Thursday, September 14, 2006

Mortgage marketing, Lead Generation and Reg Z

SearchEngineWatch today published an article on SEM in regulated industries. Although it covered Pharma, Alcohol, etc. it did not go into Banking and Lending, specifically Mortgage Lending which is a world I live in every day - and also one very active in SEM.

Here are some introductory thoughts on SEM and Mortgage lending regulation:

You have been living under a rock if you have not seen the ubiquitous Get a $200,000 loan for $825! ads everywhere. Most of these ads are produced by lead generation companies such as Lowermybills, which currently are not agressively pursued by the regulators who closely watch all banks, mortgage banks and brokers. Who knows if this will last forever.

Truth in Lending and Regulation Z

Truth in Lending was enacted in 1968 (and simplified in 1980) as part of the Consumer Credit Protection Act. Congress was worried that customers could not accurately shop for credit due to the unregulated practices and lack of uniformity in advertising and disclosures. The Truth in Lending act required that all credit issuers who make 25 or more loans annually give certain uniform disclosures. The Federal Reserve Board issued Regulation Z to implement Truth in Lending.

What does it require in regards to SEM and advertising?

Reg Z requires lenders to disclose specific information under certain "trigger term" scenarios:

The trigger terms are:

1. the amount or percentage of any downpayment
2. the number of payments or period of repayment
3. the amount of any payment, and
4. the amount of any finance charge.

The use of any one of these terms requires the creditor to also disclose the following additional terms in the advertisement:

1. the amount or percentage of the downpayment
2. the terms of repayment, and
3. the annual percentage rate (APR), using that term.

Lenders and banks are under constant scrutiny and comply with this regulation by including the 3 required disclosures on the destination webpage.

Lead Vendors, being without consistent regulatory oversight, take a inconsistent approach. Lowermybills has extensive disclosures if you scroll to the bottom of its search landing page. and many others do not disclose.

Of course the whole idea of a lead vendor, advertising specific loan terms and appropriately disclosing is problematic.

And that's just the tip of the iceberg for my industry. The $200,000 loan for $850 a month ad is a disguised pitch for an Option ARM, a popular, controversial and powerful product.

BusinessWeek's Cover story Nightmare Mortgages calls for additional disclosure from mortgage lenders, holding the industry accountable for the numerous consumers who were never educated that the minimum payment option on their loan caused the additional principal to be tacked on to their loan balance.

But that was another discussion.

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