DFW REI
Club Legislative Advisory:
New FTC Rule May Impact Real Estate Investors, Brokers, and
Realtors
The Federal Trade Commission (“FTC”) has recently issued its Mortgage Acts and
Practices - Advertising, or “MAP”, rule (“Rule”). The Rule imposes requirements
on those who provide information about mortgage credit products to consumers by
prohibiting misrepresentations during these communications and also imposing
recordkeeping requirements. The Rule will impact all real estate professionals who
provide this information to consumers, such as giving a consumer a lender’s (even
their own in the case of creative or owner financing) rate sheet. The Rule
takes effect on August 19, 2011.
Background
The Rule is intended to regulate unfair or deceptive practices in the
advertising of mortgage products, and covers all entities involved in the
process such as Real Estate investors, Real Estate brokers, Realtors, mortgage
brokers, lenders, and home builders. The Rule will also cover real estate
professionals when they are providing information about a mortgage credit
product to a consumer, as outlined in this article.
Rulemaking authority for the Rule has now transferred to the Consumer Financial
Protection Bureau (“CFPB”). Enforcement authority for the Rule rests with the CFPB,
FTC, and state attorneys general.
Rule’s Requirements
The Rule prohibits misrepresentations in a commercial communication about any
term of a mortgage credit product. A “commercial communication” is broadly
defined within the Rule, covering both oral and written statements designed to
“create an interest in purchasing goods or services”, which in this case would
be a mortgage credit product. A “mortgage credit product” is “any form of
credit” that is offered to a consumer and secured by the consumer’s dwelling.
The Rule’s coverage will include information about all mortgage terms and the
Rule contains an extensive list of possible mortgage terms, including interest
rates, products sold in conjunction with a mortgage such as credit insurance,
amount of taxes, variability of interest rates, and prepayment penalties.
Application of Rule to Real Estate
Professionals
The Rule will apply when a real estate professional provides information about
a specific mortgage product to a consumer. An example would be providing a
consumer with rate sheets containing the current interest rate from a lender, providing
a consumer with a mortgage application, or any other information pertaining to a
specific mortgage product. All statements about the terms of a mortgage will be
covered by the Rule, and will need to be retained for two years. In addition,
the statements should have the disclaimer language discussed in this article in
order to protect against later misrepresentation claims.
The FTC has stated in its comments that the Rule does not apply to purely
informational communications not designed to cause the purchase of a good or
service because these are not commercial communications. So, providing a
consumer general information about market rates for different types of
mortgages products will likely not be subject to the Rule because these are not
related to a specific mortgage product. However, providing a consumer with the
daily rates from a specific lender would trigger compliance with the rule.
Similarly, going through the prequalification process with a consumer in order
to determine the range of properties that a consumer may be eligible to
purchase won’t require compliance with the Rule; however, providing a consumer
with the documentation needed to apply for a preapproval from a lender for a
mortgage loan will be covered by the Rule.
Disclaimer or Qualifying Statement
In the preamble to the final Rule, the FTC notes that a disclaimer provided
with a covered statement “may correct a misleading impression, but only if it
is sufficiently clear and prominent to convey the qualifying information
effectively”. Therefore, real estate professionals should always include a
disclaimer when providing information to consumers about the terms of a
mortgage credit product, as a properly crafted disclaimer can protect against
later misrepresentation claims.
The disclaimer will need to be prominent, as the FTC notes in its comments that
disclaimers in small type placed at the bottom of a document will not protect
against misrepresentation claims. The disclaimer text should be separated from
the other text in the covered statement, as language buried within the text may
not be effective to protect against misrepresentation claims. See the end of
this advisory for a model disclaimer.
Note that the disclaimer should be tailored to the type of information that you
are providing to a client. If you are providing other services beyond
transmitting basic mortgage information, you will need to tailor your
disclaimer to cover those services.
Recordkeeping Requirements
When a real estate professional is subject to the Rule, that real estate
professional is required to keep all covered commercial communications for 2
years from the date that the communication was made to the consumer. In order
to comply with this section, the real estate professional should put all
covered statements into writing and include the statements in each consumer’s
file (paper or electronic). This record retention system should become part of
the real estate professionals overall record retention program.
Model Disclaimer Language for MAP Advertising
The disclaimer should be provided in text at least as large as the body text
and should be placed in a location so that the disclaimer is readily apparent
to the consumer receiving the mortgage information.
This communication is provided to you for informational purposes
only and should not be relied upon by you. [Name of real estate professional or
business] is not a mortgage lender and so you should contact [entity providing
mortgage product(s) identified] directly to learn more about its mortgage
products and your eligibility for such products.
