notice of nondiscrimination. The notice must be placed in the public lobby of the credit union and in the public area of each office where such loans are made and must be clearly visible to the general public.”

State-chartered CUs – 24 CFR 110.25

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FFIEC Social Media Guidance

• Are there any exemptions for social media?

• No. “The laws and regulations discussed in this Guidance do not contain exceptions regarding the use of social media.”

• Thus, the existing rules/disclosures apply to social media advertising.

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Advertising Example

• Mortgage advertisement

• “Check out our great rates on our 30 year mortgage loans!”

•Trigger term?

• No rate is listed

• But, term of the loan is listed

•Equal Housing Lender disclosure?

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Advertising Example

• Mortgage advertisement

• “Did You Know? XYZ FCU offers a variety of mortgage loans to meet your needs.”

•Facebook; Twitter; Member Newsletter; Website Ad

– Trigger term?

– Equal Housing Lender disclosure???

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Advertising Examples

• Regulation Z disclosures

• “One-Click Rule”

•Electronic advertisements, including social media and websites

•Applies to both open-end and closed-end loan advertisements

•Additional disclosures are included on a separate page via a direct link

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Advertising Examples

• “One-Click Rule”

• Allowed for:

•Reg Z additional disclosures (loans)

•TISA additional disclosures (accounts)

• Not allowed for:

•NCUA “official advertising statement”

•Equal Housing Lender disclosure

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Written Estimate of Terms or Costs

Creditors can provide worksheets prior to providing the Loan Estimate (before application)

–Information specific to the consumer

–Must include statement at top of front page, 12-point font

•“Your actual rate, payment, and costs could be higher. Get an official Loan Estimate before choosing a loan.”

– Model Form H-26; effective August 1, 2015

–Not required for preprinted lists of closing costs or rates

–Not required for advertisements

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HMDA Disclosure?

Is a CU’s website a “branch” for HMDA?

Maybe. [Eye of the beholder]

Regulation C – 12 CFR 1003.5(e): (e) Notice of availability. A financial institution shall post a general notice about the availability of its HMDA data in the lobby of its home office and of each branch office located in an MSA and Metropolitan Division. An institution shall provide promptly upon request the location of the institution's offices where the statement is available for inspection and copying, or it may include the location in the lobby notice.

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HMDA Disclosure?

HOME MORTGAGE DISCLOSURE ACT NOTICE The HMDA data about our residential mortgage lending are available for review. The data show geographic distribution of loans and applications; ethnicity, race, sex, and income of applicants and borrowers; and information about loan approvals and denials. Inquire at this office regarding the locations where HMDA data may be inspected. To receive a copy of these data send a written request to [address].

– Note: Adjustments to language are OK (and needed).

© 2013 Howard & Howard Attorneys PLLC

Advertising Compliance Tips

• Know your credit union’s products

• Know the different trigger terms

• Understand additional disclosures

• Watch out for promotional rates

• Don’t forget the payment example

• Do not assume others got it right!

• Set up a formal ad review process

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Website Compliance Tips

• Get a fresh set of eyes on your website

• Be careful for old advertisements

• “Actually available terms”

• Watch your payment examples

•Base them off available terms

• Is the APR really “as low as”?

• Where is the Equal Housing Lender logo?

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Key Takeaways • Advertisements are much more visible

now than ever before (good & bad)

• Website; Facebook; YouTube

• Members; Potential Members

• Regulators; Attorneys; Banking Groups

• There is not a perfect “universal disclosure”

• Set up a formal review process

• Ultimately, all about risk management

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Questions?

Sign-Up for Free Regulatory e-Alerts

Steve Van Beek, Esq.

Howard & Howard Attorneys PLLC

450 West Fourth Street

Royal Oak, MI 48067

248-723-0521

svb@h2law.com

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