7 Advertising Techniques Brokers Should Avoid
Brokerages must be keenly aware of the definitions of the terms used in this Regulation, especially in this climate of financial turmoil and the increase of oversight of lending and brokering practices. Several other jurisdictions have already deemed phraseology currently used by some Ontario brokerages as deceptive or misleading. For example, the Australian Securities and Investment Commission penalized a brokerage for using the phrases, “independent and impartial” and “we work for most of the lenders,” when this was proven factually incorrect.
The context is an important factor when considering advertising techniques brokers should avoid. These same statements may be considered true when made by one brokerage and false when made by another. The following is a list of potential terms, phrases and scenarios that may also be deemed to be misleading, deceptive or false, depending on the context in which they are used:
1. Have access to all / work with all lenders
While the broker/agent making this statement may believe it to be true, does he or she know for certain that his or her brokerage in fact has access to all of the lenders in the industry? In most cases this statement will be factually incorrect since both the Bank of Montreal and the Royal Bank of Canada do not deal directly with brokers.
2. Access to over 50 lenders
Is this true? The question that must be asked before using this statement is how many lenders did the brokerage actually use in the previous year? The MBLAA and its Regulations require this answer to be disclosed to borrowers when requested. If the brokerage didn’t use in excess of 50 lenders in the previous year, why would its representative make this statement? In other words, what is the goal of this statement? In most cases the goal of this type of statement is to convey to the consumer that the brokerage can shop for the best mortgage for him or her by having access to a vast number of lenders. If the number 50 is factually incorrect the brokerage may be using misleading terminology in its advertising. It should ensure that all of its public relations material accurately reflects the number of lenders that it has actually used and whenever this is not the case the materials should be amended.
3. “No job? No credit? No problem!”, “All Approved!”, “Guaranteed approval”
These are all statements designed to get a consumer with difficulty in obtaining a mortgage to contact the brokerage, broker or agent. While the argument can be made that anyone can be approved as long as they have enough equity, regardless of their circumstances, these statements could be considered misleading, deceptive or false because they imply that everyone will be approved regardless of their circumstances, which is clearly not possible.
4. “Lowest rates in town”
This statement implies that this brokerage has the lowest rates for everyone. Unless a brokerage can prove this statement to be factual, it can be considered misleading, false or deceptive. Consider what the brokerage would have to do to prove this statement. This would require being able to state without doubt that it knows all of the other rates that every brokerage and lender offer and that it has the lowest of them all. While possible, it is not probable and the brokerage would most likely not be able to prove this statement.
5. Quoting teaser or discounted rates without advising of other costs or details
For example, quoting a rate of 1%, which may be a three month teaser rate, without indicating that the rate increases after those three months would likely be considered misleading, deceptive or false, as would an advertisement that offered a rate of 1% but didn’t disclose the fact that to obtain this rate required the borrower to pay to buy down the rate.
The U.S. Federal Trade Commission (FTC) at one point in 2007 stated that more than 200 companies had been warned about “potentially deceptive” mortgage advertisements. The FTC slammed advertisers for highlighting teaser rates and low payment options without explaining the harsh reality of these loans to consumers.
6. Quoting payments based on extended amortizations that appear to be less expensive than regular amortized mortgage
A way to make payments appear lower than they would traditionally appear is to use an extended amortization. If the payment is in fact based on an amortization period in excess of 25 years and it is not disclosed in the advertisement it may be considered misleading since the payment is most likely the primary selling point of the advertisement. The British Columbia Registrar of Mortgage Brokers included this example in an information bulletin to the BC mortgage brokerage industry.
7. Bait and switch
This is a term that reflects when a brokerage attracts consumers by advertising a certain product at a rate lower than the market rate, but never actually provides that rate. For example, an advertisement may boast a rate of 2% to qualified borrowers (the bait). However the brokerage may never actually arrange a mortgage at that rate because either no consumer can meet the qualifications for that product or it doesn’t actually exist. The consumer is then offered a higher rate in line with prevailing market rates (the switch).