Antitrust Law Daily Wrap Up, ADVERTISING NEWS: Home builder settles FTC charges over deceptive home loan ads, (Jun 10, 2014)

By Greg Hammond, J.D.

Pennsylvania-based home builder Heritage Homes Group, Inc. and four affiliated companies have reached a settlement with the FTC over charges they deceived consumers by advertising low-cost mortgages and hiding fees and undisclosed information regarding the true costs of those mortgages, the FTC announced today.

In its complaint, the FTC alleged that Heritage violated the Federal Trade Commission Act, the Mortgage Acts and Practices Advertising Rule and Regulation N, and the Truth in Lending Act and Regulation Z. Specifically, it was claimed that Heritage’s ads—which were published and distributed online and in flyers, newspapers, and direct mail—represented that consumers could finance new homes without paying closing costs or without any down payment. Heritage also advertised low monthly payments and failed to adequately disclose information regarding annual percentage rates (APR) consumers would be required to pay. In reality, consumers were required to pay annual fees, settlement costs, and good faith deposits and were ineligible for the advertised low monthly payment, the FTC alleged. The low monthly payment was specifically for USDA Rural Development Loans that require consumers to meet specific credit and income requirements.

“These defendants tricked consumers into believing they’d found an affordable mortgage with very favorable terms,” stated FTC Bureau of Consumer Protection Director Jessica Rich. “The FTC is committed to holding mortgage advertisers accountable.”

According to the terms of the settlement, a civil penalty of $650,000 will be entered against Heritage. However, the monetary judgment will be suspended due to Heritage’s poor financial condition. Nevertheless, the companies will be barred from: (1) making any misrepresentation with regard to the terms of any mortgage credit product, including interest, APR, fees or costs, monthly payments, taxes, insurance, and other items; (2) making any misrepresentation of relevant facts with regard to home sales and related services and products, including total costs, material restrictions, limitations, conditions, $0 down payment, 100 percent financing, and $0 closing costs; (3) failing to disclose that a particular loan requires qualifying and financing through the USDA Rural Development Loan Program or other financing program, that a good faith deposit and a guaranty fee is required, or the amount or percentage of those fees; and (4) failing to maintain records of advertisements demonstrating that Heritage is in compliance with the stipulated order.

The Commission voted 4-0 in favor of approving the proposed consent decree.

Companies: Heritage Homes Group, Inc.; Heritage Building Group, Inc.; Heritage Highgate, Inc.; Heritage Partners, Inc.; CJL Realty Management, LLC

News: Advertising ConsumerProtection FederalTradeCommissionNews