According to statements from the Consumer Financial Protection Bureau, the three lenders had knowingly mislead consumers into thinking that their products were approved by the government. The charges are in connection with a so-called compliance “sweep” jointly carried out with another government agency, the Federal Trade Commission, that involved inspecting about 800 random mortgage advertisements on the Internet, on newspapers, and on direct mailings.
The CFPB noted that two of the institutions, Flagship Financial Group and American Preferred Lending, will be paying to the tune of $225,000 and $85,000 respectively to settle the charges. The third institution, All Financial Services, is currently contesting the charges levied against the company.
In prepared comments, CFPB Director Richard Cordray accused the three financial institutions of using false advertising to deceive or mislead consumers. “The U.S. government is very serious about stopping companies from falsely claiming federal authority, and we are particularly concerned about false or deceptive statements made in advertisements about reverse mortgages that target older Americans,” Cordray’s statement continued.
Reverse mortgages are a type of home loan products offered mainly to Baby Boomer consumers, and while ostensibly useful, these products have gotten scored by experts for being nebulous in their terms and conditions.
Distilling things to the basics, reverse mortgages are sold to older Baby Boomers as they are only available to consumers aged 62 or older. These products allow homeowners to transform part of their home equity into cash, thus helping retirees make good use of their equity to pay for monthly expenses, health care, and other necessities even if they do not earn a regular paycheck anymore. There is no restriction as to how consumers can use the proceeds from a reverse mortgage.
However, there have been numerous blog posts and expert statements warning against reverse mortgages and their associated fees and interest rates, among other details typically found in the fine print. There is also the possibility that a consumer’s heirs may not inherit the home should they pass away, and the fact that they will definitely have to pay their mortgage if they move out of their house.
The CFPB claims that All Financial Services had released a series of deceptive ads between November 2011 and December 2012, stating that the source of the advertisements had connections to a government organization. Further, the government agency also stated that All Financial had mailed out about 200,000 pieces of literature regarding its reverse mortgage products, all of them with an eagle that is similar in appearance, but not exactly the same as the Great Seal of the United States.
Flagship Financial Group, on the other hand, falsely claimed that it offered “HUD-approved” products to customers, while both Flagship and American Preferred Lending had supposedly disseminated mail with similarly deceptive claims of government approval.
Attempts to reach out to the three institutions have been unsuccessful so far, with All Financial Services and Flagship Financial Group unavailable for comment as of this writing. American Preferred Lending, on the other hand, told Reuters that it does not have any comment to provide regarding the settlement.