FTC has charged a California mortgage broker with unfair or deceptive trade practices and violations of Regulation Z. The significance of the case is twofold. First, the same acts violate both laws. Second, the action is based on advertising practices that include Internet website ads and spam. FTC's corporate anger at the practice is illustrated by the use, in the official press release, of the word "duped" to describe how CFF treated customers.
The case strengthens the proposition that violations of consumer protection laws such as Truth in Lending can also violate the Federal Trade Commission Act and carry liability under both laws. The case also indicates that creditors should pay careful attention to advertising compliance in any medium, including electronic advertisements.
Using both spam and direct mail, Chase Financial Funding (now re-named Choice Financial Funding for reasons obvious to bankers), offered "fixed payment" loans with rates as low as 3.5% and 2.95%. The loans may have been fixed payment, but they were not fixed rate, a misperception many consumers would be likely to make. Instead, the loans had several payment options, most of which involved negative amortization. CFF also had consumers apply for loans that were not actually available, with resulting bait and switch once the consumer was on the hook.
The deception allegation includes claims that CFF advertised or claimed to offer a fixed rate but actually offered a variable rate loan, a loan that would amortize, a specific payment schedule, and no pre-payment penalty.
The TIL allegation includes claims that CFF violated TIL's advertising rules by: advertising terms other than the terms that were actually on offer, stating a rate of finance charge without clearly disclosing the APR or the fact that the APR could increase, advertising a trigger term, "payment rate" without making the other required disclosures, and failing to disclose the terms of repayment or the APR when required to do so. The differences between the TIL and FTC Act claims are not dramatic. The case relies on both laws and reinforces the proposition that one act or a group of related acts can violate both laws.
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