FTC Settles Unfair and Deceptive Lending Case

Enforcement of unfair and deceptive practices is heating up. FTC, with the support of HUD and the state of Illinois, have settled a case against a sub-prime lender and a mortgage broker on the basis of unfair or deceptive lending practices.

Mercantile Mortgage Company, a sub-prime lender based in Ohio, makes mortgage loans directly and through brokers. Many of its loans are subject to HOEPA requirements (12 CFR 226.32) and involve balloon payments. These balloon payments could be as large as 80% of the loan amount. The complaint alleged that Mercantile Mortgage Co. concealed the balloon payment and failed to make required HOEPA disclosures. Mercantile also allegedly misrepresented key terms and costs of the loans. The final violation alleged was the payment of kickbacks to brokers.

The related complaint against Mark Diamond and OSI Financial Services alleged that they engaged in deceptive practices to induce consumers to take out mortgage loans, many of which were 15-year balloon loans. Diamond allegedly produced incomplete closing documents that were missing information such as the APR, payment schedule, and balloon payment. Diamond also failed to disclose his broker fee, which was often as high as 10% of the loan amount.

Copyright © 2002 Compliance Action. Originally appeared in Compliance Action, Vol. 7, No. 10, 8/02