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Mortgage Advertising in the Internet Age

Misleading-Mortgage-AdvertisingWith mortgage advisors increasingly using the web to advertise their services, it’s becoming more and more important to ensure the information being posted is accurate and not misleading.

This applies to all kinds of mortgage-related advertising, be it rates, promotions or specific services being offered.

Advertising by mortgage professionals is governed largely by:

  • The Competition Act
    • Civil cases involving false or misleading advertising can carry up to a $750,000 fine for an individual on a first order, and up to a $1 million fine for each subsequent order. Corporations could face fines up to $10 million on a first order, and $15 for subsequent offences.

    • Criminal cases, where intent is proven beyond a reasonable doubt, carry unlimited fines set by the court and/or 14 years in prison on an indictment. A summary conviction carries a maximum $200,000 fine and/or one year in prison.
  • The Canadian Code of Advertising Standards
  • The Canadian Association of Accredited Mortgage Professionals’ Code of Ethics
    • Rule 8 of the CAAMP Code of Ethics: All Members shall apply, set and maintain standards of honesty, truth, accuracy, fairness and propriety in advertising and shall comply with the Canadian Code of Advertising Standards, as established from time to time by Advertising Standards Canada.
  • Law-and-Mortgage-AdvertisingProvincial laws related to the mortgage broker industry and consumer protection.
    • In Ontario, for example: Mortgage Brokerages, Lenders and Administrators Act, 2006 (point 27), as well as the Financial Services Commission of Ontario.
    • In Alberta, the Real Estate Council of Alberta specifically outlines rules with regards to false advertising, and more specifically a page dedicated to internet advertising.
    • In B.C., the Mortgage Brokers Act prohibits brokers from making “false, misleading or deceptive statements in any kind of advertising”. Section 14 of the Mortgage Brokers Act reads:

      Examples of misleading advertising include providing sample monthly repayment figures for mortgage loans requiring no repayment of principal without identifying that the payments represent only the interest, or advertising payment amounts for mortgage loans with unusually long amortization periods that do not specify the amortization period. Advertisements containing repayment figures should contain an indication of the amortization period used to determine the repayment figure. Likewise advertisements for interest only mortgages should specify that the repayments do not include any principal amounts.”

This may come as a surprise to some, but mortgage advisors are governed by the same advertising rules that apply to large corporations in Canada. The onus is on you, the professional, to ensure any representation you make to the public in any media is accurate and not misleading in any way, including special offers on rates.

Competition-BureauFalse or misleading advertisers face perhaps the biggest compliance risk under the Competition Bureau’s Competition act, says Toronto advertising lawyer Bill Hearn, a partner and Co-Chair of McMillan LLP’s Advertising & Marketing Law Group.

The advertising rules in the Competition Act are of general application, meaning they apply to mortgage professionals and anyone else, Hearn said. The Bureau has the power to investigate cases on its own accord, or based on complaints from consumers or fellow brokers, he added.

Any broker involved in advertising their business or rates, be it online or via more traditional advertising methods, should take note that laws were recently stiffened and resulted in fines increasing, in some instances 100-fold. This seems outlandish, but a company alleged to have made false or misleading advertising could be investigated by the Competition Tribunal, culminating in a hearing before the Competition Tribunal or courts and a fine of up to $10 million for a first order, and $15 million for each subsequent order. For individuals, the fines can reach $750,000 for a first offence and $1 million for each subsequent order.

“Making a false or misleading representation, whether as a broker or any other advertiser, has very serious consequences,” Hearn told CMT. “Whether you meant the misrepresentation or not, if it’s out there you’re subject to that risk.”

If it’s proven that you made a misrepresentation to the public “knowingly” or even “recklessly”, the case becomes criminal and in a worst case scenario you could be open to heavy fines at the discretion of the criminal court, jail time and even a class action lawsuit for damage arising from the misrepresentation, Hearn said.

“If a competitor or a consumer has a real issue with false or misleading advertising, a complaint to the Competition Bureau with a request that it investigate is one option,” he said. But it’s certainly not the only recourse.

Across the country there are a number of provincial laws that provide protection against false and misleading advertising. The Ontario Consumer Protection Act is one example, which has a complaints and investigation process. Maximum fines for non-compliance reach up to $250,000. The Act also provides for directors or officers of companies convicted of an offence (who failed to take reasonable care to prevent the company from committing the offence) to be liable for fines of up to $50,000 and/or imprisonment for a term of not more than two years less a day.

Trade associations on the other hand, such as the Canadian Association of Accredited Mortgage Professionals, do set out guidelines and advertising standards but have much less power of enforcement.

In terms of official complaints that have been made to CAAMP regarding inaccurate or questionable advertising practices, there have only been eight out of the roughly 130 complaints filed last year. That was confirmed by Mark Webb, CAAMP’s Vice-President of Education and Professional Affairs, who also serves as the organization’s ethics investigator.

Webb told us that complaints about false or misleading mortgage rates from CAAMP members, for example, is not something that he has had to deal with on a regular basis.

“I won’t say that it’s
rare, but it’s not the type of thing that generates people complaining to me,” he said. “In terms of an ethics complaint, it’s a very rare complaint.”

Mortgage-Rates-3One such complaint came from someone accusing another mortgage broker of advertising rates that the complainant believed to be too low and unattainable. It turned out the mortgage broker had given up part of his commission to lower the rate.

While there have been several complaints related to brokers offering rates that appeared too low (like the one above), Webb said brokers will sometimes use points they accumulate or even part of their finders fees in order to buy down the rate.

“Essentially the broker can substitute the rate the borrower is paying,” Webb said.

Most advertising-related ethics complaints are dealt with by way of a simple warning and a settlement is reached before further actions have to be taken, he said.

If an individual is accused of outright lying, it would first have to be proven before the issue can be brought to the ethics chair, who then makes a recommendation on how to proceed. If serious, the complaint could end up before an ethics hearing, which is heard before three individuals from CAAMP’s National Ethics Committee.

But again, with more than 12,000 members and only 130 complaints last year, Webb said the industry can boast a fairly good track record. “I think people are realizing they need to be careful when it comes to their advertising,” he said.

“I think it’s generally an annoyance with other agents” that tend to generate complaints, he added. “Generally advertising that tends to be unprofessional annoys other agents.”

For consumers looking for a channel to file complaints against mortgage advisors, Hearn said Advertising Standards Canada would likely be their first choice.

“If a customer felt aggrieved, it’s a simple and logical place to go,” he said. While ASC has no power to impose fines, or force a company to pull or change their deceptive advertising, Hearn said that if an advertiser fails to voluntarily comply with the decision of an ASC Council, ASC will, among other things, advise the exhibiting media (e.g. broadcasters and newspapers) of the advertiser’s failure to cooperate and request the media no longer runs the advertising in question.

Asked if there is an exception mortgage advisors can fall back on in the case of unintentionally posting false rates or failing to keep their rates updated, Hearn had this to say: “Intention really has nothing to do with whether there has been a contravention of the false or misleading advertising provisions of the Competition Act, only whether the Competition Bureau proceeds down the civil or criminal track.”

And, of course, in determining the size of your possible fine.

Steve Huebl, CMT