Loan Falsely Advertised Was Actually
Adjustable Rate Mortgage: FTC
Mortgage Broker’s Deceptive Claims
Tricked Consumers Seeking a Good Rate: FTC
[Editor's Note: This area contains the full text of selected FTC News releases in the advertising law area, this release involving mortgage loans. The following is the full text of "FTC: Mortgage Broker’s Deceptive Claims Tricked Consumers Looking for a Good Rate," dated June 2, 2004. This FTC case involved issues concerning refinancing (i.e., loan refinance) and false advertising. FTC charged that the loans being advertised were really adjustable rate mortgages featuring four payment options; this included an interest-only payment option and a lower minimum payment option where unpaid interest was deferred.]
"For Release: June 2, 2004
FTC: Mortgage Broker’s Deceptive Claims Tricked Consumers Looking for a Good Rate
The Federal Trade Commission has charged a California mortgage broker that advertised extremely low mortgage rates with violating federal laws. The FTC’s complaint against Chase Financial Funding, Inc. (CFF) and its principals alleges that the company duped consumers with promises of a “3.5% fixed payment 30 year loan” and a “3.5% FIXED PAYMENT” loan. According to the FTC, CFF did not offer any such loan – the loan CFF falsely advertised is actually an adjustable rate mortgage, where the principal balance would increase if consumers made payments at the advertised rates. Even these minimum payment amounts may increase by 7.5 percent each year. On June 1, 2004, a U.S. district court judge entered a stipulated preliminary injunction barring the defendants’ illegal business practices.
The FTC’s complaint alleges that the defendants have sent ads via spam and direct mail promoting “FIXED PAYMENT” loans with rates such as 3.5 percent and 2.95 percent. The defendants’ Web site, www.chaseff.com, also allegedly advertised a “web special” of “3.5% Fixed Payment” loans. Some of the defendants’ advertisements include comparisons of consumers’ “existing payment” to a “new loan payment,” calculating the “existing” amount using public records of consumers’ current loan amounts. These ads also include a calculation of “annual cash savings.”
The FTC charges that the loans CFF advertises are actually adjustable rate mortgages featuring four payment options, including an interest-only payment option and a lower minimum payment option where unpaid interest is deferred. According to the FTC, the minimum payment amount for the first year of the loan has been, at certain points, the amount that would be due if the consumer truly had a 3.5 percent or 2.95 percent 30-year loan, although the actual interest rate is in fact considerably higher and varies monthly. Each month any unpaid interest is added to the principal of the loan, so that the principal balance increases rather than decreases for periods during the course of the loan. According to the FTC, even the minimum payment amount is subject to increase annually.
The FTC further alleges that, in numerous instances, CFF had consumers sign applications for loans that were not actually offered or available. CFF also has provided consumers with disclosure statements that allegedly misrepresent the annual percentage rate (APR) and the payment schedule for the loan. In addition, the FTC charges that CFF misled consumers during the course of refinancing, including regarding prepayment penalties and fees associated with refinancing for a second time through CFF.
The FTC alleges that the defendants violated the FTC Act by deceptively claiming that they offered: (1) a fixed interest rate or fixed payment loan; (2) a loan in which payment of the minimum amount specified covers both interest and principal; (3) a loan with a specific payment schedule, interest rate, and/or APR; and (4) a loan with no prepayment penalty or with a prepayment penalty that would not apply if the loan was subsequently refinanced through CFF.
The FTC complaint also alleges that defendants misrepresented the “annual cash savings” that consumers would receive if they refinanced through CFF. In addition, the FTC alleges that the defendants failed to disclose or to disclose adequately that monthly payment of the specified amount would result in negative amortization and cause an increase in the total debt for periods during the course of the loan.
The FTC further alleges that the defendants violated the advertising requirements of the Truth-in-Lending Act and its implementing Regulation Z by: (1) advertising credit terms other than the terms that actually are or will be arranged or offered by the creditor; (2) stating a rate of finance charge without clearly and conspicuously disclosing the APR or the fact that the APR may increase after consummation; (3) advertising a “payment rate” without making other required disclosures; and (4) failing to disclose the terms of repayment or the APR when required to do so.
The FTC’s complaint names as defendants Chase Financial Funding, Inc.; James F. Berry; Suzanne Admire; and Jeremy Alexander. The Commission has asked the Court to bar the defendants permanently from engaging in deceptive lending practices, and to award relief, including consumer redress and disgorgement of the defendants’ ill-gotten gains.
The Commission vote authorizing staff to file the complaint was 5-0. The complaint was filed in the U.S. District Court for the Central District of California on May 12, 2004.
Due to a separate trademark action brought by private parties against CFF and Mr. Berry, CFF is now doing business under the name "Choice Financial Funding."
NOTE: The Commission files a complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The complaint is not a finding or ruling that the defendant has actually violated the law. The case will be decided by the court."
[FTC File No. 022-3287]
[Civil Action No. SACV04-549-GLT (ANx)]
Federal Trade Commission, plaintiff, v. Chase Financial Funding, Inc., a Nevada Corporation, James F. Berry, individually and as President of Chase Financial Funding, Inc., Suzanne Admire, individually and as an officer and Vice President of Chase Financial Funding, Inc., and Jeremy Alexander, individually and as General Manager of Chase Financial Funding, Inc., defendants., U.S. District Court, Central District of California, (FTC File No. 022-3287), (Civil Action No. SACV04-549-GLT (ANx)
The following web sites contain additional resources related to this case and the topic of home mortgage:
- Federal Trade Commission, plaintiff, v. Chase Financial Funding, Inc., a Nevada Corporation, James F. Berry, individually and as President of Chase Financial Funding, Inc., Suzanne Admire, individually and as an officer and Vice President of Chase Financial Funding, Inc., and Jeremy Alexander, individually and as General Manager of Chase Financial Funding, Inc., defendants., U.S. District Court, Central District of California
Mortgages, Refinances - Cases and Articles
- Mortgage Brokers Benefited from Spammer Actions: Two cases that were examined in previous issues of Advertising Compliance Service. They involved mortgage brokers who benefited from "spammer" actions and a Department of Justice (DOJ) Complaint that a mortgage services company violated FTC's Telemarketing Sales Rule (TSR) while marketing mortgage products and services.
- Mortgage Loan Advertised: Was Really Adjustable Rate Mortgage. Full text of "FTC: Mortgage Broker’s Deceptive Claims Tricked Consumers Looking for a Good Rate," dated June 2, 2004. This FTC case involved issues concerning refinancing (i.e., loan refinance) and false advertising.
- Home Mortgage Refinance Services: Full text of FTC News Releases, "Colorado Mortgage Broker Barred from Making Deceptive Claims," dated March 28, 2005.
- Home Mortgage Refinance Services: Article adapted from an article appearing in Issue #568 of Advertising Compliance ServiceÔ at Tab #2, General Articles, Article #512 as part of the "Washington Roundup: A Review of Ad Actions Involving FTC."
- Home Mortgage Company: Lawsuit Against Home Mortgage Company, Residential Refinancing Transaction, Operation Advertised 3.95% 30 Year Mortgages - Articles.
- Home Loans, Mortgage Loans, Refinance: Variety of Online Resources and Links.
- Telemarketer Selling Mortgage Loans, Refinancing and Other Products; "Spam Merchants" Who Allegedly Sent E-Mails Hawking Mortgage Opportunities.
- Lending Practices Case Involved Home Loan Advertising: An advertising law-related news brief.
- Mortgage and Refinance Resources: Online Mortgage and Refinance Resources.
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