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The headline read ZIP.  ZERO.  NADA.  In big print, the ads also said 0 money down* and 0 for paid closing costs*.  Heritage Homes didn’t include ZILCH, BUPKES, or (for “Buffy the Vampire Slayer” fans) THE BIG GOOSE EGG, but the FTC says the meaning to prospective buyers was clear.  So how much truth was in that across-the-board “zero” claim?   According to the FTC’s complaint:  Zip.  Zero.  Nada.

Through newspaper ads, flyers, and direct mail, the Pennsylvania-based builder led consumers to believe they could finance their purchase with no money down and no closing costs.  But the FTC says that lurking behind those zeroes were hidden fees and charges, including a “good faith deposit” of as much as $2000.

Heritage Homes’ ads also claimed that consumers could buy a home in a certain development for just $1,198 a month.  But there was an undisclosed catch.  To score that low payment, people had to get financing through the USDA Rural Development Loan Program, which imposes specific credit and income criteria.  The FTC says the defendants also failed to make adequate disclosures about the annual percentage rates consumers would pay for the mortgages.

The FTC charged that the defendants’ ads violated Section 5 of the FTC Act, but the complaint also included counts of particular interest if you have clients who advertise mortgages.  In 2011, the FTC implemented the Mortgage Acts and Practices-Advertising Rule, known as the MAP Rule to friends and family, and later recodified as Regulation N.  The MAP Rule bans a houseful of deceptive representations in mortgage advertising, including – to name just a few – misrepresentations about mortgage terms or the existence, nature, or amount of mortgage fees or costs.  Also outlawed by the MAP Rule:  deceptive “no fees” claims and misleading statements about a consumer’s ability or likelihood to get a particular mortgage.   The FTC alleges that Heritage Homes’ ads violated the MAP Rule and Regulation N.  In addition, the complaint includes two counts of Truth in Lending Act and Regulation Z violations.

The settlement imposes sweeping changes in how Heritage Homes and four affiliated companies advertise and do business.  Among other things, they’re banned from misrepresenting key mortgage terms and from misrepresenting – or helping others to misrepresent – any relevant facts concerning the sale of homes.  The settlement also imposes a $650,000 civil penalty, suspended based on the defendants’ ability to pay.

The order applies just to those companies, of course, but there’s a lot that other advertisers can take from the case.

All over the MAP?  If you have clients in the mortgage business, it could be time for a MAP Rule refresher.  The Rule offers straightforward dos and don’ts for companies that advertise mortgages.

Leave the cherry-picker on the construction site.  Whether you’re marketing mortgages, diet pills, or anything in between, it’s unwise to focus on “best case scenario” results that not all consumers can expect to get.  If there are important terms and conditions associated with an advertised price, payment, or rate, take care to spell out the particulars clearly and prominently.

Zero tolerance.  It’s clear why advertisers like to use words like “zero.”  But the FTC has a zero tolerance policy for materially misleading “zero” claims.  Our advice:  Given how eye-catching “zero” claims are to consumers, make sure you can back up your promises before throwing in the “z” word.

“Fee” simple.  It’s not complicated.  “No fees” means “no fees.”  It doesn’t mean “no fees, aside from those charges we’re not telling you about.”



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