Guaranteed Approval Advertising and an Advance Application Deposit
Summit Ridge Mortgage is a North Carolina-licensed mortgage broker. It launches a radio and Facebook campaign in Spanish and English: '¡Aprobación garantizada! 3.25% fijo a 30 años, sin costos de cierre, sin revisión de crédito.' The English version says, 'Guaranteed approval - 3.25% fixed for 30 years, no closing costs, no credit check.' The ad includes a small 'Equal Housing Opportunity' logo but no NMLS ID and no APR. Business cards read 'Summit Ridge Bank & Trust' although the company is not a bank and takes no deposits. A loan originator tells a Spanish-speaking caller that 3.25% is 'available to everyone' and asks for a $450 application deposit by money order before pulling credit, saying it is refundable 'if we approve you.' The caller is later quoted 7.1% because of credit. The broker calls the ad 'puffery' and the deposit a 'commitment fee.'
1. Identify the advertising and prohibited-practice violations in the campaign and business cards.
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Several violations are apparent. 'Guaranteed approval' and 'no credit check' are false and misleading because underwriting and credit review are required. 'No closing costs' is misleading if the borrower will pay any fees; if the lender truly absorbs them, the ad still must disclose the APR and other required terms. Because the ad states a rate and term, TILA triggering rules require the APR and, if applicable, repayment terms. The Spanish ad must contain the required disclosures in Spanish, not only English. The NMLS unique identifier is missing from the ads and business cards. Using 'Bank & Trust' implies a chartered depository institution; a nonbank mortgage broker may not use that name. The 'Equal Housing Opportunity' logo does not cure these defects.
2. Analyze the $450 application deposit and the statement that 3.25% is 'available to everyone.'
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The $450 application deposit is problematic. Calling it a 'commitment fee' does not change its character. Collecting it before pulling credit, and making it refundable only 'if we approve you,' ties the refund to approval and discourages consumers from walking away. The loan originator must provide a written fee agreement, disclose what service the fee buys, and refund any unearned portion. Quoting 3.25% as 'available to everyone' when the caller later receives 7.1% is a bait-and-switch and violates the prohibition on false or misleading statements. The Spanish-speaking caller must receive the same disclosures and terms as an English-speaking caller. The broker should stop using the script and review all ads and fee practices.
3. What authority does the Commissioner have, and what corrective actions should Summit Ridge take?
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The Commissioner has authority to examine books and records, investigate consumer complaints, issue cease-and-desist orders, impose penalties, suspend or revoke the license, and order restitution. The broker's 'puffery' defense is weak because the statements are specific and material. Corrective action should include pulling the ads, replacing them with compliant versions that include the NMLS ID, APR, and accurate terms in both languages, refunding the $450 deposit plus any overcharges, retraining the loan originator, and documenting the remediation. The broker should also review its business cards and name usage. If the conduct was knowing, the Commissioner may refer the matter for criminal prosecution. The broker should cooperate with the examination and preserve the ads and call records.