August 27, 1998
To: The Institution Addressed
Advertising plays a significant role in linking consumers with providers of mortgage credit services. However, it is also clear that consumers typically are infrequent users of mortgage credit services and therefore, more likely to be swayed by misleading advertising claims. Part 38 of the General Regulations of the Banking Board specifically prohibits advertising practices deemed fraudulent, deceitful or misleading, and entities engaged in prohibited advertising practices are subject to disciplinary action, including fine, suspension and revocation.
Advertising has recently appeared in newspapers of general circulation which the Banking Department views as being fraudulent, deceitful or misleading and therefore, prohibited by Part 38. Accordingly, I strongly urge all entities subject to this regulation to undertake an immediate, thorough and critical review of all advertising directed at the general public, paying particular attention to the presence of any inaccurate or misleading content or practice. If upon reflection, you recognize that your advertising contains inaccuracies or presents facts in ways that could mislead members of the public, it should be immediately withdrawn from further publication until modified to conform to the regulation. I expect you to give this matter your full and prompt attention.
One of the objectionable practices noted involves cloaking advertising in the guise of a news report, a so-called "advertorial." The style and content of these advertisements may so closely resemble a news article as to be indistinguishable from actual news presented elsewhere in the same newspaper. Notwithstanding the absence of any attribution, some, or even, many readers may mistake the typically self-serving commentary to be the endorsement of an experienced and fair-minded professional journalist. The Department does not object to this form of advertising per se providing the advertorial is clearly and conspicuously labeled "Paid Advertisement." In addition, pursuant to Part 38.2(a), the advertisement should include where applicable the required legend. Any conventional advertisement by the same business appearing elsewhere in the same publication should contain the required legend also.
A second category of advertising employed by some mortgage brokers involves using credit terms in a manner seemingly designed to convey the false impression that the broker is a mortgage lender, a practice contrary to the intent of Part 38.2(d). With respect to mortgage broker advertisements, the Department will not object to the mention of credit terms or services where the advertisement makes clear the credit service(s) listed will not be provided by the broker. The clarifying statement must be placed directly adjacent to and have at least equal prominence with each appearance of the wording in question. The use of footnote explanations may not constitute an acceptable remedy.
Should you require further clarification or information concerning the issues discussed in this notice, please contact Principal Examiner Mildred Freel-Mackin at (212) 618-6688.
Please be aware that the Mortgage Banking Division intends to continue monitoring advertisements targeted at the general public and that appropriate regulatory action will be taken where they are found to be inconsistent with the letter or spirit of applicable statute and regulation.
Very truly yours,
Richard L. Ehli
Mortgage Banking Division