What is Regulation N
Regulation N is a regulation established by the Consumer Financial Protection Bureau (CFPB) and the Federal Trade Commission (FTC) in order to implement requirements established by the Credit Card Accountability and Responsibility and Disclosure Act of 2009 (CARD Act) and the Dodd-Frank Wall Street Reform and Consumer Financial Protection Act of 2010 (Dodd-Frank Act).
BREAKING DOWN Regulation N
Regulation N is also known as the Mortgage Acts and Practices Advertising Rule, or MAPs rule, because it regulates how mortgage lenders, servicers, brokers, advertising agencies and others can advertise mortgage services. The rule forbids deceptive claims in mortgage advertising and other commercial communications sent to consumers by mortgage brokers, lenders, services and advertising agencies. Mortgage lenders and advertisers found to be in violation of Regulation N can face civil penalties.
Examples of Deceptive Mortgage Claims Banned Under Regulation N
Regulation N parallels Section 5 of the FTC Act, which prohibits false advertising and misleading claims in advertising. Some examples of deceptive claims prohibited under Regulation N include misrepresentations of:
- The nature, amount, or existence of consumer fees associated with a mortgage product;
- The type of mortgage on offer;
- Terms, payments, amounts, or other requirements of the mortgage agreement, including those related to insurance and taxes;
- Variability of interest rates, payment amounts, term lengths, and other mortgage terms;
- The likelihood of the consumer to refinance or modify the mortgage or its terms, or the consumer’s ability to do so;
- The source of commercial communication or advertisements regarding mortgage products.
For example, a deceptive mortgage lender may advertise a low fixed rate, without specifying that said rate is applicable only for an introductory period, and that that introductory period can be as brief as 30 days. Other deceptive advertisements may conflate payment rates with interest rates, or fail to apprise the consumer that payment rates may not cover the interest due each month, leading to negative amortization, a situation in which the loan amount increases over time because monthly unpaid interest is being added to the principal amount. Many deceptive mortgage advertisements may fail to discuss significant loan terms. Some may also imply that the mortgage lender in question is affiliated with a government agency, when they are not.