[Federal Register Volume 75, Number 189 (Thursday, September 30, 2010)]
[Proposed Rules]
[Pages 60352-60371]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-24353]


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FEDERAL TRADE COMMISSION

16 CFR Part 321

[RIN 3084-AB18]


Notice of Proposed Rulemaking: Mortgage Acts and Practices - 
Advertising Rule

AGENCY: Federal Trade Commission (FTC or Commission).

ACTION: Notice of proposed rulemaking; request for comment.

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SUMMARY: Pursuant to the 2009 Omnibus Appropriations Act (Omnibus 
Appropriations Act), as clarified by the Credit Card Accountability, 
Responsibility and Disclosure Act of 2009 (Credit CARD Act), the 
Commission issues a Notice of Proposed Rulemaking (NPRM) relating to 
unfair or deceptive acts and practices that may occur with regard to 
mortgage advertising, the Mortgage Acts and Practices (MAP) - 
Advertising Rule (proposed rule). The proposed rule published for 
comment, among other things, would prohibit any misrepresentation in 
any commercial communication regarding any term of any mortgage credit 
product; and impose recordkeeping requirements.

DATES: Comments must be received by November 15, 2010.

ADDRESSES: Interested parties are invited to submit written comments

[[Page 60353]]

electronically or in paper form by following the instructions in the 
Requests for Comments part of the SUPPLEMENTARY INFORMATION section 
below. Comments in electronic form should be submitted at (https://ftcpublic.commentworks.com/ftc/mapadrulenprm) (and following the 
instructions on the web-based form). Comments in paper form should be 
mailed or delivered to the following address: Federal Trade Commission, 
Office of the Secretary, Room H-135 (Annex W), 600 Pennsylvania Avenue, 
NW, Washington, DC 20580, in the manner detailed in Part IV of the 
SUPPLEMENTARY INFORMATION section below.

FOR FURTHER INFORMATION CONTACT: Laura Johnson or Carole Reynolds, 
Attorneys, Division of Financial Practices, Federal Trade Commission, 
600 Pennsylvania Avenue, NW, Washington, DC 20580, (202) 326-3224.

SUPPLEMENTARY INFORMATION:

I. Background

A. Statutory Authority

    On March 11, 2009, President Obama signed the Omnibus 
Appropriations Act.\1\ Section 626 of this Act directed the Commission 
to commence, within 90 days of enactment, a rulemaking proceeding with 
respect to mortgage loans.\2\ Section 626 also directed the FTC to use 
the notice and comment rulemaking procedures specified by Section 553 
of the Administrative Procedure Act,\3\ in this proceeding, rather than 
the rulemaking procedures set forth in Section 18 of the Federal Trade 
Commission Act (FTC Act).\4\
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    \1\ 2009 Omnibus Appropriations Act, Pub. L. 111-8, 123 Stat. 
524 (2009).
    \2\ Section 626(a), Pub. L. 111-8, 123 Stat. 524, 678 (2009) 
(codified at 15 U.S.C. 1638 note).
    \3\ 5 U.S.C. 553.
    \4\ 15 U.S.C. 57a.
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    On May 22, 2009, President Obama signed the Credit Card 
Accountability Responsibility and Disclosure Act of 2009 (Credit CARD 
Act).\5\ Section 511 of the Credit CARD Act clarified the conduct and 
types of entities for which the Commission may promulgate rules to 
implement the Omnibus Appropriations Act.\6\
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    \5\ Pub. L. 111-24, 123 Stat. 1734 (2009) (codified in scattered 
sections of 15 U.S.C.).
    \6\ Pub. L. 111-24, 123 Stat. 1734, 1763-64 (2009) (codified at 
15 U.S.C. 1638 note).
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1. Covered Acts and Practices
    Section 511 of the CARD Act specified that the FTC rulemaking 
``shall relate to unfair or deceptive acts or practices regarding 
mortgage loans, which may include unfair or deceptive acts or practices 
involving loan modification and foreclosure rescue services.''\7\ The 
Omnibus Appropriations Act, as clarified by the Credit CARD Act, does 
not otherwise specify what the Commission should include in, or exclude 
from, a rule, but rather directs the FTC to issue mortgage rules that 
``relate to'' unfairness or deception.\8\
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    \7\ Section 511(a)(1)(B), Pub. L. 111-24, 123 Stat. 1734, 1763 
(2009) (codified at 15 U.S.C. 1638 note). The Commission is 
conducting a separate rulemaking with respect to mortgage assistance 
relief services. See infra note 19.
    \8\ Section 511(a)(1)(B), Pub. L. 111-24, 123 Stat. 1734, 1763 
(2009) (codified at 15 U.S.C. 1638 note).
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    Section 5 of the FTC Act broadly proscribes unfair or deceptive 
acts or practices in or affecting commerce. An act or practice is 
deceptive if there is a representation, omission of information, or 
practice that is likely to mislead consumers who are acting reasonably 
under the circumstances, and the representation, omission, or practice 
is one that is material, i.e., likely to affect consumers' decisions to 
purchase or use the product or service at issue.\9\ Section 5(n) of the 
FTC Act sets forth a three-part test to determine whether an act or 
practice is unfair. First, the practice must be one that causes or is 
likely to cause substantial injury to consumers. Second, the injury 
must not be outweighed by countervailing benefits to consumers or to 
competition. Third, the injury must be one that consumers could not 
reasonably have avoided.\10\
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    \9\ Federal Trade Commission Policy Statement on Deception, 
appended to In re Cliffdale Assocs., Inc., 103 F.T.C. 110, 174-84 
(1984) (Deception Policy Statement).
    \10\ 15 U.S.C. 45(n). Section 5(n) of the FTC Act also provides 
that ``[i]n determining whether an act or practice is unfair, the 
Commission may consider established public policies as evidence to 
be considered with all other evidence. Such public policy 
considerations may not serve as a primary basis for such 
determination.''
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    The express statutory language of the Credit CARD Act allows the 
FTC to promulgate rules that ``relate to'' unfairness or deception. The 
Commission interprets this language to allow it to issue rules that 
prohibit or restrict unfair or deceptive conduct or that are reasonably 
related to the goal of preventing unfair or deceptive practices. The 
FTC, however, also notes that all of the conduct prohibited by the 
proposed rule is itself deceptive.
2. Covered Entities
    Section 511 of the Credit CARD Act also clarified that the 
Commission's rulemaking authority is limited to entities over which the 
FTC has jurisdiction under the FTC Act.\11\ Under the FTC Act, the 
Commission has jurisdiction over any person, partnership, or 
corporation that engages in unfair or deceptive acts or practices in or 
affecting commerce, except, among others:\12\ banks,\13\ savings and 
loan institutions, federal credit unions,\14\ non-profits,\15\ and 
common carriers. The proposed rule does not cover the practices of 
entities that are excluded from the FTC's jurisdiction.
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    \11\ Credit CARD Act Sec.  511(a)(1)(C).
    \12\ See 15 U.S.C. 44, 45(a)(2).
    \13\ The FTC Act defines ``banks'' by reference to a listing of 
certain distinct types of depository institutions. See 15 U.S.C. 44, 
57a(f)(2). That list includes: national banks, federal branches of 
foreign banks, member banks of the Federal Reserve System, branches 
and agencies of foreign banks, commercial lending companies owned or 
controlled by foreign banks, banks insured by the Federal Deposit 
Insurance Corporation (FDIC), and insured state branches of foreign 
banks. The Commission has jurisdiction over entities that are 
affiliated with banks, such as parent or subsidiary companies, that 
are not themselves banks. This jurisdiction is held concurrently 
with the federal bank regulatory agencies (the Board of Governors of 
the Federal Reserve System (Federal Reserve Board or Board), the 
Office of the Comptroller of the Currency (OCC), the FDIC, and the 
Office of Thrift Supervision (OTS)) and the National Credit Union 
Administration (NCUA) as to their respective institutions. See 
Section 133(a) of the Gramm-Leach-Bliley Act, Pub. L. 106-102, 113 
Stat. 1383 (1999) (codified at 15 U.S.C. 41 note (a)); Minnesota v. 
Fleet Mortg. Corp., 181 F. Supp. 2d 995 (D. Minn. 2001). The FTC 
also has jurisdiction over non-bank entities that provide services 
to or on behalf of a bank, such as credit card marketing. See, e.g., 
FTC v. CompuCredit Corp., No. 08-1976, at 6-15 (N.D. Ga. Oct. 8, 
2008) (magistrate judge's non-final report and recommendation) 
(finding that the FTC has jurisdiction under FTC Act against entity 
that contracted to provide services to a bank); FTC v. Am. Std. 
Credit Sys., 874 F. Supp. 1080, 1086 (C.D. Cal. 1994) (dismissing 
argument that entity that contracted to perform credit card 
marketing and other services for a bank is not subject to FTC Act).
    \14\ The exclusion is limited to federal credit unions; thus, 
the FTC has jurisdiction over state-chartered credit unions, among 
others. See infra notes 116-118 and accompanying text.
    \15\ Section 4 of the FTC Act, 15 U.S.C. 44, specifies that the 
Commission's jurisdiction over ``corporations'' is limited to 
entities that are organized to carry on business for their own 
profit or that of their members. Thus, the non-profit exemption does 
not apply to ostensible non-profits that operate for the profit of 
their ``members,'' a term that courts have interpreted to include 
affiliates and corporate officials. See, e.g., FTC v. AmeriDebt, 
Inc., 343 F. Supp. 2d 451 (D. Md. 2004); Am. Med. Ass'n v. FTC, 638 
F.2d 443 (2d Cir. 1980), aff'd by an equally divided court, 455 U.S. 
676 (1982).
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3. Enforcement
    The Omnibus Appropriations Act, as clarified by the Credit CARD 
Act, also permits both the Commission and the states to enforce the 
rules the FTC issues.\16\ The Commission can use its powers under the 
FTC Act to conduct investigations and bring law enforcement actions 
against those who violate FTC rules. In such actions, the Commission 
may seek injunctive relief, as well as civil penalties if the defendant 
committed the violations

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with actual knowledge or knowledge fairly implied on the basis of 
objective circumstances that its practices were unfair or deceptive and 
violated the rule.\17\ In addition, states can enforce the rules by 
bringing civil actions in federal district court or another court of 
competent jurisdiction to obtain civil penalties and other relief. 
Before bringing such an action, however, a state must give 60 days 
advance notice to the ``primary federal regulator'' of the proposed 
defendant (unless such notice is not feasible), and the regulator has 
the right to intervene in the action.
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    \16\ Omnibus Appropriations Act Sec.  626; Credit CARD Act Sec.  
511(a)(1)(C) and (a)(2).
    \17\ See 15 U.S.C. 45(m)(1)(A). The Commission must refer any 
action for civil penalties to the Department of Justice, which may 
file the case or return it to the Commission for filing. See 15 
U.S.C. 56.
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B. Advance Notice of Proposed Rulemaking

    On June 1, 2009, the Commission published in the Federal Register 
an Advance Notice of Proposed Rulemaking (ANPR) soliciting comments on 
the contours of a possible rule that would prohibit or restrict unfair 
and deceptive acts and practices that may occur throughout the life-
cycle of a mortgage loan,\18\ i.e., in the advertising and marketing of 
the loan, at the time of loan origination, in the home appraisal 
process, and during the servicing of the loan.\19\ The ANPR described 
these services generically as ``Mortgage Acts and Practices,'' and the 
rulemaking proceeding was entitled the Mortgages Acts and Practices 
(MAP) Rulemaking. In response to the ANPR, the Commission received a 
total of 55 comments, of which 46 were germane.\20\ About half of the 
comments were from individuals, with the rest from industry trade 
associations or groups, consumer advocacy groups, credit unions, a 
government-sponsored enterprise (GSE), a state attorney general, a 
group of state credit union regulators, and a labor union. Most of the 
comments express support for FTC regulatory action regarding various 
aspects of the mortgage loan life-cycle.\21\ Several comments, however, 
urge the FTC to focus its resources on enforcement or wait to gauge the 
effectiveness of other mortgage-related rules promulgated recently by 
other federal agencies before proceeding with its own regulations.\22\
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    \18\ The Omnibus Appropriations Act and the Credit CARD Act use 
the term ``loan'' in referring to mortgage credit generally and do 
not limit that term in any way. Accordingly, this NPRM and the 
proposed rule use the term ``loan'' to refer to any form of mortgage 
credit.
    \19\ Mortgage Acts and Practices, ANPR, 74 FR 26118 (June 1, 
2009). On the same date, the Commission issued another ANPR, the 
Mortgage Assistance Relief Services Rulemaking, addressing the acts 
and practices of for-profit companies that offer to work with 
lenders or servicers on behalf of consumers seeking to modify the 
terms of their loans or to avoid foreclosure on their loans. 
Mortgage Assistance Relief Services (MARS), ANPR, 74 FR 26130 (June 
1, 2009). The Commission has issued an NPRM on the MARS Rule. 75 FR 
10707 (Mar. 9, 2010).
    \20\ The other nine comments are duplicates, replacements, 
blank, or ``test'' submissions. Public comments associated with the 
MAP ANPR are available at (http://www.ftc.gov/os/comments/map/index.shtm). In addition, a list of commenters cited in this NPRM, 
along with their short citation names or acronyms used throughout 
the NPRM, is attached to this document. See Table A - List of 
Commenters and Short-names/Acronyms, infra.
    \21\ See, e.g., MICA at 9; NAR at 2; AG Mass. at 1; NCLC at 1; 
NCRC at 1; CRL at 1.
    \22\ See, e.g., MBA at 1; ABA at 6.
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    The Commission received several comments that focus specifically on 
mortgage advertising; these are addressed below.\23\ Six of these 
discuss various advertising issues,\24\ while three additional comments 
refer to other federal advertising regulations.\25\ Several commenters 
expressed various degrees of support for FTC rules on mortgage 
advertising generally or specific aspects of mortgage advertising or 
marketing.\26\ Others urged the Commission to incorporate through this 
rulemaking aspects of Regulation Z under the Truth in Lending Act 
(TILA)\27\ to enable the Commission to obtain civil penalties for 
violations of those provisions.\28\ Commenters representing banks and 
credit unions, and a group of state credit union regulators, raised 
questions about the application of the prospective rules to banking 
subsidiaries or affiliates,\29\ or to state-chartered credit 
unions.\30\
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    \23\ See infra Parts III and IV.
    \24\ See CMC/AFSA at 7; HPC at 3; ABA at 5; MBA at 5; MICA at 3; 
CUNA at 2.
    \25\ See BECU at 3; NASCUS at 2; GCUA at 2.
    \26\ See, e.g., HPC at 3; MICA at 3; CMC/AFSA at 7; ABA at 6.
    \27\ 12 CFR 226. The Federal Reserve Board issued Regulation Z, 
which implements TILA, 15 U.S.C. 1601-1666j. The Home Ownership and 
Equity Protection Act (HOEPA), 15 U.S.C. 1639, is part of TILA.
    \28\ See, e.g., ABA at 6 (certain aspects of advertising rules 
for nonbank entities); CRL at 19.
    The Commission has authority to obtain civil penalties for 
violations of rules that the Board promulgates under Section 
129(l)(2) of TILA (part of HOEPA), 15 U.S.C. 1639(l)(2). See Omnibus 
Appropriations Act Sec.  626(c). As discussed further below, see 
infra note 56, the Board issued mortgage-related rules in July 2008, 
some of which were promulgated under Section 129(l)(2) of TILA. See 
generally 73 FR 44522 (July 30, 2008).
    In contrast, the Commission does not have specific authority to 
obtain civil penalties for violations of rules that the Board 
promulgates under Section 105 of TILA. 15 U.S.C. 1604. See generally 
Omnibus Appropriations Act Sec.  626(c). Some provisions of the 
Board's July 2008 mortgage rules were promulgated under Section 105. 
See 73 FR 44522-23. Incorporating the Board's Section 105 rules into 
the proposed MAP - Advertising Rule would give the Commission 
authority to seek civil penalties for violations of the Section 105 
rules. The advantages and disadvantages of incorporating the Section 
105 rules, which include technical and complex advertising 
requirements, are discussed below. See infra Parts III.C.2 and 
IV.C.2.
    \29\ See, e.g., CMC/AFSA at 3; ABA at 4-5. For a discussion of 
the FTC's jurisdiction, see supra Part I.A.2.
    \30\ See generally CUNA; NASCUS; BECU; Zager; GCUA. Among other 
things, various comments note that the Commission lacks jurisdiction 
to issue rules for federally-chartered credit unions. Some comments 
assert that credit union advertising is already regulated.
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    As discussed more fully below, advertising is the initial step and 
often a crucial part of the mortgage process. Consumers may not make 
well-informed decisions if the information they receive through 
advertising is deceptive. The Commission therefore has determined to 
issue this NPRM focused exclusively on mortgage advertising practices. 
The Commission may issue additional proposed rules regarding other 
aspects of the mortgage process in the future.

II. Mortgage Advertising Practices

A. Overview

    As discussed in the ANPR, the mortgage life-cycle begins when a 
consumer initially shops for a mortgage, whether to purchase a home or 
real property,\31\ refinance an existing mortgage, or obtain a home 
equity loan or line of credit (known as a HELOC) based on the 
consumer's equity in the home.\32\ In this process, the consumer may 
encounter diverse types of mortgage products. The loan may either be a 
forward mortgage, the most prevalent type of loan, where the homeowner 
borrows funds and remits payments for principal, interest, and in some 
cases other charges; or a reverse mortgage, a home-secured loan 
typically offered to senior citizens which the borrower is not required 
to repay as long as he or she remains in the home and which only 
becomes due when the homeowner moves out of or sells the home, dies, or 
fails to satisfy certain loan conditions.\33\ Forward mortgages may be 
traditional, such as 30-year

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fixed-rate or adjustable rate amortizing mortgages (ARMs),\34\ or 
nontraditional,\35\ the latter having proliferated in the mortgage 
marketplace in recent years.
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    \31\ Traditional mortgages are considered ``closed-end credit,'' 
generally consisting of installment financing where the amount 
borrowed and repayment schedule are set at the transaction's outset. 
TILA and Regulation Z set various advertising and other requirements 
for closed-end credit. See, e.g., 12 CFR 226.17-.24.
    \32\ HELOCs typically are ``open-end credit,'' which TILA 
defines as credit extended to a consumer under a plan in which: (1) 
the consumer reasonably contemplates repeated transactions; (2) the 
creditor may impose a finance charge from time to time on the 
outstanding unpaid balance; and (3) the amount of credit that may be 
extended to the consumer during the plan's term is generally made 
available to the extent that any unpaid balance is repaid. See 15 
U.S.C. 1602(i); 12 CFR 226.2(a)(10) and (20).
    \33\ See generally 12 CFR 226.33 (reverse mortgages under 
Regulation Z), and U.S. Department of Housing and Urban Development 
(HUD), Glossary, definition of ``reverse mortgage,'' available at 
(http://www.hud.gov/offices/hsg/sfh/buying/glossary.cfm).
    \34\ In an amortizing loan, the borrower pays principal and the 
full amount of interest that is due each month throughout the life 
of the loan.
    \35\ Nontraditional mortgages include loan products that may 
offer consumers financial options but also pose substantial risk. 
These include, for example, interest-only (I/O) loans and payment 
option ARMs (option ARMs). I/O loans involve an initial loan period 
in which the borrower pays only the interest accruing on the loan 
balance; after the initial period, the borrower either makes 
increased payments of principal and interest and/or remits a large 
payment, sometimes referred to as a ``balloon payment.'' Option ARMs 
offer borrowers several choices each month during the loan's 
introductory period, including a minimum payment that is smaller 
than the interest accruing on the principal. After the introductory 
period, the loan is recast, and the borrower's payments increase to 
amortize and repay principal and the adjustable interest rate over 
the remaining loan term. See generally FTC, Comment To Jennifer L. 
Johnson, Secretary, Board of Governors of the Federal Reserve System 
(Sept. 14, 2006), at 5-13 (providing comments on the home equity 
lending market and summarizing the Commission's May 2006 alternative 
mortgage workshop, Protecting Consumers in the New Mortgage 
Marketplace), available at (http://www.ftc.gov/opa/2006/09/fyi0661.shtm) (FTC Comment on Home Equity Lending and Alternative 
Mortgage Workshop).
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    Consumers receive information about mortgages through many 
different channels of communication. Some consumers seek out mortgage 
information on their own, for example, on the Internet or by contacting 
a real estate broker, mortgage lender, mortgage broker, or others. 
Marketers and advertisers widely disseminate mortgage advertisements to 
consumers through print media (such as newspapers and magazines), 
television, radio, the Internet, billboards, and other methods. 
Marketers and advertisers also send targeted information to particular 
consumers through direct mail or electronic communications such as e-
mail or text messages.
    Many types of entities market and advertise mortgage products. 
Mortgage lenders, mortgage brokers, mortgage servicers, and real estate 
brokers advertise and market mortgage products. In addition, 
advertising agencies, home builders, lead generators,\36\ rate 
aggregators,\37\ and others also may market and advertise mortgage 
products to consumers. Mortgage lenders and servicers in particular may 
market products to their current customers, in addition to prospective 
customers.
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    \36\ Lead generators are business entities that provide, in 
exchange for consideration, consumer information to a seller or 
telemarketer for use in the marketing of goods or services. See, 
e.g., Quik Payday, Inc. v. Stork, 549 F.3d 1302, 1304 (10th Cir. 
2008); FTC v. Connelly, No. SA CV 06-701 DOC (RNBx), 2006 U.S. Dist. 
LEXIS 98263, at *11 (C.D. Cal. Dec. 20, 2006); United States v. 
Ameriquest Mortg. Co., No. 8:07-cv-01304 CJC-MLG (C.D. Cal. 2007) 
(stipulated judgment and order).
    \37\ Rate aggregators regularly collect and publish rates and 
other information from numerous mortgage lenders, mortgage brokers, 
or other sources. Consumers typically can compare mortgage credit 
product terms for free by searching or viewing this information 
sorted by rate, loan amount, mortgage credit product, or other 
criteria. Rate aggregators may supply the lenders' or brokers' 
contact information, so the consumer can reach them directly, or 
they may act as a lead generator and provide the consumer's 
information to lenders or brokers.
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B. Deception in Mortgage Advertising

    Advertising and marketing can provide consumers with valuable 
information about mortgage options, costs, and features. This 
information is critical to the decisions consumers make throughout the 
mortgage origination process and is especially important because 
mortgage products typically are complex.\38\ Information is useful for 
decision making, however, only if it is truthful and non-
misleading.\39\ Preventing and deterring deception in advertisements 
for mortgages, therefore, is a primary objective of FTC law enforcement 
and of the proposed rule.
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    \38\ This is particularly true for nontraditional mortgages, the 
terms of which are often unfamiliar to consumers. See generally FTC 
Comment on Home Equity Lending and Alternative Mortgage Workshop, 
supra note 35.
    \39\ Conversely, deceptive claims in marketing information 
undermine the ability of consumers to make well-informed decisions. 
See generally Prepared Statement of the Federal Trade Commission: 
Hearing Before the Senate Committee on Commerce, Science, and 
Transportation, Subcommittee on Consumer Protection, Product Safety, 
and Insurance, July 14, 2009, available at (http://www.ftc.gov/os/2009/07/P094492antifraudlawtest.pdf); Prepared Statement of the 
Federal Trade Commission on ``Foreclosure Rescue and Loan 
Modification Scams'': Hearing Before the House Committee on 
Financial Services, Subcommittee on Housing and Community 
Opportunity, May 6, 2009, available at (http://www.ftc.gov/os/2009/05/P064814foreclosuretescue.pdf); see also Interagency Guidance on 
Nontraditional Mortgage Products Risks (Interagency Nontraditional 
Mortgage Guidance), 71 FR 58609 (Oct. 4, 2006) (federal bank 
regulatory agencies' guidance to address risks associated with 
growing use of mortgage products that allow borrowers to defer 
payment of principal and sometimes interest); Interagency Statement 
on Subprime Mortgage Lending (Interagency Subprime Mortgage 
Statement), 72 FR 37569 (July 10, 2007) (federal bank regulatory 
agencies' guidance to address risks with subprime mortgage products 
and lending practices, including adjustable rate mortgages with low 
initial payments that expire after a short period and could result 
in payment shock); Federal Financial Institutions Examination 
Council (FFIEC); Reverse Mortgage Products: Guidance for Managing 
Compliance and Reputation Risks (FFIEC Reverse Mortgage Guidance), 
75 FR 50801 (Aug. 17, 2010) (guidance issued by federal and state 
bank regulatory agencies on need for adequate information and other 
consumer protections regarding reverse mortgage products); and Press 
Release, FTC, FTC Warns Mortgage Advertisers and Media That Ads May 
Be Deceptive, Sept. 11, 2007, available at (http://www.ftc.gov/opa/2007/09/mortsurf.shtm).
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    In 1984, the FTC issued its Deception Policy Statement, setting 
forth the elements of deception. An act or practice is deceptive if: 
(1) there is a representation, omission of information, or practice 
that is likely to mislead consumers acting reasonably under the 
circumstances; and (2) that representation, omission, or practice is 
material to consumers.\40\
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    \40\ See Deception Policy Statement, supra note 9, at 175-183; 
see also FTC v. Tashman, 318 F.3d 1273, 1277 (11th Cir. 2003); FTC 
v. Gill, 265 F.3d 944, 950 (9th Cir. 2001); FTC v. QT, Inc., 448 F. 
Supp. 2d 908, 957 (N.D. Ill. 2006), aff'd, 512 F.3d 858 (7th Cir. 
2008); FTC v. Think Achievement Corp., 144 F. Supp. 2d 993, 1009 
(N.D. Ind. 2000); FTC v. Minuteman Press, 53 F. Supp. 2d 248, 258 
(E.D.N.Y. 1998).
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    A representation may be express or implied. ``Express claims 
directly represent the fact at issue, while implied claims do so in an 
oblique or indirect way.''\41\ Whether an implied claim is made depends 
on the overall net impression that consumers take away from an 
advertisement or other representation based on all its elements 
(language, pictures, graphics, etc.).\42\ The FTC evaluates whether 
consumers' impression or interpretation of a representation or omission 
is reasonable. Reasonableness is evaluated based on the sophistication 
and understanding of consumers in the group to which the representation 
is targeted, which may be a general audience or a specific group, such 
as children or the elderly.\43\ A claim may be susceptible to more than 
one reasonable interpretation, and if one such interpretation is 
misleading, then the advertisement is deceptive, even if other, non-
deceptive interpretations are possible.\44\
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    \41\ FTC v. QT, Inc., 448 F. Supp. 2d at 957.
    \42\ See FTC v. Cyberspace.com, 453 F.3d 1196, 1200 (9th Cir. 
2006) (``A solicitation may be likely to mislead by virtue of the 
net impression it creates even though the solicitation also contains 
truthful disclosures.''); FTC v. Gill, 265 F.3d at 956 (affirming 
deception finding based on ``overall `net impression''' of 
statements); Removatron Int'l Corp. v. FTC, 884 F.2d 1489, 1497 (1st 
Cir. 1989) (advertisement was deceptive despite written 
qualification); Thompson Med. Co. v. FTC, 791 F.2d 189, 197 (D.C. 
Cir. 1986) (literally true statements may nonetheless be deceptive); 
FTC v. QT, Inc., 448 F. Supp. 2d at 958.
    \43\ See Deception Policy Statement, supra note 9, at 177-79.
    \44\ See id. at 178.
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    A disclaimer or qualifying statement may correct a misleading 
impression, but only if it is sufficiently clear and prominent to 
convey the qualifying information effectively, i.e., it is both noticed 
and understood by consumers. ``[I]n many circumstances, reasonable 
consumers do not read the entirety of an ad or are directed away from 
the importance of the qualifying phrase by

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the acts or statements of the seller;''\45\ thus, a fine print 
disclosure at the bottom of a print advertisement or a brief video 
superscript in a television advertisement is unlikely to qualify a 
claim effectively.\46\ Similarly, because consumers ``may glance only 
at the headline'' of an advertisement, ``accurate information in the 
text may not remedy a false headline.''\47\
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    \45\ Id. at 181.
    \46\ See, e.g., id. at 180; see also In re Stouffer Food Corp., 
118 F.T.C. 746 (1994); In re Kraft, Inc., 114 F.T.C. 40, 124 (1991), 
aff'd, 970 F.2d 311 (7thCir. 1992).
    \47\ Deception Policy Statement, supra note 9, at 180.
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    A representation, omission, or practice is material if it is likely 
to affect a consumer's choice of or conduct regarding a product.\48\ If 
consumers are likely to have chosen differently but for the claim, the 
claim is likely to have caused consumer injury.\49\ Express claims are 
presumed material.\50\ Similarly, information regarding the cost of a 
product or service is presumed material.\51\ Intentional implied 
claims,\52\ and claims about the purpose and efficacy of a product or 
service,\53\ are also presumed material.
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    \48\ See Kraft, Inc. v. FTC, 970 F.2d 311, 322 (7th Cir. 1992); 
In re Cliffdale Assocs., Inc.,103 F.T.C. 110, 165 (1984); see also 
FTC v. SlimAmerica, Inc., 77 F. Supp. 2d 1263, 1272 (S.D. Fla. 
1999).
    \49\ See Deception Policy Statement, supra note 9, at 183.
    \50\ See FTC v. Pantron I Corp., 33 F.3d 1088, 1095-96 (9th Cir. 
1994).
    \51\ See In re Peacock Buick, 86 F.T.C. 1532, 1562 (1975), 
aff'd, 553 F.2d 97 (4th Cir. 1977); Deception Policy Statement, 
supra note 9, at 182-83.
    \52\ See In re Thompson Med. Co., Inc., 104 F.T.C. 648, 816 
(1984), aff'd, 791 F.2d 189 (D.C. Cir. 1986).
    \53\ Novartis Corp. v. FTC, 223 F.3d 783, 786-87 (D.C. Cir. 
2000).
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C. Other Mortgage Advertising Requirements\54\
---------------------------------------------------------------------------

    \54\ This discussion is not intended as a comprehensive list of 
all potentially applicable mortgage advertising and marketing laws.
---------------------------------------------------------------------------

    In addition to the FTC Act, mortgage advertisers and marketers are 
subject to TILA (including HOEPA) and Regulation Z, among other legal 
requirements.\55\ In July 2008, the Federal Reserve Board issued many 
new mortgage advertising rules under Regulation Z; these rules took 
effect on October 1, 2009.\56\
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    \55\ These other requirements include mortgage advertising 
mandates under the Helping Families Save Their Homes Act of 2009, 
Pub. L. 111-22, Sec.  203, 123 Stat. 1632 (2009) (codified at 12 
U.S.C. 5201 note), which HUD enforces, and advertising regulations 
and guidance for Federal Housing Administration programs, which HUD 
has issued. For example, FHA-approved lenders or mortgagees must use 
their HUD-registered business names in advertisements and 
promotional materials for FHA programs and maintain copies of their 
materials for two years. See 75 FR 20718 (Apr. 20, 2010), to be 
codified at 24 CFR 202. Lenders and others are permitted to 
distribute the FHA and fair housing logos in marketing materials to 
prospective FHA borrowers. HUD-approved mortgagees are required to 
establish procedures for compliance with FHA program requirements, 
including to avoid engaging in false or misrepresentative 
advertising. See HUD Mortgagee Letters 2009-02 and 2009-12, 
available at (http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/2009ml.cfm); see also infra note 116 (discussing NCUA and 
OTS advertising regulations).
    \56\ See 73 FR at 44599-602, codified generally at 12 CFR 
226.16, 226.24; see also supra note 28. On August 16, 2010, the 
Board proposed additional protections and disclosure requirements 
for mortgage advertisements. See Press Release, Board, Federal 
Reserve Board Proposes Enhanced Consumer Protections and Disclosures 
for Home Mortgage Transactions, (http://www.federalreserve.gov/newsevents/press/bcreg/20100816e.htm) (Aug. 16, 2010).
---------------------------------------------------------------------------

    For example, for closed-end credit, TILA and Regulation Z contain 
four basic requirements for mortgage advertisements.\57\ First, an 
advertisement must reflect terms actually available to the 
consumer.\58\ Second, required disclosures must be made clearly and 
conspicuously in the advertisement.\59\ Third, any advertisement that 
includes any credit rate must state the annual percentage rate, or 
``APR.''\60\ The APR must be stated at least as conspicuously as a 
stated interest rate.\61\ Fourth, if any major triggering loan term 
(e.g., a monthly payment amount) is advertised, other major terms, 
including the APR, must also be advertised.\62\
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    \57\ See 15 U.S.C. 1661-62, 1664-65a; 12 CFR 226.24. For TILA 
and Regulation Z open-end credit advertising requirements, see 15 
U.S.C. 1661-63, 1665-65b; 12 CFR 226.16.
    \58\ See 15 U.S.C. 1662; 12 CFR 226.24(a).
    \59\ See 15 U.S.C. 1664; 12 CFR 226.24(b).
    \60\ See 15 U.S.C. 1664; 12 CFR 226.24(c). For closed-end credit 
advertisements, the Board also expressly prohibits advertising any 
rate that is lower than the rate at which interest is accruing, such 
as an effective rate, payment rate, or qualifying rate. See 74 FR 
44581-82, 44608, codified at Federal Reserve Board Official Staff 
Commentary (Regulation Z Commentary), 12 CFR 226.24(c)-2, Supp. I. 
The Board promulgated this rule using its authority under TILA 
Section 105. Id. In some circumstances, for closed-end credit 
secured by a dwelling, advertisements must provide other disclosures 
relating to rates. See, e.g., 12 CFR 226.24(f).
    \61\ See 15 U.S.C. 1664; 12 CFR 226.24(c).
    \62\ See 15 U.S.C. 1664; 12 CFR 226.24(d). In some 
circumstances, for closed-end credit secured by a dwelling, 
advertisements must provide other disclosures relating to payments. 
See, e.g., 12 CFR 226.24(f).
---------------------------------------------------------------------------

    For closed-end credit secured by a dwelling, Regulation Z also 
prohibits the following advertising claims based on the Board's 
conclusion that they are misleading or deceptive: (1) advertising as 
``fixed'' a rate or payment that will change after a period of time, 
unless the advertisement meets certain criteria, such as having an 
equally prominent and closely proximate disclosure that the rate or 
payment is ``fixed'' for only a limited period of time; (2) comparing 
actual or hypothetical rates or payments to the rates or payments on an 
advertised loan, unless the advertisement discloses the rates or 
payments that will apply over the full term of the advertised loan; (3) 
misrepresenting an advertised loan as part of a ``government loan 
program'' or otherwise endorsed or sponsored by a government entity; 
(4) using the name of the consumer's current lender, unless the 
advertisement has an equally prominent disclosure of the person 
actually disseminating the advertisement and includes a clear and 
conspicuous statement that the advertiser is not associated with the 
consumer's current lender; (5) making any misleading claim that an 
advertised loan will eliminate debt or result in a waiver or 
forgiveness of a consumer's existing loan terms with, or obligations 
to, another creditor; (6) using the term ``counselor'' in an 
advertisement to refer to a for-profit mortgage broker or mortgage 
lender; and (7) advertising mortgages in a language other than English 
while providing critical advertising disclosures only in English.\63\
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    \63\ See 12 CFR 226.24(i); see also 73 FR at 44586-590, 44602, 
44610. As noted above, the Board promulgated these rules using its 
authority under TILA Section 129(l)(2), which is part of HOEPA. See 
supra note 28.
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    TILA and Regulation Z require certain other advertising disclosures 
for HELOCs, a type of open-end credit.\64\ HELOC advertisements may not 
refer to a home equity plan as ``free money'' or contain a similarly 
misleading term.\65\ For example, such an advertisement could not state 
``no closing costs'' or ``we waive closing costs'' if consumers may be 
required to pay any closing costs.\66\
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    \64\ See, e.g., 12 CFR 226.16(d). The Board promulgated these 
rules using its authority under TILA Section 105(a). See supra note 
28.
    \65\ See 16 CFR 226.16(d)(5).
    \66\ See Regulation Z Commentary, 12 CFR 226.16(d)-4, Supp. I; 
75 FR 7658, 7898 (Feb. 22, 2010); see also 12 CFR 226.16(f).
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    The states also have enacted various laws or regulations that 
address aspects of deceptive mortgage advertising practices,\67\ 
including laws implementing the federal Secure and Fair Enforcement for 
Mortgage Licensing Act of 2008 (SAFE Act), which requires a nationwide 
licensing and/or registration system for mortgage loan originators.\68\
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    \67\ State advertising requirements differ from one another in 
the practices, types of credit, and entities covered. See, e.g., Me. 
Rev. Stat. Ann. tit. 9-A, 9-301 (2009); Md. Code Regs. 09.03.06.05 
(2009); Nev. Rev. Stat. Ann. 645B.196 (2009); N.Y. Bank. Law 595-a 
(Consol. 2010).
    \68\ Title V of the Housing and Economic Recovery Act of 2008, 
Pub. L. 110-289 (2008) (codified at 12 U.S.C. 5101). Since the SAFE 
Act's enactment on July 30, 2008, the states have been moving to 
enact or amend laws to license mortgage loan originators. See 
generally (http://www.csbs.org); see also HUD SAFE Mortgage 
Licensing Act, available at (http://hud.gov/offices/hsg/rmra/safe/sfea.cfm). Various new state SAFE laws address advertising in 
different ways. See, e.g., H.B. 1085, 67th Gen. Assem., Reg. Sess. 
(Colo. 2009); S.B. 948, 2009 Gen. Assem., Reg. Sess. (Conn. 2009); 
S.B. 1218, 25th Leg., 1st Spec. Sess. (Haw. 2009); H.B. 4011, 96th 
Gen. Assem., Reg. Sess. (Ill. 2009); A.B. 3816, 213th Leg., 2nd Ann. 
Sess. (N.J. 2009). The federal banking agencies and Farm Credit 
Administration also are implementing a registration system and other 
requirements for mortgage loan originators. See 74 FR 27386 (June 9, 
2009).

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[[Page 60357]]

    None of these federal or state measures duplicates the specificity 
and breadth of practices, and diversity of entities\69\ covered in the 
proposed rule.
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    \69\ See infra Part III.B.4.
---------------------------------------------------------------------------

D. Consumer Protection Problems in Mortgage Advertising

    The FTC has substantial law enforcement experience with mortgage 
advertising practices. Since 1995, the Commission has brought 18 law 
enforcement actions, including three in 2009, against individuals or 
companies that allegedly engaged in unfair or deceptive practices and/
or violations of TILA in connection with mortgage advertising.\70\ 
These actions have targeted large and small mortgage lenders, mortgage 
brokers, and others, located throughout the country.\71\ The cases have 
involved advertisements and marketing materials in various media, 
including print advertisements,\72\ unsolicited emails,\73\ direct mail 
marketing,\74\ Internet advertisements and websites,\75\ 
telemarketing,\76\ and in-person sales presentations.\77\ The alleged 
violations have included deceptive claims - often made to subprime 
borrowers - about key terms and other aspects of the loans, such as:
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    \70\ See Table B - List of FTC Mortgage Advertising Enforcement 
Actions, infra.
    \71\ See, e.g., FTC v. Mortgages Para Hispanos.com Corp., No. 
4:06-cv-19 (E.D. Tex. 2006); FTC v. Ranney, No. 04-F-1065 (MJW) (D. 
Colo. 2004); FTC v. Chase Fin. Funding, Inc., No. SACV04-549 GLT 
(ANx) (C.D. Cal. 2004); FTC v. OSI Fin. Servs., Inc., No. 02-C-5078 
(N.D. Ill. 2002); United States v. Mercantile Mortg. Co., No. 02-C-
5079 (N.D. Ill. 2002); FTC v. Assocs. First Capital Corp., No. 1:01-
00606 JTC (N.D. Ga. 2001); FTC v. First Alliance Mortg. Co., No. 
SACV 00-964 DOC (EEx) (C.D. Cal. 2000).
    \72\ See, e.g., FTC v. Safe Harbour Found. of Fla., Inc., No. 
08-C-1185 (N.D. Ill. 2008); FTC v. Ranney, No. 04-F-1065 (MJW) (D. 
Colo. 2004).
    \73\ See, e.g., FTC v. 30 Minute Mortg., Inc., No. 03-60021 
(S.D. Fla. 2003); FTC v. Chase Fin. Funding, Inc., No. SACV04-549 
GLT (ANx) (C.D. Cal. 2004).
    \74\ See, e.g., In re Am. Nationwide Mortg. Co., Inc., F.T.C. 
Dkt. No. C-4249 (2009); In re Michael Gendrolis, F.T.C. Dkt. No. C-
4248 (2009); FTC v. Chase Fin. Funding, Inc., No. SACV04-549 GLT 
(ANx) (C.D. Cal. 2004); FTC v. First Alliance Mortg. Co., No. SACV 
00-964 DOC (EEx) (C.D. Cal. 2000); United States v. Unicor Funding, 
Inc., No. SACV99-1228 (C.D. Cal. 1999); FTC v. Assocs. First Capital 
Corp., No. 1:01-00606 JTC (N.D. Ga. 2001); FTC v. Safe Harbour 
Found. of Fla., Inc., No. 08-C-1185 (N.D. Ill. 2008); In re 
FirstPlus Fin. Group, Inc., F.T.C. Dkt. No. C-3984 (2000).
    \75\ See, e.g., In re Shiva Venture Group, Inc., F.T.C. Dkt. No. 
C-4250 (2009); FTC v. Ranney, No. 04-F-1065 (MJW) (D. Colo. 2004).
    \76\ See, e.g., FTC v. First Alliance Mortg. Co., No. SACV 00-
964 DOC (EEx) (C.D. Cal. 2000).
    \77\ See, e.g., id.; FTC v. Assocs. First Capital Corp., No. 
1:01-00606 JTC (N.D. Ga. 2001).
---------------------------------------------------------------------------

    <bullet> misrepresentations of the loan amount or the amount of 
cash disbursed;\78\
---------------------------------------------------------------------------

    \78\ See, e.g., id.; FTC v. OSI Fin. Servs., Inc., No. 02-C-5078 
(N.D. Ill. 2002); United States v. Mercantile Mortg. Co., No. 02-C-
5079 (N.D. Ill. 2002); In re FirstPlus Fin. Group, Inc., F.T.C. Dkt. 
No. C-3984 (2000).
---------------------------------------------------------------------------

    <bullet> claims for loans with specified terms, when no loans with 
those terms were available from the advertiser;\79\
---------------------------------------------------------------------------

    \79\ See, e.g., FTC v. 30 Minute Mortg., Inc., No. 03-60021 
(S.D. Fla. 2003).
---------------------------------------------------------------------------

    <bullet> claims of low ``teaser'' rates and payment amounts, 
without disclosing that the rates and payments would increase 
substantially after a limited period of time;\80\
---------------------------------------------------------------------------

    \80\ See, e.g., In re Am. Nationwide Mortg. Co., Inc., F.T.C. 
Dkt. No. C-4249 (2009); In re Shiva Venture Group, Inc., F.T.C. Dkt. 
No. C-4250 (2009); In re Michael Gendrolis, F.T.C. Dkt. No. C-4248 
(2009). The FTC also sent over 200 warning letters in 2007 to 
mortgage lenders, mortgage brokers, and media outlets regarding 
mortgage advertising claims, including teaser rates, that could be 
deceptive or violate TILA. See Press Release, FTC, FTC Warns 
Mortgage Advertisers and Media That Ads May Be Deceptive (Sept. 11, 
2007), available at (http://www.ftc.gov/opa/2007/09/mortsurf.shtm).
---------------------------------------------------------------------------

    <bullet> misrepresentations that rates were fixed for the full term 
of the loan;\81\
---------------------------------------------------------------------------

    \81\ See, e.g., In re Am. Nationwide Mortg. Co., Inc., F.T.C. 
Dkt. No. C-4249 (2009).
---------------------------------------------------------------------------

    <bullet> misrepresentations about, or failure to adequately 
disclose, the existence of a prepayment penalty\82\ or large balloon 
payment due at the end of the loan;\83\
---------------------------------------------------------------------------

    \82\ See, e.g., FTC v. Chase Fin. Funding, Inc., No. SACV04-549 
(GLT (ANx) C.D. Cal. 2004); FTC v. OSI Fin. Servs., Inc., No. 02-C-
5078 (N.D. Ill. 2002).
    \83\ See, e.g., FTC v. OSI Fin. Servs., Inc., No. 02-C-5078 
(N.D. Ill. 2002).
---------------------------------------------------------------------------

    <bullet> claims about the monthly payment amounts that the borrower 
would owe, without disclosing the existence, cost, and terms of credit 
insurance products ``packed'' into the loan;\84\
---------------------------------------------------------------------------

    \84\ See, e.g., FTC v. Assocs. First Capital Corp., No. 1:01-
00606 JTC (N.D. Ga. 2001). The complaint in that case alleged, among 
other things, that the defendants included credit insurance products 
in the loan package without the borrower's knowledge.
---------------------------------------------------------------------------

    <bullet> claims that the loans were amortizing, when, in fact, they 
involved interest-only transactions;\85\
---------------------------------------------------------------------------

    \85\ See, e.g., FTC v. Capital City Mortg. Corp., No. 1:98CV237 
(D.D.C. 1998).
---------------------------------------------------------------------------

    <bullet> claims of mortgage payment amounts that failed to include 
loan fees and closing costs of the kind typically included in loan 
amounts; \86\
---------------------------------------------------------------------------

    \86\ See, e.g., FTC v. Assocs. First Capital Corp., No. 1:01-
00606 JTC (N.D. Ga. 2001). In addition, in making these statements, 
the lender allegedly did not reveal that the loans were interest-
only and that borrowers would owe the entire principal amount in a 
large balloon payment at the end of the loan term.
---------------------------------------------------------------------------

    <bullet> false or misleading savings claims in high loan-to-value 
loans;\87\
---------------------------------------------------------------------------

    \87\ See, e.g., In re FirstPlus Fin. Group, Inc., F.T.C. Dkt. 
No. C-3984 (2000).
---------------------------------------------------------------------------

    <bullet> false or misleading claims regarding the terms or nature 
of interest rate lock-ins;\88\
---------------------------------------------------------------------------

    \88\ See, e.g., In re Lomas Mortg. U.S.A., Inc., 116 F.T.C. 1062 
(1993).
---------------------------------------------------------------------------

    <bullet> false claims that an entity was a national mortgage 
lender;\89\
---------------------------------------------------------------------------

    \89\ See, e.g., FTC v. 30 Minute Mortg. Inc., No. 03-60021 (S.D. 
Fla. 2003).
---------------------------------------------------------------------------

    <bullet> failure to disclose adequately that the advertiser, not 
the consumer's current lender, was offering the mortgage;\90\ and
---------------------------------------------------------------------------

    \90\ See, e.g., In re Michael Gendrolis, F.T.C. Dkt. No. C-4248 
(2009).
---------------------------------------------------------------------------

    <bullet> false or misleading claims that consumers were ``pre-
approved'' for mortgage loans.\91\
---------------------------------------------------------------------------

    \91\ See, e.g., United States v. Unicor Funding, Inc., No. 
SACV99-1228 (C.D. Cal. 1999).
---------------------------------------------------------------------------

    In addition, the Commission has brought actions against mortgage 
companies that allegedly deceptively offered loans to consumers whose 
primary language was a language other than English. One action 
challenged as deceptive a mortgage company's alleged practice of 
stating loan terms orally to Spanish-speaking consumers in Spanish, 
only to provide loan documents with different and less favorable terms 
in English.\92\ In a second case, the company allegedly offered certain 
mortgage terms in both Chinese and English advertisements, but failed 
to disclose a large balloon payment.\93\
---------------------------------------------------------------------------

    \92\ See FTC v. Mortgages Para Hispanos.com Corp., No. 4:06-cv19 
(E.D. Tex. 2006).
    \93\ See In re Felson Builders, Inc., 119 F.T.C. 652 (1995).
---------------------------------------------------------------------------

    Numerous states have brought enforcement actions under state laws 
alleging deceptive mortgage advertising and marketing, challenging 
misrepresentations about: (1) the lack of closing costs;\94\ (2) low 
fixed or teaser rates or payments;\95\ (3) the advertiser's

[[Page 60358]]

affiliation with the consumer's current lender;\96\ (4) the 
availability of government grants for home repairs;\97\ (5) the savings 
available by refinancing;\98\
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    \94\ See, e.g., In re Lenox Fin. Mortg., LLC, No. 2007-017383 
(Ariz. Sup. Ct. 2007) (assurance of discontinuance), available at 
(http://www.azag.gov/press_releases/sept/2007)/
LenoxFinancialAssurance&Approval.pdf.
    \95\ See, e.g., State v. Lifetime Fin., Inc., No. LC080829 (Cal. 
Super. Ct. 2008), available at (http://www.ag.ca.gov/cms_attachments/press/pdfs/n1533_complaint_for_civil_penalties.pdf); 
State v. Green River Mortg., No. 2009CV89 (Colo. Dist. Ct. 2009), 
press release available at (http://www.coloradoattorneygeneral.gov/press/news/2009/05/12/attorney_general_announces_settlement_barring_mortgage_broker_operating_inside); State v. One Source 
Mortg., Inc., No. 07CH34450 (Ill. Cir. Ct. 2007), press release 
available at (http://www.ag.state.il.us/pressroom/2007_11/20071126.html); In re Paramount Equity Mortg., Inc., No. C-07-405-
08-SC01 (Wash. Dep't of Fin. Inst. 2008), available at (http://www.dfi.wa.gov/CS%20Orders/C-07-405-08-SC01.pdf).
    \96\ See, e.g., State v. Sroka, No. 2007-16-61 (Idaho Dep't of 
Fin. 2007), available at (http://finance.idaho.gov/ConsumerFinance/Actions/Administrative/2007-16-61_Sroka_Terrazas_Order_Cease_and_Desist.pdf); State v. Sage, No. 2007-8-45 (Idaho Dep't of 
Finance 2007), press release available at (http://finance.idaho.gov/PR/2007/PressRel_Sage_CDOrder.pdf);State v. Goldstar Home Mortg., 
No. 09AB-CV02310 (Mo. Cir. Ct. 2009) press release available at 
(http://ago.mo.gov/newsreleases/2009/AG_Koster_files_lawsuits_after_mortgage_fraud/).
    \97\ See, e.g., State v. Ellis, No. 07CH34451 (Ill. Cir. Ct. 
2007), press release available at (http://www.ag.state.il.us/pressroom/2007_11/20071126.html).
    \98\ See, e.g., State v. Advantage Mortg. Serv., Inc., No. C107 
(Neb. Dist. Ct. 2007), available at (http://www.ndbf.ne.gov/forms/Advantage_Mortgage_Complaint.pdf).
---------------------------------------------------------------------------

    (6) reverse mortgage terms and government affiliation;\99\ (7) the 
availability of rates compared to competitors;\100\ and (8) the 
advertiser's self-description as a ``bank.''\101\
---------------------------------------------------------------------------

    \99\ See, e.g., State v. Upstate Capital, Inc., No. 08-036 (N.Y. 
Office of Att'y Gen. 2008), press release available at (http://www.ag.ny.gov/media_center/2008/apr/apr24a_08.html). Other cases 
have charged other entities with deceptive advertising, including 
using the words ``United States of America'' or an image of the 
Statute of Liberty, when the advertiser had no affiliation with the 
government (see State v. Island Equity Mortg., Inc., (N.Y. Banking 
Dep't 2007), available at (http://www.banking.state.ny.us/ea070412.htm), and falsely representing that the advertisers were 
affiliated with a government program (see In re Assurity Fin. 
Servs., LLC, No. C-07-320-08-SC01 (Wash. Dep't of Fin. Inst. 2008), 
available at (http://www.dfi.wa.gov/CS%20Orders/C-07-320-08-SC01.pdf); see also State v. Am. Advisors Group, Inc., No. 
2010CH00158 (Ill Cir. Ct. filed Feb. 8, 2010), available at (http://www.scribd.com/doc/33748621/People-Illinois-v-American-Advisors-Group-Complaint); State v. Hartland Mortg. Ctrs., Inc., No. 
10CH05339 (Ill. Cir. Ct. filed Feb. 8, 2010), press release 
available at (http://www.ag.state.il.us/pressroom/2010_02/20100208.html). HUD also recently took action against two lenders 
for deceptive advertising of HUD-insured reverse mortgages. See 
Press Release, HUD, FHA Withdraws Three Lenders, Suspends a Fourth 
(Feb. 25, 2010), available at (http://portal.hud.gov/portal/page/portal/HUD/press/press_releases_media_advisories/2010/HUDNo.10-019).
    \100\ See, e.g., In re Paramount Equity Mortg., Inc., No. C-07-
405-08-SC01 (Wash. Dep't of Fin. Inst. 2008), available at (http://www.dfi.wa.gov/CS%20Orders/C-07-405-08-SC01.pdf).
    \101\ See, e.g., id.
---------------------------------------------------------------------------

III. Discussion of the Proposed Rule

    The Commission's law enforcement experience, state law enforcement 
activities and legislation, and the comments received in response to 
the ANPR demonstrate that deceptive claims in mortgage advertising and 
marketing pose a risk of significant harm to consumers. In addition to 
continuing to engage in aggressive law enforcement against those who 
make such claims, the FTC believes that a rule prohibiting 
misrepresentations in mortgage advertising would enable the agency to 
protect prospective borrowers more effectively by establishing clear 
standards for advertisers, increasing the efficiency of law enforcement 
efforts, and serving as a deterrent to unlawful behavior. In 
particular, as discussed above, the proposed rule would allow the 
Commission to seek civil penalties for violations, thereby enhancing 
the effect of the Commission's law enforcement actions. Civil penalties 
may be an especially useful deterrent in cases in which consumer 
redress or disgorgement is not available or not feasible.

A. Section 321.1: Scope

    As detailed in Part I.A, the scope of this rulemaking is set forth 
in the Omnibus Appropriations Act, as clarified by the Credit CARD Act. 
These statutes direct the Commission to commence a rulemaking 
proceeding to issue rules ``related to unfair or deceptive acts or 
practices.'' The Commission's rulemaking authority also is limited by 
the Credit CARD Act to persons over whom the FTC has enforcement power 
under the FTC Act.

B. Section 321.2: Definitions

1. Sections 321.2(e): ``mortgage credit product;'' 321.2(d): 
``dwelling;'' and 321.2(b): ``consumer''
    The proposed rule would prohibit any person from making any 
material misrepresentation in any commercial communication regarding 
any term of any mortgage credit product. Proposed Sec.  321.2(f) 
defines ``mortgage credit product.'' To fall within that definition, 
the product must meet three criteria. First, it must be a form of 
``credit.'' The term ``credit'' is defined as ``the right to defer 
payment of debt or to incur debt and defer its payment.''\102\ Second, 
the credit must be secured either by real property or a dwelling. The 
term ``dwelling'' is defined as ``a residential structure that contains 
one to four units, whether or not that structure is attached to real 
property'' and includes ``an individual condominium unit, cooperative 
unit, mobile home, and trailer, if it is used as a residence.''\103\ 
Third, the credit must be offered to a consumer primarily for personal, 
family, or household purposes. ``Consumer'' is defined as a ``natural 
person to whom a mortgage credit product is offered or extended.''\104\ 
Personal, family or household purposes would include, for example, home 
purchase or improvement loans, debt consolidation or home equity 
transactions, credit for medical or dental expenses, and educational 
loans. Credit offered or extended primarily for a business purpose 
would not be covered, even if it is secured by a lien on a dwelling. 
The determination of whether the credit is ``primarily'' for personal, 
family, or household use, rather than ``primarily'' for business use, 
requires an assessment of all of the facts of a particular transaction.
---------------------------------------------------------------------------

    \102\ Proposed Sec.  321.2(c). This definition is largely based 
on that in Regulation Z. See 12 CFR 226.2(a)(14). One difference is 
that the proposed rule covers all shared equity and shared 
appreciation mortgages offered to consumers, whereas certain types 
of such mortgages may not be considered ``credit'' under Regulation 
Z. See Regulation Z Commentary, 12 CFR 226.2(a)(14)-1 and 
226.17(c)(1)-11, Supp. I. In shared equity and shared appreciation 
mortgages, the consumer receives cash, a lower interest rate, or 
other favorable terms in exchange for agreeing to share with the 
lender or other company all or part of the consumer's total equity 
or the appreciation in the consumer's equity when the loan comes 
due, or at some other point during the loan.
    \103\ Proposed Sec.  321.2(e). Both primary and secondary (or 
vacation) homes are covered if they are used as collateral for the 
loan. The term ``dwelling'' in the proposed rule is based on that 
used in TILA and Regulation Z. See 15 U.S.C. 1602(v) and 12 CFR 
226.2(a)(19).
    Note that some aspects of the Regulation Z advertising rules 
apply only to credit secured by a dwelling and not by real property. 
See 12 CFR 226.16(d); 12 CFR 226.24(f) and (i).
    \104\ Proposed Sec.  321.2(b). Thus, credit offered or extended 
to an organization or governmental entity is not covered.
---------------------------------------------------------------------------

    Assuming they meet the above criteria, the proposed definition 
covers both closed-end credit (e.g., installment financing) \105\ and 
open-end credit (e.g., HELOCs);\106\ traditional, fully amortizing 
loans and nontraditional or

[[Page 60359]]

alternative financing;\107\ and forward and reverse mortgages.\108\
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    \105\ Construction financing and other forms of credit in which 
multiple advances may be common are also covered. In these 
transactions, some or all of the advances may be estimates (as to 
their dollar amount or the date on which they will occur).
    \106\ The proposed rule's prohibitions apply uniformly to 
closed-end and open-end credit. In contrast, the Regulation Z 
advertising provisions (including restrictions on deceptive claims) 
are different for closed-end and open-end credit. See, e.g.,12 CFR 
226.24(i) and 12 CFR 226.16(d)(5) and (f).
    \107\ Covered alternative loans include, for example, hybrid 
ARMs, teaser rate or teaser payment loans with low rates or payments 
that expire after a short period, interest-only and balloon 
mortgages, negative amortization mortgages, shared equity and shared 
appreciation mortgages, buydowns, and payment option ARMs. For a 
discussion of the various types of mortgage loans and their 
features, see generally Interagency Subprime Mortgage Statement and 
Interagency Nontraditional Mortgage Guidance, supra note 39; 
Conference of State Bank Supervisors (CSBS), Guidance on 
Nontraditional Mortgage Product Risks for State-Licensed Entities 
(Nov. 14, 2006), available at (http://www.banking.mt.gov/content/pdf/CSBS-AARMR_FINAL_GUIDANCE.pdf) (issuing parallel guidance to 
federal bank regulatory agencies for residential mortgage brokers 
and mortgage bankers); CSBS et al., Statement on Subprime Mortgage 
Lending(July 16, 2007), available at (http://www.csbs.org/regulatory/policy/policy-guidelines/Documents/Final_CSBS-AARMR-NACCA_StatementonSubprimeLending.pdf) (issuing similar guidance to 
federal bank regulatory agencies for residential mortgage brokers 
and mortgage bankers).
    \108\ See supra note 33 and accompanying text.
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2. Section 321.2(g): ``term''
    The proposed rule would apply to any ``term'' of any mortgage 
credit product. Under the proposal, ``term'' is defined broadly to mean 
``any of the fees, costs, obligations, or characteristics of, or 
associated with, the product.'' It also includes any of the conditions 
on, or related to, the availability of the product. ``Term'' is 
intended to cover all aspects of a mortgage credit product without 
exception.
3. Section 321.2(a): ``commercial communication''
    As discussed above, the proposed rule applies to claims made in any 
``commercial communication,'' which is defined as follows:

 any written or verbal statement, illustration, or depiction, whether 
in English or any other language, that is designed to effect or create 
interest in purchasing goods or services, whether it appears on or in a 
label, package, package insert, radio, television, cable television, 
brochure, newspaper, magazine, pamphlet, leaflet, circular, mailer, 
book insert, free standing insert, letter, catalogue, poster, chart, 
billboard, public transit card, point of purchase display, film, slide, 
audio program transmitted over a telephone system, telemarketing 
script, onhold script, upsell script, training materials provided to 
telemarketing firms, program-length commercial (``infomercial''), the 
Internet, cellular network, or any other medium. Promotional materials 
and items and Web pages are included in the phrase ``commercial 
communication.'' \109\
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    \109\ See proposed Sec.  321.2(a).
---------------------------------------------------------------------------

    This definition encompasses commercial communications\110\ in any 
medium and in any language(s).\111\
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    \110\ Based on this definition, the proposed rule has broader 
applicability than the Board's advertising rules in Regulation Z, 
which exempt personal contacts, communications about existing 
accounts, and certain educational materials. See Regulation Z 
Commentary, 12 CFR 226.2(a)(2), Supp. I.
    \111\ The proposed rule broadly prohibits misleading claims in 
any language. In comparison, for closed-end credit, Regulation Z 
specifically bans providing information about some trigger terms or 
required disclosures only in a foreign language in the advertisement 
but, at the same time, providing information about other trigger 
terms or required disclosures only in English in that advertisement. 
See 12 CFR 226.24(i)(7). As discussed below, see infra Part 
IV.B.2(3), the Commission seeks comment on whether the proposed rule 
should address the use of multiple languages in marketing mortgages 
to consumers whose primary language is not English.
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4. Section 321.2(f): ``person''
    The proposed rule applies to any ``person,'' defined as ``any 
individual, group, unincorporated association, limited or general 
partnership, corporation, or other business entity.''\112\ Thus, any 
individual or entity that makes representations in a commercial 
communication about a mortgage credit product is a ``person'' for 
purposes of the proposed rule. The types of entities the proposed rule 
covers include mortgage lenders, mortgage brokers, mortgage servicers, 
real estate agents and brokers, advertising agencies, home builders, 
lead generators, rate aggregators, and others under the Commission's 
jurisdiction.\113\ As mandated by the Omnibus Appropriations Act, 
individuals and entities that are excluded from the FTC's jurisdiction 
are not covered by the proposed rule.
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    \112\ Id. This definition is based on that used in Regulation Z. 
See 12 CFR 226.2(a)(22).
    \113\ See supra notes 36-37. One commenter raised the need for 
coverage of mortgage rate aggregators, among others, in the 
prospective advertising rules. See HPC at 3.
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    Consistent with the FTC's jurisdiction, the proposed rule covers 
all credit unions except federally-chartered credit unions.\114\ 
Several representatives of credit unions (and a group of state credit 
union regulators) filed comments on the ANPR.\115\ Some commenters 
urged the Commission to exclude state-chartered credit unions so as not 
to put them at a competitive disadvantage relative to federally-
chartered credit unions. Commenters also noted that the advertising 
practices of state-chartered credit unions that are federally insured 
are subject to existing NCUA advertising regulations.\116\
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    \114\ The Commission's jurisdiction includes nonfederally-
insured, state-chartered credit unions, nonfederally-insured credit 
unions in Puerto Rico and other U.S. territories, and any credit 
unions with no deposit insurance.
    \115\ See supra note 30.
    \116\ Federally-insured credit unions are prohibited generally 
by NCUA's regulations from using advertising or promotional material 
that contains inaccurate, misleading, or deceptive claims concerning 
their products, services, or financial condition. See 12 CFR 740.2.
    In addition, some commenters asserted that subsidiaries of banks 
or thrifts should not be covered by the prospective rules or are 
subject to rules administered by the federal banking agencies. See 
ABA at 3-6; CMC/AFSA at 3-5; see also, e.g., 12 CFR 563.27 (OTS 
regulations prohibiting thrifts from using advertisements or other 
representations that are inaccurate or misrepresent the services or 
contracts offered).
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    The proposed rule does not grant any exemptions beyond those 
already provided by the FTC Act. To the extent that other federal 
agencies regulate the advertising of certain financial 
institutions,\117\ the proposed rule, which simply prohibits 
misrepresentations, would not conflict with those regulations.\118\ Nor 
does the Commission believe that prohibiting certain financial 
institutions from making deceptive claims would establish a competitive 
disadvantage. Entities not covered by the proposed rule remain subject 
to general federal and state truth-in-advertising laws. The Commission 
seeks comment on whether the rule should grant any exemptions beyond 
those in the FTC Act.
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    \117\ While there are similarities between the proposed rule and 
existing federal and state requirements, none of the existing 
requirements duplicate all of the operative provisions of the 
proposed rule.
    \118\ In other words, nothing in the other agencies' regulations 
would require entities to make claims that the proposed rule 
prohibits.
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C. Section 321.3: Prohibited Representations

1. Discussion
    Proposed Sec.  321.3 prohibits any material misrepresentation, 
whether made expressly or by implication, in any commercial 
communication, regarding any term of any mortgage credit product. FTC 
and state cases provide numerous examples of misrepresentations made in 
mortgage advertising. Proposed Sec. Sec.  321.3(a)-(s) set forth a non-
exclusive list of misrepresentations that would violate the proposed 
rule. This list addresses the most common misrepresentations that have 
appeared in state and federal enforcement actions over the past several 
years and is intended to provide illustrative guidance about the kinds 
of claims that are prohibited. For discussion purposes, the list of 
representations covered by the proposed rule is informally grouped into 
three categories below.
    As noted above, a claim is deceptive under Section 5 of the FTC Act 
if there

[[Page 60360]]

is a ``representation, omission, or practice that . . . is likely to 
mislead consumers acting reasonably under the circumstances, and . . . 
the representation, omission, or practice is material.''\119\ 
Information is ``material'' if it is ``likely to affect [a consumer's] 
choice of, or conduct regarding, a product.''\120\ The types of 
information in the representations specified in Sec.  321.3 of the 
proposed rule involve matters central to consumers' decisions about 
mortgage credit products. Thus, the types of misrepresentations the 
proposed rule prohibits are ``material.''
---------------------------------------------------------------------------

    \119\ Cliffdale, 103 F.T.C. at 165.
    \120\ Id.; see also Novartis, 223 F.3d.at 786; supra notes 48-53 
and accompanying text.
---------------------------------------------------------------------------

a. Fees or Costs
    In general, proposed Sec. Sec.  321.3(a)-(f) address 
representations related to fees or costs associated with a mortgage 
credit product. Proposed Sec.  321.3(a) covers misrepresentations about 
interest charged for the product, including but not limited to 
misrepresentations about (1) whether the loan includes a negative 
amortization feature;\121\ (2) the amount of interest owed each month 
that is included in the consumer's payments, loan amount, or total 
amount due; and (3) the interest owed each month that is not included 
in the payments but is instead added to the total amount due.
---------------------------------------------------------------------------

    \121\ See, e.g., In re Shiva Venture Group, Inc., F.T.C. Dkt. 
No. C-4250 (2009); In re Michael Gendrolis, F.T.C. Dkt. No. C-4248 
(2009); In re Am. Nationwide Mortg. Co., Inc., F.T.C. Dkt. No. C-
4249 (2009); FTC v. OSI Fin. Servs., Inc., No. 02-C-5078 (N.D. Ill. 
2002); United States v. Mercantile Mortg. Co., No. 02-C-5029 (N.D. 
Ill. 2002); FTC v. Capital City Mortg. Corp., No. 1:98CV237 (D.D.C. 
1998).
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    Proposed Sec.  321.3(b) bars misrepresentations about the APR, 
simple annual rate, periodic rate, or any other rate, including but not 
limited to a payment rate.\122\ The Commission has challenged deceptive 
rate claims in many cases, some of which included allegations that 
originators understated the true rate by more than 100 percent.\123\ 
This provision also is intended to cover false or misleading savings 
rate claims in financing promotions. The Commission has challenged, for 
example, deceptive claims that consumers will save money (such as at a 
particular rate of savings) by accepting the credit offer.\124\
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    \122\ A payment rate is the rate used to calculate the 
consumer's monthly payment amount and is not necessarily the same as 
the interest rate. If the payment rate is less than the interest 
rate, the consumer's monthly payment amount does not include the 
full interest owed each month; the difference between the amount the 
consumer pays and the amount the consumer owes is added to the total 
amount due from the consumer.
    The proposed rule prohibits misrepresentations about payment 
rates and any other rate, for both closed-end and open-end credit. 
In comparison, Regulation Z bans advertising of payment rates for 
closed-end credit. See Regulation Z Commentary, 12 CFR 226.24(c)-2, 
Supp. I. Regulation Z also bans advertising of effective rates and 
qualifying rates (which are similar terms for payment rates) for 
closed-end credit. Id; see also 73 FR 44581-82. The Board enacted 
this prohibition under Section 105 of TILA. See supra note 28.
    \123\ See, e.g., FTC v. Safe Harbour Found. of Fla., Inc., No. 
08-C-1185 (N.D. Ill. 2008) (severely understated APR).
    Deceptive payment rate claims were at the heart of three 
enforcement actions announced in February 2009. See In re Am. 
Nationwide Mortg. Co., Inc., F.T.C. Dkt. No. C-4249 (2009); In re 
Shiva Venture Group, Inc., F.T.C. Dkt. No. C-4250 (2009); In re 
Michael Gendrolis, F.T.C. Dkt. No. C-4248 (2009).
    \124\ The Commission has challenged deceptive comparisons in 
financing that include, among other things, savings rates in non-
mortgage contexts. See In re Automatic Data Processing, 115 F.T.C. 
841 (1992) (alleged deceptive comparisons in automobile financing). 
Section 321.3(b) would prohibit these types of promotions when used 
in the mortgage context.
---------------------------------------------------------------------------

    Proposed Sec.  321.3(c) bars misrepresentations about the 
existence, nature, or amount of fees or costs associated with any 
mortgage credit product. It also prohibits false or misleading claims 
that no fees are charged, for example, if the fees and costs, although 
not paid separately, are included in the loan amount or total amount 
due from the consumer. This provision covers fees and costs imposed at 
any point during the life of the loan.\125\
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    \125\ See, e.g., FTC v. Ranney, No. 04-F-1065 (MJW) (D. Colo. 
2004); FTC v. Chase Fin. Funding, Inc., No. SACV04-549 GLT (ANx) 
(C.D. Cal. 2004) (allegedly promoting ``NO COSTS . . . NO KIDDING'' 
and ``no-fee'' loans, when in fact, the loans included such 
charges); see also FTC v. Assocs. First Capital Corp., No. 1:01-
00606 JTC (N.D. Ga. 2001); FTC v. First Alliance Mortg. Co., No. 
SACV 00-964 DOC (EEx) (C.D. Cal. 2000).
---------------------------------------------------------------------------

    Proposed Sec.  321.3(d) covers misrepresentations about terms 
associated with additional products or features that may be sold in 
conjunction with a mortgage credit product.\126\ Thus, this provision 
covers claims made in cross-selling other products or features in 
mortgage credit product offers, including but not limited to credit 
insurance, credit disability insurance, car clubs, or other ``add-ons'' 
to the loan.\127\
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    \126\ See, e.g., FTC v. Assocs. First Capital Corp., No. 1:01-
00606 JTC (N.D. Ga. 2001).
    \127\ The Commission has alleged deceptive practices involving 
add-ons to non-mortgage personal loans as well. See FTC v. Stewart 
Fin. Co. Holdings, Civ. No. 1:03-CV-2648-JTC (N.D. Ga. 2003).
---------------------------------------------------------------------------

    Proposed Sec.  321.3(e) covers misrepresentations relating to the 
taxes on or insurance for the dwelling associated with a mortgage 
credit product, for example, claims about whether tax or insurance 
charges are included in the overall monthly payment or are made 
separately. Prior Commission cases have challenged claims that the 
advertised monthly payment included tax and insurance charges, when in 
fact it did not.\128\
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    \128\ See, e.g., United States v. Mercantile Mortg. Co., No. 02-
C-5079 (N.D. Ill. 2002); FTC v. OSI Fin. Servs., Inc., No. 02-C-5078 
(N.D. Ill. 2002); FTC v. Assocs. First Capital Corp., No. 1:01-00606 
JTC (N.D. Ga. 2001).
---------------------------------------------------------------------------

    Proposed Sec.  321.3(f) bars misrepresentations about the existence 
or amount of any penalty for making prepayments on the mortgage. The 
Commission has brought several cases against entities that allegedly 
deceived consumers about prepayment penalties.\129\
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    \129\ See, e.g., United States v. Mercantile Mortg. Co., No. 02-
C-5079 (N.D. Ill. 2002); FTC v. OSI Fin. Servs., Inc., No. 02-C-5078 
(N.D. Ill. 2002); FTC v. Chase Fin. Funding Inc., No. SACV 04-549 
GLT (ANx) (C.D. Cal. 2004); see also FTC Bureau of Consumer 
Protection, Bureau of Economics, and Office of Policy Planning, 
Comments before Board of Governors of Federal Reserve System, Dkt. 
No. R-1305, Apr. 8, 2008, n.11, available at (http://www.ftc.gov/os/2008/04/V080008frb.pdf).
---------------------------------------------------------------------------

b. Obligations or Characteristics
    Proposed Sec. Sec.  321.3(g)-(p) generally address representations 
related to obligations or characteristics associated with a mortgage 
credit product. Proposed Sec.  321.3(g) prohibits misrepresentations 
pertaining to the variability of interest, payments, or other terms of 
mortgage credit products, including but not limited to, for example, 
misrepresentations using the word ``fixed'' when terms are variable or 
limited in duration.\130\ Proposed Sec.  321.3(h) bars false or 
misleading comparisons between rates or payments,\131\ including but 
not limited to comparisons involving savings. It also bars false or 
misleading comparisons between rates or payments available for 
different parts of the loan term.\132\

[[Page 60361]]

Proposed Sec.  321.3(i) prohibits misrepresentations about the type of 
mortgage credit product that is offered, e.g., false claims that a 
mortgage is fully amortizing.\133\ Proposed Sec.  321.3(j) bars 
misrepresentations about the amount of the obligation or the existence, 
nature, or amount of cash or credit the consumer could receive.\134\ 
This would include, for example, false claims that the consumer will 
receive a certain amount of cash by obtaining a home equity loan, or 
will receive a certain amount of credit through a purchase money loan. 
Proposed Sec.  321.3(k) prohibits misrepresentations about the 
existence, number, amount, or timing of any minimum or required 
payments.\135\
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    \130\ The Commission has charged mortgage brokers and other 
entities with falsely promising consumers low fixed payments and 
rates on their mortgage loans, including promising ``30 year fixed. 
1.95%,'' ``3.5% fixed payment loan,'' and other rates that were not, 
in fact, fixed. See, e.g., In re Am. Nationwide Mortg. Co., Inc., 
F.T.C. Dkt. No. C-4249 (2009); FTC v. Chase Fin. Funding, Inc., No. 
SACV 04-549 GLT (ANx) (C.D. Cal. 2004); see also FTC v. 30 Minute 
Mortg., Inc., No. 03-60021 (S.D. Fla. 2003); Andrews v. Chevy Chase 
Bank, 240 F.R.D. 612 (E.D. Wis. 2007) (describing payment option ARM 
sold as ``fixed rate'' when interest was only fixed for one month, 
although payments were fixed for a year).
    Proposed Sec.  321.3(g) has broader applicability than a similar 
provision in Regulation Z, which applies only to closed-end 
dwelling-secured credit and requires specific advertising 
disclosures. See 12 CFR 226.24(i)(1).
    \131\ Proposed Sec.  321.3(h) has broader applicability than a 
similar provision in Regulation Z, which applies only to closed-end 
dwelling-secured credit and requires specific advertising 
disclosures. See 12 CFR 226.24(i)(2).
    \132\ See, e.g., In re FirstPlus Fin. Group, Inc., F.T.C. Dkt. 
No. C-3984 (2000).
    \133\ For example, the FTC charged a company with 
misrepresenting that a loan was fully amortizing when, in fact, it 
consisted of interest-only payments with a large balloon payment. 
FTC v. Capital City Mortg. Corp., No. 1:98CV237 (D.D.C. 1998).
    \134\ See FTC v. Assocs. First Capital Corp., No. 1:01-00606 JTC 
(N.D. Ga. 2001) (alleging deceptive representations about loan 
amounts in home equity mortgages); FTC v. First Alliance Mortg. Co., 
No. SACV 00-964 DOC (EEx) (C.D. Cal. 2000) (same as above); see also 
United States v. Mercantile Mortg. Co., No. 02-C-5079 (N.D. Ill. 
2002) (alleging deceptive representations about cash dispersal 
amounts in home equity loans or refinances); FTC v. OSI Fin. Servs., 
Inc., No. 02-C-5078 (N.D. Ill. 2002) (same as above).
    \135\ This provision covers, for example: (1) misrepresentations 
about whether certain payments are part of the loan (see, e.g., FTC 
v. OSI Fin. Servs., Inc., No. 02-C-5078 (N.D. Ill. 2002); United 
States v. Mercantile Mortg. Co., No. 02-C-5079 (N.D. Ill. 2002)); 
(2) false claims that an aspect of the loan would cover the payments 
due (see FTC v. Ranney, No. 04-F-1065 (MJW) (D. Colo. 2004)); and 
(3) claims that ``no payments'' are required on a reverse mortgage 
that falsely imply that consumers never have to repay the loan or 
make related tax and insurance payments. See FFIEC Reverse Mortgage 
Guidance, supra note 39, at 50809 (although reverse mortgages 
generally do not require the consumer to remit payments for 
principal, interest, and related loan costs during the time the 
consumer remains in the home, repayment of these amounts can become 
due if the consumer moves out of the home; also, reverse mortgages 
generally do not include escrow accounts for taxes and property 
insurance, and if the consumer does not remit payments separately 
for these amounts, the consumer could lose the home).
---------------------------------------------------------------------------

    Proposed Sec.  321.3(l) prohibits misrepresentations about the 
potential for default on the mortgage credit product, including but not 
limited to misrepresentations about the circumstances under which the 
consumer could default for nonpayment of taxes or insurance, failure to 
maintain the property, or not complying with other obligations.\136\ 
Proposed Sec.  321.3(m) bars misrepresentations about the effectiveness 
of the mortgage credit product in helping consumers resolve problems in 
paying debts.\137\ This section covers false or misleading claims that 
the lender's or servicer's product (through a waiver, forgiveness, or 
otherwise) will reduce, eliminate, or restructure a debt or any other 
obligation of any person.\138\ Proposed Sec.  321.3(n) prohibits 
misrepresentations about the association between a mortgage credit 
product or a provider of such product and any other person or program, 
including but not limited to any affiliation with an organizational or 
governmental program, benefit, or entity.\139\ Proposed Sec.  321.3(o) 
covers misrepresentations about the source of the mortgage credit 
product and the commercial communications for it, including but not 
limited to claims that the communication is made by or on behalf of the 
consumer's current mortgage lender or servicer.\140\ Proposed Sec.  
321.3(p) prohibits misrepresentations about the consumer's right to 
reside in the dwelling that is the subject of the mortgage credit 
product, including but not limited to false or misleading claims about 
how long or under what conditions a consumer can stay in the 
dwelling.\141\
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    \136\ For example, it would violate this section for a reverse 
mortgage lender to represent that ``no matter what, you can stay in 
your home for life,'' when the lender can force the sale of the 
property if the consumer does not adequately maintain the property.
    \137\ Proposed Sec.  321.3(m) has broader applicability than a 
similar provision in Regulation Z, which applies only to closed-end 
dwelling-secured credit. See 12 CFR 226.24(i)(5).
    \138\ Thus, this provision covers false or misleading claims of 
debt elimination, debt forgiveness, or savings associated with 
mortgage credit products. See, e.g., In re FirstPlus Fin. Group, 
Inc., F.T.C. Dkt. No. C-3984 (2000); FTC v. Safe Harbour Found. of 
Fla., Inc., No. 08-C-1185 (D.C. Ill. 2008).
    \139\ The FTC has challenged many of these types of claims in 
its loan modification cases, including in cases where the defendants 
allegedly claimed, in part through the use of names, seals, or 
symbols, that the mortgage credit product was a government benefit 
or that the lender was affiliated with the government. See, e.g., 
FTC v. Ryan, No. 1:09-cv-00535-HHK (D.D.C. 2009).
    Proposed Sec.  321.3(n) has broader applicability than a similar 
provision in Regulation Z, which applies only to closed-end 
dwelling-secured credit and is limited to claims about the loan 
program advertised. See 12 CFR 226.24(i)(3). In comparison, the 
Commission's proposed rule applies to both closed-end and open-end 
credit secured either by real property or a dwelling, covers claims 
about the loan program as well as the provider of the advertisement, 
and expressly references use of symbolic representations.
    \140\ See, e.g., In re Michael Gendrolis, F.T.C. Dkt. No. C-4248 
(2009). This section also covers false or misleading ``trigger 
lead'' solicitations, in which entities: (1) obtain information 
about the consumer from sources such as prescreened lists sold by 
consumer reporting agencies; (2) based on that information, contact 
the consumer to promote a mortgage credit product or term; and (3) 
misrepresent their identity as the consumer's current lender or 
servicer. See CMC/AFSA at 2, 7.
    Proposed Sec.  321.3(o) has broader applicability than a similar 
provision in Regulation Z, which applies only to closed-end 
dwelling-secured credit and is limited to representations about 
lenders. See 12 CFR 226.24(i)(4). In comparison, the Commission's 
proposed rule applies to both closed-end and open-end credit secured 
either by real property or a dwelling and bars misrepresentations 
about both servicers and lenders.
    \141\ Issues concerning the consumer's right to reside in the 
dwelling have frequently arisen in the sale of reverse mortgages. 
See generally, U.S. Gov't Accountability Office (GAO), GAO-09-606, 
Reverse Mortgages: Product Complexity and Consumer Protection Issues 
Underscore Need for Improved Controls over Counseling for Borrowers 
(2009) (GAO Reverse Mortgage Report).
---------------------------------------------------------------------------

c. Conditions on or Related to Availability
    Proposed Sec. Sec.  321.3(q)-(s) address representations that 
pertain to the availability of the mortgage credit product and related 
advice. Proposed Sec. Sec.  321.3(q) and 321.3(r) bar 
misrepresentations about the consumer's ability to obtain, or 
likelihood of obtaining, any mortgage credit product or term thereof, 
or any refinancing or modification of a mortgage credit product or term 
thereof. This includes false or misleading claims about whether the 
consumer or the consumer's property has been preapproved or guaranteed 
for any such product or term.\142\ Proposed Sec.  321.3(s) bars 
misrepresentations about the availability, nature, or substance of 
counseling services or any other expert advice offered to the consumer 
regarding any mortgage credit product term, including but not limited 
to the qualifications of those offering the services or advice.\143\
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    \142\ See, e.g., United States v. Unicor Funding, Inc., No. 99-
1228 (C.D. Cal. 1999); In re Lomas Mortg. U.S.A., Inc., 116 F.T.C. 
1062 (1993) ; FTC v. Safe Harbour Found. of Fla., Inc., No. 08-C-
1185 (D.C. Ill. 2008); FTC v. Assocs. First Capital Corp., No. 1:01-
00606 JTC (N.D. Ga. 2001).
    \143\ Such misrepresentations have been identified as 
problematic in the offering of reverse mortgages, see, e.g., FFIEC 
Reverse Mortgage Guidance, supra note 39,and GAO Reverse Mortgage 
Report, supra note 141, and of loan modifications, see generally 
MARS NPRM, supra note 19.
    Proposed Sec.  321.3(s) has broader applicability than a similar 
provision in Regulation Z, which applies only to closed-end 
dwelling-secured credit and addresses advertisements that use the 
term ``counselor'' to refer to a for-profit mortgage broker or 
creditor, its employees, or others working for the broker or 
creditor in offering, originating, or selling mortgages. See 12 CFR 
226.24(i)(6). In comparison, the Commission's proposed rule applies 
to both closed-end and open-end credit secured either by real 
property or a dwelling and bans misrepresentations regardless of the 
type of for-profit entity involved.
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2. Advertising Disclosures
    The proposed rule does not include any affirmative advertising 
disclosure requirements. The Commission tentatively concludes that it 
is unnecessary to mandate advertising disclosures in the proposed rule 
and that not doing so will eliminate the possibility of inconsistencies 
with other federally- or state-mandated disclosure requirements for 
mortgage advertising.

[[Page 60362]]

    Under Section 5 of the FTC Act, it is a deceptive practice to omit 
qualifying information when making a literally truthful claim, if the 
omission of that information is likely to mislead reasonable consumers 
in a material way.\144\ For example, a closed-end mortgage 
advertisement likely would be deceptive if it represented that a loan 
has a very low interest rate, but failed to disclose that the rate 
would substantially increase after a few months. Such claims often are 
referred to as ``half truths.'' Mortgage advertisements that include 
half truths in most cases also would be considered to have made implied 
misrepresentations that would fit into the specific categories of 
misrepresentations in the proposed rule. Continuing with the above 
example, a claim that a loan has a very low interest rate, in the 
absence of any qualifying information, is likely to imply to reasonable 
consumers that the rate lasts at least for longer than a few months. 
Thus, the proposed rule's prohibition on misrepresentations likely will 
cover the sorts of half truths that arise when mortgage advertisers 
fail to make material disclosures.\145\
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    \144\ See Deception Policy Statement, supra note 9, at 176-77.
    \145\ A failure to disclose also can be an unfair practice if it 
causes or is likely to cause substantial consumer injury that is not 
outweighed by countervailing benefits and is not reasonably 
avoidable. See, e.g., In re Int'l Harvester Co., 104 F.T.C. 949, 
1062 (1984). Omissions may be unfair in the mortgage advertising 
context if the information that is not disclosed concerns aspects of 
the transaction that are so central to making an informed decision 
that its omission is likely to be injurious. See id. Much of this 
information is already required to be disclosed by TILA and 
Regulation Z.
---------------------------------------------------------------------------

    In addition, there are already substantial federal and state 
regulations applicable to mortgage advertisements. Mandating 
advertising disclosures in this rule would create potential conflicts 
and inconsistencies with the disclosure provisions of these other 
requirements to which covered entities are also subject, particularly 
TILA and Regulation Z. For example, under TILA and Regulation Z, the 
APR must be calculated following certain procedures, and it must be 
disclosed in mortgage advertisements in some circumstances.\146\ If the 
Commission were to determine that, under the proposed rule, the APR to 
be disclosed in advertisements must be calculated using different costs 
and procedures than those established by TILA and Regulation Z, that 
determination would result in inconsistent federal requirements and 
inconsistent disclosures, leading to consumer confusion and increased 
burden on business.
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    \146\ See, e.g.,12 CFR 226.4; 226.14; 226.16(b) and (d)(1), (2) 
and (6); 226.22; and 226.24(d) and (f)(2).
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    Although the proposed rule does not include affirmative advertising 
disclosure requirements, the Commission specifically requests comment 
on whether there are any advertising disclosures that the Commission 
should consider mandating.

D. Section 321.4: Waiver Not Permitted

    Proposed Sec.  321.4 provides that ``[a]ny attempt by any person to 
obtain a waiver from any consumer of any protection provided by or any 
right of the consumer under this rule constitutes a violation of this 
rule.'' The Commission intends the proposed rule to protect consumers 
from being deceived in making decisions about the most important 
financial product most of them will obtain in their lifetimes. The 
Commission is unaware of any circumstances under which advertisers of 
mortgage loans should be able to circumvent the proposed rule - i.e., 
to make misrepresentations - by placing purported waivers in their 
contracts or other agreements with consumers.\147\
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    \147\ Other consumer protection laws also include prohibitions 
on requiring consumers to waive their statutory rights. See, e.g., 
15 U.S.C. 1693l (Electronic Fund Transfer Act).
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E. Section 321.5: Recordkeeping Requirements

    Proposed Sec.  321.5 sets forth specific categories of records that 
persons covered by the proposed rule would be required to retain.\148\ 
A failure to keep such records would be an independent violation of the 
rule.\149\
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    \148\ This provision is similar in many respects to the 
recordkeeping requirements set forth in the FTC's Telemarketing 
Sales Rule (TSR), including the mandate to retain scripts, 
advertisements, and promotional materials. See 16 CFR 310.5. The 
Telemarketing Sales Act expressly authorized the Commission to 
impose recordkeeping requirements. 15 U.S.C. 6102(a)(3). Although 
the Omnibus Appropriations Act, as clarified by the Credit CARD Act, 
does not contain a specific provision on recordkeeping, the proposed 
recordkeeping requirements are reasonably related to the statutory 
goal of preventing deception.
    \149\ Proposed Sec.  321.5(b); see also 16 CFR 310.5(b) (TSR).
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    Specifically, for a period of 24 months from the last date of 
dissemination of the applicable commercial communication, covered 
persons would have to retain the following information:
(1) Copies of all materially different commercial communications 
disseminated, including but not limited to sales scripts, training 
materials, related marketing materials, websites, and weblogs;
(2) Documents describing or evidencing all mortgage credit products 
available to consumers during the time period in which each commercial 
communication was disseminated, including but not limited to the names 
and terms of each such mortgage credit product available to consumers; 
and
(3) Documents describing or evidencing all additional products or 
services (such as credit insurance or credit disability insurance) that 
are or may be offered or provided with the mortgage credit products 
available to consumers during the time period in which each commercial 
communication was disseminated, including but not limited to the names 
and terms of each such additional product or service available to 
consumers.
    The Commission believes that a record retention requirement is 
necessary to ensure that covered persons are complying with the 
requirements of the proposed rule.\150\ Specifically, the requirement 
that covered persons retain copies of their commercial communications 
would enable the FTC to review those communications for any 
misrepresentations that violate the rule and to bring law enforcement 
actions as appropriate. Moreover, covered persons may offer consumers 
many different mortgage credit products, and may also offer or provide 
additional products or services with the mortgage credit products. 
Therefore, it is important for covered persons to maintain copies of 
documents describing all of those products and services, so that the 
Commission and state enforcement agencies can review those items in 
assessing whether the claims being made for them violate the rule.
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    \150\ As noted in Part I.A.3, supra, the Omnibus Appropriations 
Act, as clarified by the Credit CARD Act, permits both the 
Commission and states to enforce the rules issued in connection with 
this rulemaking. See Credit CARD Act Sec.  511(a)(1)(C) and (a)(2).
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    The Commission recognizes that recordkeeping provisions impose 
compliance costs; however, many covered persons already retain in the 
ordinary course of their business the types of documents that the 
proposed rule would require be retained. To further reduce any burden, 
the proposed rule would permit entities to keep the records in any 
legible form and in the same manner, format, or place as they keep such 
records in the ordinary course of business.
    The proposed rule also seeks to limit the retention requirements to 
avoid imposing any unnecessary burden. For example, covered entities 
must retain only ``materially different'' commercial

[[Page 60363]]

communications. The proposed rule imposes a 24-month record retention 
period, which the Commission believes would strike an appropriate 
balance between ensuring efficient and effective compliance efforts, 
while avoiding the imposition of unnecessary costs.

F. Section 321.6: Actions by States

    The Omnibus Appropriations Act, as clarified by the Credit CARD 
Act, permits states to enforce the rules issued in connection with this 
rulemaking.\151\ States may enforce the rules, subject to the notice 
requirements of the Omnibus Appropriations Act, by bringing civil 
actions in federal district court or another court of competent 
jurisdiction. Section 321.6 of the proposed rule provides that states 
have the authority to file actions against those who violate the rule.
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    \151\ Credit CARD Act Sec.  511(a)(2).
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G. Section 321.7: Severability

    Proposed Sec.  321.6 states that the provisions of this rule are 
separate and severable from one another. This provision, which is 
modeled after a similar provision in the TSR,\152\ also states that if 
a court stays or invalidates any provisions in the proposed rule, the 
Commission intends the remaining provisions to continue in effect.
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    \152\ See 16 CFR 310.9.
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IV. Requests for Comment

    The Commission seeks comment on the proposed rule. Without limiting 
the scope of issues on which it seeks comments, the FTC is particularly 
interested in receiving comments on the questions that follow. In 
responding to these questions, please include detailed factual 
supporting information if possible.

A. General Questions for Comment

    (1) How would the proposed rule affect commercial communications 
about mortgage credit products? Useful comments would include 
information about the types of commercial communications provided by 
particular persons, how these persons provide commercial 
communications, and the impact of the proposed rule on them.
    (2) What types of mortgage credit products currently are being 
offered to consumers or may be offered in the future? In what ways do 
the fees, costs, obligations, characteristics of, conditions on, or 
availability associated with the different types of mortgage credit 
products vary?
    (3) What would be the effects of the proposed rule (including any 
benefits and costs) on consumers? Would the costs and benefits to 
consumers differ depending on the coverage of the proposed rule? How?
    (4) In addition to the evidence cited in this NPRM, what evidence 
is there that consumers are likely to be misled by claims made relating 
to mortgage credit products? Are consumers likely to be misled by 
particular covered persons? Which ones? Are consumers likely to be 
misled by specific types of claims? Which ones?
    (5) What would be the effects of the proposed rule (including any 
benefits and costs) on covered persons?
    (6) What changes, if any, should be made to the proposed rule to 
increase benefits to consumers and competition?
    (7) What changes, if any, should be made to the proposed rule to 
decrease costs to industry or consumers?
    (8) How would the proposed rule affect small business entities with 
respect to costs, profitability, competitiveness, and employment?

B. Specific Questions for Comment on Proposed Provisions

1. Section 321.2; Definitions
    (1) Does the definition of ``mortgage credit product'' in proposed 
Sec.  321.2(e) adequately describe the products the proposed rule 
should cover? If not, how should it be modified? In particular, should 
the definition be modified to include credit in addition to that which 
``is offered or extended to a consumer primarily for personal, family, 
or household purposes''? If so, what additional credit should be 
covered? What would be the costs and benefits of the modified 
definition?
    (2) Does the definition of ``term'' in proposed Sec.  321.2(g) 
adequately describe the various aspects of mortgage credit products 
that the proposed rule should cover? If not, how should it be modified? 
What would be the costs and benefits of the modified definition?
    (3) Does the definition of ``commercial communication'' in Sec.  
321.2(a) adequately describe the conduct the proposed rule should 
cover? If not, how should it be modified? What would be the costs and 
benefits of the modified definition?
    Does the definition adequately address communications made in 
languages other than English that the proposed rule should cover? If 
not, how should it be modified? What would be the costs and benefits of 
the modified definition?
    (4) Does the definition of ``person'' in Sec.  321.2(f) adequately 
describe those whom the proposed rule should cover? If not, how should 
it be modified? For example, should any other entities be covered? What 
would be the costs and benefits of the modified definition?
    (i) Should state-chartered credit unions be excluded from coverage? 
Why or why not? Should such an exclusion apply to all forms of state-
chartered credit unions, or only to some of these entities? Why or why 
not?
    (ii) Should subsidiaries or affiliates of banks and thrifts be 
excluded from coverage? Why or why not?
2. Section 321.3: Prohibited Representations
    (1) Proposed Sec.  321.3 bans persons from making 
misrepresentations in commercial communications regarding any term of 
any mortgage credit product and provides numerous non-exclusive 
examples pertaining to fees, costs, obligations, or characteristics of, 
or associated with, the product. It also includes misrepresentations of 
any of the conditions on or related to the availability of the product. 
How widespread is each prohibited misrepresentation? Should any of the 
misrepresentations be deleted? Why? Should any other misrepresentations 
be added? Is so, what other misrepresentations should be added? Why?
    (2) The proposed rule does not specifically address practices 
related to persons giving substantial assistance or support to those 
who make misrepresentations covered by the proposed rule and who know 
or consciously avoid knowing that those they assist are engaging in 
such conduct. Some individuals and companies engaged in unlawful 
practices may rely on the support and assistance of other persons. In 
some nonmortgage transaction cases, for example, the Commission has 
charged lead generators - who obtained information from consumers for 
use by third parties - with providing knowing, substantial assistance 
in violation of the TSR.\153\
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    \153\ The Commission has previously included ``assisting and 
facilitating'' counts in at least two dozen cases filed under the 
TSR. See, e.g., FTC v. Assail, Inc., No. W03CA007 (W.D. Tex. 2004); 
United States v. DirecTV, Inc., No. SACV05 1211 DOC (C.D. Cal. 
2005).
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    Should the rule include a specific prohibition on the provision of 
substantial assistance or support to others who violate the rule? If 
so, what specific conduct should be covered by the rule? What evidence 
exists that mortgage entities receive substantial assistance or support 
from other persons to deceptively advertise mortgage credit product 
terms? What evidence exists about the types of persons who provide such 
substantial assistance or support to

[[Page 60364]]

others? For example, is there evidence that lead generators or third-
party vendors provide substantial assistance to mortgage entities, by 
identifying potential customers or performing back-room operations, in 
support of those who engage in practices that would violate the 
proposed rule? What evidence exists that persons may know or 
consciously avoid knowing that the mortgage entities they assist are 
making misrepresentations covered by the rule? What evidence exists 
that consumers are likely to be injured from any such substantial 
assistance and support? What would be the costs and benefits of such a 
prohibition?
    (3) Increasingly, many consumers in our society use languages other 
than English as their primary language.\154\ As a result, consumers may 
be exposed to more advertisements and offers that ``mix languages'' in 
connection with mortgage products.\155\ For example, in a recent FTC 
case, the Commission alleged that a mortgage broker engaged in 
deception when it offered payments and other mortgage terms in 
promotions to Spanish-speaking borrowers in Spanish, but the terms in 
the documents at closing, which were provided only in English, were 
less favorable.\156\ One comment submitted in response to the MAP ANPR 
raises concerns about practices involving non-English speakers. It 
notes that, in some instances, sales and loan representatives of some 
home builders or their affiliated lenders have conducted transactions 
primarily in Spanish, but mortgage documents were provided only in 
English, making it difficult for buyers to understand or reject 
mortgage terms.\157\
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    \154\ According to the 2000 Census, at least 18% of the 
population (47 million people) speak a language other than English 
at home. See U.S. Census Bureau, Language Use and English-Speaking 
Ability: 2000, at 2 (Oct. 2003), available at (http://www.census.gov/prod/2003pubs/c2kbr-29.pdf).
    \155\ See supra note 111.
    \156\ See FTC v. Mortgages Para Hispanos.com Corp., No. 4:06-cv-
19 (E.D. Tex. 2006). GAO is currently studying the relationship 
between English fluency and financial literacy and whether 
individuals whose native language is a language other than English 
are impeded in their financial affairs. See Credit CARD Act Sec.  
513.
    \157\ See Laborers Int'l Union at 4-5.
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    The proposed rule broadly prohibits material misrepresentations in 
commercial communications regardless of the language in which the claim 
is made. Are more protections warranted to prevent the use of multiple 
languages - or ``mixing'' languages - in a way that makes it difficult 
for consumers to understand mortgage terms? What evidence exists of the 
use of mixed languages in commercial communications for mortgage credit 
product terms in a deceptive or unfair manner? Is there evidence of 
mortgage brokers or other entities, in marketing to non-English 
speaking consumers, using a language other than English to convey a 
claim, while contradicting that claim in English - e.g., using the 
consumer's primary language to convey a very low interest rate, while 
using English to communicate that the rate will increase after only a 
few months? Have such practices occurred in both open-end and closed-
end mortgage credit advertisements? What evidence is there of mortgages 
being marketed in languages other than English with contradictory 
information or additional material terms provided only in English in a 
manner that is deceptive or unfair? Should the rule address the mixing 
of languages in commercial communications through disclosure 
requirements? If so, how should it do so? Should, for example, it 
prohibit the use of a foreign language to convey some material terms in 
a commercial communication when other material terms are disclosed only 
in English? What would be the costs and benefits of doing so?
3. Section 321.5: Recordkeeping
    (1) Proposed Sec.  321.5(a) requires a 24-month document retention 
period. Should the proposed rule include a record retention 
requirement? Is the specified period of time adequate for effective and 
efficient law enforcement? Does it impose unnecessary costs on persons 
making commercial communications covered by the proposed rule? Should 
the Commission consider an alternative retention period - for example, 
a time period commensurate with the five-year statute of limitations 
for an FTC action for civil penalties? If so, explain what would be the 
appropriate time period, and why.
    (2) Proposed Sec.  321.5(a) sets forth specific categories of 
records that persons covered by the proposed rule are required to 
retain. Do these categories adequately describe the records needed to 
ensure that covered persons are complying with the requirements of the 
proposed rule? If not, how should the categories by modified?
    (3) Proposed Sec.  321.5(b) permits persons covered by the proposed 
rule to retain documents in any form and in the same manner, format, or 
place as they keep such records in the ordinary course of business. Is 
this flexibility appropriate? Should the Commission specify how 
documents should be retained? If so, explain what would be the 
appropriate standard for retaining documents.

C. Other Issues

1. Effective Dates
    The proposed rule generally prohibits misrepresentations in 
commercial communications about the terms of mortgage credit products, 
consistent with the prohibition on deceptive claims that would violate 
Section 5 of the FTC Act. The persons subject to the proposed rule are 
within the Commission's jurisdiction under the FTC Act, and thus are 
already prohibited from such conduct. Nonetheless, to afford affected 
persons time to adjust to the proposed rule's new recordkeeping 
requirements, the Commission proposes an effective date of 30 days 
following publication of the final rule in the Federal Register. Is 
this time period appropriate? If yes, why? If not, what period would be 
more appropriate, and why? What would be the costs and benefits of any 
such modified time period?
2. Advertising Disclosures
    The proposed rule does not require affirmative advertising 
disclosures. Are affirmative advertising disclosures needed to prevent 
deception related to commercial communications for mortgage credit 
products? If so, what advertising disclosures are needed, and why is 
the failure to provide them unfair or deceptive? Should these 
advertising disclosures be triggered by terms that may be included in 
the commercial communication, or should they be nontriggered 
disclosures that are required in all commercial communications for 
mortgage credit products, regardless of the content of the 
communication? Should any advertising disclosures vary based on the 
types of media in which the commercial communication is made, for 
example, direct mail, newspaper, radio, television, or electronic? If 
so, how?
    Should the rule incorporate any mortgage advertising requirements 
that the Board promulgated under Section 105 of TILA?\158\ If so, which 
should be incorporated? Should the rule incorporate the requirements 
that apply to advertisements for open-end credit, closed-end credit, or 
both?\159\ Should the rule incorporate any other requirements from 
Regulation Z, such as those pertaining to ``definitions'' or 
calculations of terms (that may appear in the advertising requirements, 
among

[[Page 60365]]

others), such as the ``finance charge'' and ``APR''?\160\
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    \158\ See supra Parts III.C.2 and IV.C.2 and note 28.
    \159\ See, e.g., 12 CFR 226.16 and 226.24(c), (d), (e), (f), and 
(g), respectively.
    \160\ See, e.g., 12 CFR 226.2 (definitions); 12 CFR 226.4 
(finance charge calculation); 12 CFR 226.14 (open-end APR 
calculation); and 12 CFR 226.22 (closed-end APR calculation).
---------------------------------------------------------------------------

    Is a mortgage advertiser's failure to comply with any of Regulation 
Z's requirements an unfair or deceptive act or practice under the FTC 
Act? Would requiring mortgage advertisers to comply with any of 
Regulation Z's requirements be reasonably related to the prevention of 
unfair or deceptive acts or practices? What are the advantages and 
disadvantages of incorporating disclosure requirements into the rule?
    For any advertising disclosures that should be required, how should 
they be reconciled with the disclosures required in mortgage 
advertisements under TILA and Regulation Z? In addition, if the rule 
were to include advertising disclosure requirements, should all the 
disclosure standards be the same as or different from those in 
Regulation Z (e.g., ``clear and conspicuous'')?\161\ Should the 
analysis differ based on the type of medium, for example, print, radio, 
television, or electronic?
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    \161\ See, e.g., 12 CFR 226.24(b). The Commission is aware that 
different formulations of the ``clear and conspicuous'' standard are 
used in Regulation Z, including, in some instances, requirements for 
``equally prominent,'' ``closely proximate,'' or ``proximate'' 
advertising disclosures. See 12 CFR 226.24(b), Supp. I, and 73 FR 
44522.
---------------------------------------------------------------------------

    In addition, for any Regulation Z disclosures that should be 
incorporated into the rule, how should the rule address changes over 
time that occur in disclosures required by Regulation Z or the 
Regulation Z Commentary? Would additional requirements be needed to 
address this issue? What forms of testing or other empirical evidence, 
if any, would be appropriate to measure the effectiveness of any 
required advertising disclosures in the rule? What would be the costs 
and benefits of such testing?

D. Instructions for Submitting Comments

    Interested parties are invited to submit written comments 
electronically or in paper form. Comments should refer to ``Mortgage 
Acts and Practices - Advertising Rulemaking, Rule No. R011013'' to 
facilitate the organization of comments. Please note that your comment 
- including your name and your state - will be placed on the public 
record of this proceeding, including on the publicly accessible FTC 
website, at (http://www.ftc.gov/os/publiccomments.shtm).
    Because comments will be made public, they should not include any 
sensitive personal information, such as any individual's Social 
Security number; date of birth; driver's license number or other state 
identification number, or foreign country equivalent; passport number; 
financial account number; or credit or debit card number. Comments also 
should not include any sensitive health information, such as medical 
records or other individually identifiable health information. In 
addition, comments should not include any ``[t]rade secrets and 
commercial or financial information obtained from a person and 
privileged or confidential . . . ,'' as provided in Section 6(f) of the 
FTC Act, 15 U.S.C. 46(f), and Commission Rule 4.10(a)(2), 16 CFR 
4.10(a)(2). Comments containing material for which confidential 
treatment is requested must be filed in paper form, must be clearly 
labeled ``Confidential,'' and must comply with FTC Rule 4.9(c), 16 CFR 
4.9(c).\162\
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    \162\ The comment must be accompanied by an explicit request for 
confidential treatment, including the factual and legal basis for 
the request, and must identify the specific portions of the comment 
to be withheld from the public record. The request will be granted 
or denied by the Commission's General Counsel, consistent with 
applicable law and the public interest. See 16 CFR 4.9(c).
---------------------------------------------------------------------------

    Because paper mail addressed to the FTC is subject to delay due to 
heightened security screening, please consider submitting your comments 
in electronic form. Comments filed in electronic form should be 
submitted at (https://ftcpublic.commentworks.com/ftc/mapadrulenprm) and 
following the instructions on the web-based form. To ensure that the 
Commission considers an electronic comment, you must file it on the 
web-based form at (https://ftcpublic.commentworks.com/ftc/mapadrulenprm). If this Notice appears at (http://www.regulations.gov/search/Regs/home.html#home), you may also file an electronic comment 
through that website. The Commission will consider all comments 
forwarded to it by regulations.gov. You may also visit the FTC website 
at (http://www.ftc.gov) to read the Notice and the news release 
describing it.
    A comment filed in paper form should include the reference 
``Mortgage Acts and Practices - Advertising Rulemaking, Rule No. 
R011013'' both in the text of the comment and on the envelope, and 
should be mailed or delivered to the following address: Federal Trade 
Commission, Office of the Secretary, Room H-135 (Annex W), 600 
Pennsylvania Avenue, NW, Washington, DC 20580. The FTC is requesting 
that any comment filed in paper form be sent by courier or overnight 
service, if possible, because U.S. postal mail in the Washington, DC 
area and at the Commission is subject to delay due to heightened 
security precautions.
    All comments on any proposed recordkeeping requirements should 
additionally be sent to the Office of Management and Budget (OMB). 
Comments may be submitted by U.S. Postal Mail to: Office of Information 
and Regulatory Affairs, Office of Management and Budget, Attention: 
Desk Officer for Federal Trade Commission, New Executive Office 
Building, Docket Library, Room 10102, 725 17th Street, NW, Washington, 
DC 20503. Comments, however, should be submitted via facsimile to (202) 
395-5167 because U.S. Postal Mail is subject to lengthy delays due to 
heightened security precautions.
    The FTC Act and other laws the Commission administers permit the 
collection of public comments to consider and use in this proceeding as 
appropriate. The Commission will consider all timely and responsive 
public comments it receives, whether filed in paper or electronic form. 
Comments received will be available to the public on the FTC website, 
to the extent practicable, at (http://www.ftc.gov/os/publiccomments.htm). As a matter of discretion, the Commission makes 
every effort to remove home contact information of individuals before 
their comments are place on the FTC website. More information, 
including routine uses permitted by the Privacy Act, may be found in 
the FTC's privacy policy, at (http://www.ftc.gov/ftc/privacy.shtm).

V. Communications by Outside Parties to the Commissioners or Their 
Advisors

    Written communications and summaries or transcripts of oral 
communications respecting the merits of this proceeding from any 
outside party to any Commissioner or Commissioner's advisor will be 
placed on the public record.\163\
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    \163\ See 16 CFR 1.26(b)(5).
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VI. Paperwork Reduction Act

    The Commission is submitting this proposed rule and a Supporting 
Statement to the OMB for review under the Paperwork Reduction Act 
(PRA), 44 U.S.C. 3501-21. The recordkeeping requirements\164\ of the 
proposed rule constitute a ``collection of information'' for purposes 
of the PRA.\165\ The proposed rule does not impose a

[[Page 60366]]

disclosure requirement. The associated PRA burden analysis follows:
---------------------------------------------------------------------------

    \164\ Proposed Sec.  321.5 sets forth the recordkeeping 
requirements.
    \165\ See 44 U.S.C. 3502(3)(a).
---------------------------------------------------------------------------

A. Recordkeeping Requirements

    As discussed in the preamble, the proposed rule requires covered 
persons to retain copies of materially different commercial 
communications disseminated and documents describing or evidencing all 
mortgage credit products available to consumers during the relevant 
time period and all additional products or services (such as credit 
insurance or credit disability insurance) that are or may be offered or 
provided with the mortgage credit products.\166\ A failure to keep such 
records would be an independent violation of the rule.
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    \166\ See Proposed Sec.  321.5(a)(1)-(3).
---------------------------------------------------------------------------

    Commission staff believes these recordkeeping requirements pertain 
to records that are usual and customary and kept in the ordinary course 
of business for many covered persons, such as mortgage brokers, 
lenders, and servicers.\167\ As to these persons, the retention of 
these documents does not constitute a ``collection of information,'' as 
defined by OMB's regulations that implement the PRA.\168\ Other covered 
persons, however, such as real estate agents and brokers, advertising 
agencies, home builders, lead generators, rate aggregators, and others, 
may not currently maintain these records in the ordinary course of 
business. Thus, the recordkeeping requirements for those persons would 
constitute a ``collection of information.''
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    \167\ Some covered persons, particularly mortgage brokers and 
lenders, are subject to state recordkeeping requirements for 
mortgage advertisements. See, e.g., Fla. Stat. 494.00165 (2009); 
Ind. Code. Ann. 23-2-5-18 (2009); Minn. Stat. 58.14 (2009); Wash. 
Rev. Code 19.146.060 (2010). Many mortgage brokers, lenders, and 
servicers are also subject to state recordkeeping requirements for 
mortgage transactions and related documents, and these may include 
descriptions of mortgage credit products. See, e.g., Mich. Comp. 
Laws Serv. 445.1671 (2009); N.Y. Banking Law 597 (Consol. 2010); 
Tenn. Code Ann. 45-13-206 (2009).
    \168\ See 44 U.S.C. 3502(3)(A); 5 CFR 1320.3(b)(2).
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B. Estimated Hours Burden and Associated Labor Costs

    Commission staff estimates that the proposed rule's recordkeeping 
requirements will affect approximately 1.3 million persons\169\ who 
would not otherwise retain such records in the ordinary course of 
business. As noted, this estimate includes real estate agents and 
brokers, advertising agencies, home builders, lead generators, rate 
aggregators, and others that may provide commercial communications 
regarding mortgage credit product terms.\170\
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    \169\ No general source provides precise numbers of the various 
categories of covered persons. Commission staff, therefore, has used 
the following sources and inputs to arrive at this estimated total: 
(1) 1.1 million real estate brokers and agents - from the National 
Association of Realtors, see (http://www.realtor.org) (last visited 
June 28, 2010); (2) 175,000 home builders - from the National 
Association of Home Builders, see (http://www.NAHB.org) (last 
visited June 28, 2010); (3) 350 finance companies - from the 
American Financial Services Association, see (http://www.afsaonline.org) (last visited June 28, 2010); (4) 22,170 
advertising agencies - from the North American Industry 
Classification System Association's database of U.S. businesses, see 
(http://www.naics.com/naics54.htm) (last visited June 28, 2010); (5) 
1,000 lead generators and rate aggregators - based on staff's 
administrative experience. These inputs add to 1,298,520; for 
rounding, and to account further for potentially unspecified other 
covered persons, however, staff has increased the resulting total to 
1.3 million.
    \170\ The Commission does not know what percentage of these 
persons are, in fact, engaged in covered conduct under the proposed 
rule, i.e.,providing commercial communications about mortgage credit 
product terms. For purposes of these estimates, the Commission has 
assumed all of them are covered by the recordkeeping provisions and 
are not retaining these records in the ordinary course of business.
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    Although the Commission cannot estimate with precision the time 
required to gather and file the required records, it is reasonable to 
assume that covered persons will each spend approximately 3 hours per 
year to do these tasks, for a total of 3.9 million hours (1.3 million 
persons x 3 hours). Staff further assumes that office support file 
clerks will handle the proposed rule's record retention requirements at 
an hourly rate of $13.63.\171\ Based upon the above estimates and 
assumptions, the total annual labor cost to retain and file documents 
is $53,157,000 (3.9 million hours x $13.63 per hour).
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    \171\ This estimate is based on mean hourly wages for office 
file clerks provided by the Bureau of Labor Statistics. See U.S. 
Bur. of Labor Statistics, National Compensation Survey: Occupational 
Earnings in the United States, 2009, Bulletin 2738, June 2010, at 3-
23, tbl. 3, available at (http://www.bls.gov/ncs/ncswage2009.htm).
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    Absent information to the contrary, staff anticipates that existing 
storage media and equipment that covered persons use in the ordinary 
course of business will satisfactorily accommodate incremental 
recordkeeping under the proposed rule. Accordingly, staff does not 
anticipate that the proposed rule will require any new capital or other 
non-labor expenditures.

C. Questions for Comment

    The Commission invites comments that will enable it to: (1) 
evaluate whether the proposed record retention requirements are 
necessary for the proper performance of the functions of the 
Commission, including whether the information will have practical 
utility; (2) evaluate the accuracy of the Commission's estimate of the 
burden of the proposed collection of information, including the 
validity of the methodology and assumptions used; (3) enhance the 
quality, utility, and clarity of the information to be collected; and 
(4) minimize the burden of the collection of information on those who 
must comply, including through the use of appropriate automated, 
electronic, mechanical, or other technological techniques or other 
forms of information technology.

VII. Regulatory Flexibility Act

    The Regulatory Flexibility Act of 1980\172\ requires the Commission 
to provide an Initial Regulatory Flexibility Analysis with a proposed 
rule, and a Final Regulatory Flexibility Analysis with a final rule, 
unless the Commission certifies that it does not anticipate that the 
proposed rule will have a significant economic impact on a substantial 
number of small entities.\173\
---------------------------------------------------------------------------

    \172\ 5 U.S.C. 601-612.
    \173\ 5 U.S.C. 603-605. Covered entities under the proposed rule 
will be classified as small entities if they satisfy the Small 
Business Administrator's relevant size standards, as determined by 
the Small Business Size Standards component of the North American 
Industry Classification System (NAICS), available at (http://www.sba.gov/idc/groups/public/documents/sba_homepage/serv_sstd_tablepdf.pdf). Because a wide range of individuals and companies may 
make representations in commercial communications regarding any term 
of a mortgage product, no one classification is applicable to this 
rulemaking.
    The range in size standard for most of the potentially relevant 
professional and support services is $7 million or less in annual 
receipts. This standard applies to, for example, real estate credit, 
mortgage and nonmortgage loan brokers, other nondepository credit 
intermediation, other activities related to credit intermediation 
(such as servicing), secondary market financing (such as Fannie Mae 
and Freddie Mac), marketing consulting services, advertising 
agencies, public relations agencies, display advertising, direct 
mail advertising, advertising material distribution services, other 
services related to advertising, and all other professional, 
scientific and technical services.
    The range in size standard varies greatly for the following 
other types of entities that are potentially covered by the proposed 
rule: offices of real estate agents and brokers ($2 million or 
less); housing construction/builders ($33.5 million or less); and 
credit unions ($175 million or less).
---------------------------------------------------------------------------

    The Commission anticipates that the proposed Mortgage Acts and 
Practices - Advertising Rule will have no significant economic impact 
on a substantial number of small entities. As noted above, the proposed 
rule will prevent deceptive mortgage advertising practices by 
prohibiting misrepresentations and imposing a related recordkeeping 
requirement. The proposed rule's reach is limited to entities that are 
within the FTC's jurisdiction under the FTC Act. Under the FTC Act, the 
Commission has jurisdiction over any person,

[[Page 60367]]

partnership, or corporation that engages in unfair or deceptive acts or 
practices in or affecting commerce, excepting, among others, banks, 
savings and loan institutions, federal credit unions, non-profits, and 
common carriers. Thus, the proposed rule would broadly apply to any 
covered entity that makes representations in a commercial communication 
about any term of a mortgage credit product. Although the Commission 
does not know the precise number of entities that may be subject to the 
proposed rule, it estimates that the proposed rule will cover 
approximately 1.35 million entities.\174\ This number includes mortgage 
lenders, mortgage brokers, mortgage servicers, real estate agents and 
brokers, advertising agencies, home builders, lead generators, rate 
aggregators, and others under the Commission's jurisdiction. It is not 
known, however, how many of those entities are small entities, and the 
Commission welcomes comment on those issues. The Commission nonetheless 
believes that the proposed rule will not have a significant economic 
impact on any of the small entities subject to it.
---------------------------------------------------------------------------

    \174\ No general source provides precise numbers of the various 
categories of covered persons. Commission staff, therefore, has used 
the following sources and inputs to arrive at this estimated total: 
(1) 51,000 mortgage lenders and mortgage brokers - from various 
online state regulatory agency resources and the Nationwide Mortgage 
Licensing System and Registry Consumer Access, see (http://www.nmlsconsumeraccess.org) (last visited between May 17 - June 28, 
2010); (2) 60 mortgage servicers - from several sources including 
lists of servicers participating in various federal programs, 
available at (http://makinghomeaffordable.gov/contact_servicer.html) and (http://hopenow.com/members.php) (both last 
visited June 28, 2010) (excluding lenders who are also servicers 
under these programs); and (3) 1.3 million others - see supra note 
169 (explaining estimate).
---------------------------------------------------------------------------

    The proposed rule generally prohibits misrepresentations, 
consistent with the prohibition on deceptive claims that would violate 
Section 5 of the FTC Act. The proposed rule elaborates on this 
prohibition by including specific examples of types of 
misrepresentations covered by the proposed rule, but it does not 
require affirmative disclosures. The entities subject to the proposed 
rule are within the Commission's jurisdiction under the FTC Act, and 
thus are already prohibited from such conduct. The proposed rule 
imposes a recordkeeping requirement, but it is limited to a specific 
subset of relevant documents that Commission staff believes many 
entities covered by the proposed rule already retain in the ordinary 
course of business. For those entities that may not already do so, 
staff estimates minimal burden and expense for each entity to comply 
with the proposed rule's requirements.\175\ For these reasons, the 
Commission believes that the proposed rule is not likely to have a 
significant economic impact\176\ on a substantial number of small 
entities. Accordingly, this document serves as notice to the Small 
Business Administration of the Commission's certification that it does 
not anticipate the proposed rule will have a significant economic 
impact on a substantial number of small entities. Nonetheless, the FTC 
has prepared the following analysis.
---------------------------------------------------------------------------

    \175\ Staff estimates that the annual labor cost for each 
covered person to file or retain documents under the recordkeeping 
provisions is $39.72 (3 hours x $13.24 per hour). See supra Part 
VI.B.
    \176\ Cf. U.S. Small Bus. Admin. Office of Advocacy, A Guide for 
Government Agencies - How to Comply with the Regulatory Flexibility 
19 (2003), available at (http://www.sba.gov/advo/laws/rfaguide.pdf) 
(citing 126 Cong. Rec. S10,938 (Aug. 6, 1980) (identifying 175 
annual staff hours for recordkeeping as a ``significant impact'')).
---------------------------------------------------------------------------

A. Description of the Reasons That Action by the Agency is Being 
Considered

    The Commission proposes, and seeks comment on, a proposed rule to 
implement Section 626 of the Omnibus Appropriations Act, as amended by 
the Credit CARD Act, which directs the Commission to initiate a 
rulemaking related to unfair or deceptive acts or practices with 
respect to mortgage loans. Section 511 of the Credit CARD Act clarified 
that the rule will cover only those entities over which the FTC has 
jurisdiction under the FTC Act. Through this document, the Commission 
proposes, and seeks comment on, prohibited misrepresentations and 
recordkeeping provisions aimed at mortgage credit product commercial 
communications in order to prevent deceptive practices that harm 
consumers, consistent with the goals of the Act.

B. Statement of the Objectives of, and Legal Basis for, the Proposed 
Rule

    The proposed rule is intended to implement Section 626 of the 
Omnibus Appropriations Act, as amended by the Credit CARD Act, which 
directs the Commission to initiate a rulemaking related to unfair or 
deceptive acts or practices with respect to mortgage loans. Through the 
rulemaking, the Commission seeks to prevent deceptive acts and 
practices in the mortgage advertising industry, which has been the 
subject of numerous law enforcement actions under Section 5 of the FTC 
Act and TILA.

C. Small Entities to Which the Proposed Rule Will Apply

    The proposed rule will apply to any person who makes any 
representation in any commercial communication regarding any term of 
any mortgage credit product. Based upon its knowledge of the industry, 
the Commission believes that a variety of individuals and companies 
under its jurisdiction will be covered by the proposed rule, including 
but not limited to mortgage lenders, mortgage brokers, mortgage 
servicers, real estate agents and brokers, advertising agencies, home 
builders, lead generators, rate aggregators, and others.
    In response to a request for comments in the ANPR, the Commission 
received no empirical data regarding the numbers or revenues of any of 
these types of entities. On the basis of other available data, however, 
Commission staff estimates that there are approximately 1.35 million 
entities subject to the proposed rule.\177\ However, staff does not 
have sufficient data to readily estimate the number of such covered 
persons, if any, that are small entities. Accordingly, the Commission 
specifically requests additional comment on: (1) the number of 
individuals and companies that make commercial communications regarding 
mortgage credit products; and (2) the number of such entities, if any, 
that are small entities.
---------------------------------------------------------------------------

    \177\ See supra note 169.
---------------------------------------------------------------------------

D. Projected Reporting, Recordkeeping, and Other Compliance 
Requirements

    The proposed rule sets forth specific categories of records that 
covered persons would be required to retain. The Commission believes 
that these recordkeeping requirements are necessary to ensure that 
covered entities are complying with the requirements of the proposed 
rule. They would enable the Commission to review copies of commercial 
communications for any misrepresentations that violate the rule and to 
bring law enforcement actions as appropriate. The Commission recognizes 
that recordkeeping provisions impose compliance costs; however, many 
covered entities already retain in the ordinary course of business the 
types of documents that the proposed rule would require be retained. 
For those entities that may not already do so, staff estimates minimal 
burden and expense for each entity to comply with the 
requirements.\178\ To

[[Page 60368]]

further reduce any burden, the proposed rule would permit covered 
entities to keep the records in any legible form and in the same 
manner, format, or place as they keep such records in the ordinary 
course of business. The proposed rule also attempts to avoid imposing 
any unnecessary burden by limiting the recordkeeping requirements only 
to, for example, ``materially different'' commercial communications. It 
also limits the timeframe for recordkeeping to 24 months.
---------------------------------------------------------------------------

    \178\ See supra Part VI.B (discussing professional skills and 
equipment that staff estimates are needed for compliance).
---------------------------------------------------------------------------

E. Duplicative, Overlapping, or Conflicting Federal Rules

    As noted above, TILA (including HOEPA) and Regulation Z regulate 
mortgage advertisements. The states have also enacted various laws or 
regulations that address aspects of deceptive mortgage advertising 
practices. None of the federal or state measures duplicates the 
specificity and breadth of practices, or diversity of entities covered 
in the proposed rule. In addition, the Commission does not believe that 
its proposed rule conflicts with any of these other requirements, but 
it invites comment on this issue.\179\
---------------------------------------------------------------------------

    \179\ See supra notes 117-118 and accompanying text.
---------------------------------------------------------------------------

    As noted above, the Commission is not proposing any affirmative 
disclosure requirements, but it is has requested comment on whether any 
such disclosures are needed to prevent deception related to commercial 
communications for mortgage credit products.\180\ However, such 
disclosures could raise substantial conflicts with other mortgage 
advertising requirements, including those in TILA and Regulation Z. The 
Commission is interested in receiving comments in this area.\181\
---------------------------------------------------------------------------

    \180\ See supra Parts III.C.2 and IV.C.2.
    \181\ See id.
---------------------------------------------------------------------------

F. Significant Alternatives to the Proposed Rule Amendments

    As previously noted, the proposed rule is intended to prevent 
deceptive acts and practices in mortgage advertising. The proposed rule 
is intended to achieve that goal without creating unnecessary 
compliance costs. Thus, the Commission does not propose to impose any 
affirmative disclosure requirements for advertisements at this time. 
Further, as discussed above, Commission staff believes that many 
covered entities already retain in the ordinary course of business the 
types of documents that the proposed rule would require be retained. In 
addition, proposed Sec.  321.5(b) states that entities may keep such 
records in any legible form and in the same manner, format, or place as 
they keep such records in the ordinary course of business.
    The proposed rule also limits the types of information that must be 
retained to avoid imposing any unnecessary burden. For example, covered 
persons must retain only ``materially different'' versions of 
commercial communications and related materials. Finally, the proposed 
rule calls for a 24-month record retention period, which the Commission 
believes would strike an appropriate balance between ensuring efficient 
and effective compliance efforts, while avoiding the imposition of 
unnecessary costs.
    Furthermore, the recordkeeping requirements are format-neutral; 
they would not preclude the use of electronic methods that might reduce 
compliance burdens. In addition, the Commission is not aware of any 
feasible or appropriate exemptions for small entities because the 
proposed rule attempts to minimize compliance burdens for all entities.
    Nonetheless, the Commission seeks additional comment regarding: (1) 
the existence of small entities for which the proposed rule would have 
a significant economic impact, and (2) suggested alternatives, 
including potential exemptions for small entities, that would reduce 
the economic impact of the proposed rule on such small entities. If the 
comments filed in response to this document identify any small entities 
that would be significantly affected by the proposed rule, as well as 
alternatives that would reduce compliance costs on such entities, the 
Commission will consider the feasibility of such alternatives and 
determine whether they should be incorporated into any final rule.

          Table A - List of Commenters and Short-names/Acronyms
------------------------------------------------------------------------
            Short-name/Acronym                       Commenter
------------------------------------------------------------------------
                                  Adcock   Adcock
                                     ABA   American Bankers Association
                                     ASA   American Society of
                                            Appraisers
                                Anderson   Anderson, Lisa
                                AG Mass.   Attorney General,
                                            Commonwealth of
                                            Massachusetts
                                 Beasley   Beasley
                                    BECU   Boeing Employees' Credit
                                            Union
                                  Bracco   Bracco, Larry
                                      CRL  Center for Responsible
                                            Lending
                              Ciavarella   Ciavarella (3 comments)
                                CMC/AFSA   Consumer Mortgage Coalition
                                            and American Financial
                                            Services Association
                                    CUNA   Credit Union National
                                            Association
                                  Crosby   Crosby, Tracy
                                     EJF   Empire Justice Center
                             Freddie Mac   Federal Home Loan Mortgage
                                            Corporation
                                 Feinman   Feinman, Anita
                                  Flaker   Flaker
                              Franciulli   Franciulli, Patricia
                                    GCUA   Georgia Credit Union
                                            Affiliates
                                 Goodman   Goodman, Al
                                  Harris   Harris, Kathleen
                                     HPC   Housing Policy Council
                                  Howard   Howard, Marilyn (2 comments)
                               Kochanski   Kochanski, David
                                        LabLaborers International Union
                                            of North America
                                     MBA   Mortgage Bankers Association
                                    MICA   Mortgage Insurance Companies
                                            of America

[[Page 60369]]

 
                                     NAR   National Association of
                                            REALTORS
                                  NASCUS   National Association of State
                                            Credit Union Supervisors
                                    NCRC   National Community
                                            Reinvestment Coalition
                                      NCLC National Consumer Law Center
                                  Norman   Norman
                                Obduskey   Obduskey, Dennis (2 comments)
                                      P.   P. (Anonymous)
                                    Reid   Reid, Harry (United States
                                            Senate)
                                    Rice   Rice, Richard
                                   Scheu   Scheu, Toni
                                   Smith   Smith, J.
                                  Tucker   Tucker, James
                               Yachovich   Yackovich, Beverly G. &
                                            Edward
                                 Yoshida   Yoshida, Gena
                                   Zager   Zager, Jeremy (Sterling Van
                                            Dyke Credit Union)
------------------------------------------------------------------------


     Table B - List of FTC Mortgage Advertising Enforcement Actions
<bullet> FTC v. Assocs. First Capital Corp., No. 1:01-00606 (N.D. Ga.
 2001)................................................................
<bullet> FTC v. Capital City Mortg. Corp., No. 1:98CV237 (D.D.C. 1998)
<bullet> FTC v. Chase Fin. Funding, Inc., No. SACV04-549 GLT (ANx)
 (C.D. Cal. 2004).....................................................
<bullet> FTC v. First Alliance Mortg. Co., No. SACV 00-964 DOC (EEx)
 (C.D. Cal. 2000).....................................................
<bullet> FTC v. Mortgages Para Hispanos.com Corp., No. 4:06-cv-19
 (E.D. Tex. 2006).....................................................
<bullet> FTC v. Ranney, No. 04-F-1065 (MJW) (D. Colo. 2004)...........
<bullet> FTC v. Ryan, No. 1:09-cv-00535-HHK (D.D.C. 2009).............
<bullet> FTC v. OSI Fin. Servs., Inc., No. 02-C-5078 (N.D. Ill. 2002).
<bullet> FTC v. Safe Harbour Found. of Fla., Inc., No. 08-C-1185 (N.D.
 Ill. 2008)...........................................................
<bullet> FTC v. 30 Minute Mortg., Inc., No. 03-60021 (S.D. Fla. 2003).
<bullet> In re Am. Nationwide Mortg. Co., Inc., F.T.C. Dkt. No. C-4249
 (2009)...............................................................
<bullet> In re Felson Builders, Inc., 119 F.T.C. 642 (1995)...........
<bullet> In re FirstPlus Fin. Group, Inc., F.T.C. Dkt. No. C-3984
 (2000)...............................................................
<bullet> In re Lomas Mortg. U.S.A., Inc., 116 F.T.C. 1062 (1993)......
<bullet> In re Michael Gendrolis, F.T.C. Dkt. No. C-4248 (2009).......
<bullet> In re Shiva Venture Group, Inc., F.T.C. Dkt. No. C-4250
 (2009)...............................................................
<bullet> United States v. Mercantile Mortg. Co., No. 02-C-5079 (N.D.
 Ill. 2002)...........................................................
<bullet> United States v. Unicor Funding, Inc., No. 9901228 (C.D. Cal.
 1999)................................................................
------------------------------------------------------------------------

VIII. Proposed Rule

List of Subjects in 16 CFR part 321

    Advertising, Communications, Consumer protection, Credit, 
Mortgages, Trade practices

0
For the reasons set forth in the preamble, the Federal Trade Commission 
is proposing to amend title 16, Code of Federal Regulations, by adding 
a new part 321, to read as follows:

PART 321 - MORTGAGE ACTS AND PRACTICES - ADVERTISING RULE

Section Contents
321.1 Scope of regulations in this part.
321.2 Definitions.
321.3 Prohibited representations.
321.4 Waiver not permitted.
321.5 Recordkeeping requirements.
321.6 Actions by states.
321.7 Severability.

    Authority: Sec. 626, Pub. L. 111-8, 123 Stat. 524 (15 U.S.C. 
1638 note), as amended by sec. 511, Pub. L. 111-24, 123 Stat. 1734 
(15 U.S.C. 1638 note).


Sec.  321.1  Scope of regulations in this part.

    This part implements the Omnibus Appropriations Act of 2009, sec. 
626, Pub. L. 111-8, 123 Stat. 524 (2009) (15 U.S.C. 1638 note), as 
amended by the Credit Card Accountability Responsibility and Disclosure 
Act of 2009, sec. 511, Pub. L. 111-24, 123 Stat. 1734 (2009) (15 U.S.C. 
1638 note). This part applies to persons over which the Federal Trade 
Commission has jurisdiction under the Federal Trade Commission Act.


Sec.  321.2  Definitions.

    (a) ``Commercial communication'' means any written or verbal 
statement, illustration, or depiction, whether in English or any other 
language, that is designed to effect a sale or create interest in 
purchasing goods or services, whether it appears on or in a label, 
package, package insert, radio, television, cable television, brochure, 
newspaper, magazine, pamphlet, leaflet, circular, mailer, book insert, 
free standing insert, letter, catalogue, poster, chart, billboard, 
public transit card, point of purchase display, film, slide, audio 
program transmitted over a telephone system, telemarketing script, 
onhold script, upsell script, training materials provided to 
telemarketing firms, program-length commercial (``infomercial''), the 
Internet, cellular network, or any other medium. ``Commercial 
communication'' includes but is not limited to promotional materials 
and items as well as Web pages.
    (b) ``Consumer'' means a natural person to whom a mortgage credit 
product is offered or extended.
    (c) ``Credit'' means the right to defer payment of debt or to incur 
debt and defer its payment.
    (d) ``Dwelling'' means a residential structure that contains one to 
four units, whether or not that structure is attached to real property. 
The word includes an individual condominium unit, cooperative unit, 
mobile home, and trailer, if it is used as a residence.
    (e) ``Mortgage credit product'' means any form of credit that is 
secured by real property or a dwelling and that is offered or extended 
to a consumer

[[Page 60370]]

primarily for personal, family, or household purposes.
    (f) ``Person'' means any individual, group, unincorporated 
association, limited or general partnership, corporation, or other 
business entity.
    (g) ``Term'' means any of the fees, costs, obligations, or 
characteristics of or associated with the product. It also includes any 
of the conditions on or related to the availability of the product.


Sec.  321.3  Prohibited representations.

    It is a violation of this rule for any person to make any material 
misrepresentation, expressly or by implication, in any commercial 
communication, regarding any term of any mortgage credit product, 
including but not limited to misrepresentations about:
    (a) The interest charged for the mortgage credit product, including 
but not limited to misrepresentations concerning: (1) the amount of 
interest that the consumer owes each month that is included in the 
consumer's payments, loan amount, or total amount due, or (2) whether 
the difference between the interest owed and the interest paid is added 
to the total amount due from the consumer;
    (b) The annual percentage rate, simple annual rate, periodic rate, 
or any other rate;
    (c) The existence, nature, or amount of fees or costs to the 
consumer associated with the mortgage credit product, including but not 
limited to misrepresentations that no fees are charged;
    (d) The existence, cost, payment terms, or other terms associated 
with any additional product or feature that is or may be sold in 
conjunction with the mortgage credit product, including but not limited 
to credit insurance or credit disability insurance;
    (e) The terms, amounts, payments, or other requirements relating to 
taxes or insurance associated with the mortgage credit product, 
including but not limited to misrepresentations about: (1) whether 
separate payment of taxes or insurance is required, or (2) the extent 
to which payment for taxes or insurance is included in the loan 
payments, loan amount, or total amount due from the consumer;
    (f) Any prepayment penalty associated with the mortgage credit 
product, including but not limited to misrepresentations concerning the 
existence, nature, amount, or terms of such penalty;
    (g) The variability of interest, payments, or other terms of the 
mortgage credit product, including but not limited to 
misrepresentations using the word ``fixed;''
    (h) Any comparison between:

 (1) Any rate or payment that will be available for a period less than 
the full length of the mortgage credit product, and

 (2) Any actual or hypothetical rate or payment;
    (i) The type of mortgage credit product, including but not limited 
to misrepresentations that the product is or involves a fully 
amortizing mortgage;
    (j) The amount of the obligation, or the existence, nature, or 
amount of cash or credit available to the consumer in connection with 
the mortgage credit product, including but not limited to 
misrepresentations that the consumer will receive a certain amount of 
cash or credit as part of a mortgage credit transaction;
    (k) The existence, number, amount, or timing of any minimum or 
required payments, including but not limited to misrepresentations 
about any payments or that no payments are required in a reverse 
mortgage or other mortgage credit product;
    (l) The potential for default under the mortgage credit product, 
including but not limited to misrepresentations concerning the 
circumstances under which the consumer could default for nonpayment of 
taxes, insurance, or maintenance, or for failure to meet other 
obligations;
    (m) The effectiveness of the mortgage credit product in helping the 
consumer resolve difficulties in paying debts, including but not 
limited to misrepresentations that any mortgage credit product can 
reduce, eliminate, or restructure debt or result in a waiver or 
forgiveness, in whole or in part, of the consumer's existing obligation 
with any person;
    (n) The association of the mortgage credit product or any provider 
of such product with any other person or program, including but not 
limited to misrepresentations that:

 (1) The provider is, or is affiliated with, any governmental entity or 
other organization, or

 (2) The product is or relates to a government benefit, or is endorsed, 
sponsored by, or affiliated with any government or other program, 
including but not limited to through the use of formats, symbols, or 
logos that resemble those of such entity, organization, or program;
    (o) The source of any commercial communication, including but not 
limited to misrepresentations that a commercial communication is made 
by or on behalf of the consumer's current mortgage lender or servicer;
    (p) The right of the consumer to reside in the dwelling that is the 
subject of the mortgage credit product, or the duration of such right, 
including but not limited to misrepresentations concerning how long or 
under what conditions a consumer with a reverse mortgage can stay in 
the dwelling;
    (q) The consumer's ability or likelihood to obtain any mortgage 
credit product or terms, including but not limited to 
misrepresentations concerning whether the consumer has been preapproved 
or guaranteed for any such product or terms;
    (r) The consumer's ability or likelihood to obtain a refinancing or 
modification of any mortgage credit product or terms, including but not 
limited to misrepresentations concerning whether the consumer has been 
preapproved or guaranteed for any such refinancing or modification; and
    (s) The availability, nature, or substance of counseling services 
or any other expert advice offered to the consumer regarding any 
mortgage credit product term, including but not limited to the 
qualifications of those offering the services or advice.


Sec.  321.4  Waiver not permitted.

    Any attempt by any person to obtain a waiver from any consumer of 
any protection provided by, or any right of the consumer under, this 
rule constitutes a violation of this rule.


Sec.  321.5  Recordkeeping requirements.

    (a) Any person subject to this rule shall keep, for a period of 
twenty-four months from the last date of dissemination of the 
applicable commercial communication, the following evidence of 
compliance with this rule:
    (1) Copies of all materially different commercial communications 
disseminated, including but not limited to sales scripts, training 
materials, related marketing materials, websites, and weblogs;
    (2) Documents describing or evidencing all mortgage credit products 
available to consumers during the time period in which each commercial 
communication was disseminated, including but not limited to the names 
and terms of each such mortgage credit product available to consumers; 
and
    (3) Documents describing or evidencing all additional products or 
services (such as credit insurance or credit disability insurance) that 
are or may be offered or provided with the mortgage credit products 
available to consumers during the time period in

[[Page 60371]]

which each commercial communication was disseminated, including but not 
limited to the names and terms of each such additional product or 
service available to consumers.
    (b) Any person subject to this rule may keep the records required 
by paragraph (a) of this section in any legible form, and in the same 
manner, format, or place as they keep such records in the ordinary 
course of business. Failure to keep all records required under 
paragraph (a) of this section shall be a violation of this rule.


Sec.  321.6  Actions by states.

    Any attorney general or other officer of a state authorized by the 
state to bring an action under this part may do so pursuant to Section 
626(b) of the Omnibus Appropriations Act of 2009, sec. 626, Pub. L. 
111-8, 123 Stat. 524 (2009) (15 U.S.C. 1638 note), as amended by the 
Credit Card Accountability Responsibility and Disclosure Act of 2009, 
sec. 511, Pub. L. 111-24, 123 Stat. 1734 (2009) (15 U.S.C. 1638 note).


Sec.  321.7  Severability.

    The provisions of this rule are separate and severable from one 
another. If any provision is stayed or determined to be invalid, it is 
the Commission's intention that the remaining provisions shall continue 
in effect.
    By direction of the Commission.

Donald S. Clark,
Secretary.
[FR Doc. 2010-24353 Filed 9-29-10: 8:45 am]
BILLING CODE 6750-01-S