Fair Lending Policy
Prevention of Unfair Deceptive Abusive Acts
and Practices

Policy Statement

It is the policy of AFC Mortgage Group, LLC. (“AFC”) to treat all its applicants and borrowers equally, fairly and honestly, in compliance with federal and state Fair Lending Laws, throughout the loan process, from application to closing, including post-closing, as applicable to prevent all Unfair Deceptive Abusive Acts and Practices (UDAAP) or fair lending violations of any kind.  AFC prohibits all UDAAP activities and will not tolerate Predatory Lending Practices in any of its guises. This policy provides general guidance to ensure that AFC’s management and employees as applicable (1) understand the principles of unfairness, deception, and abuse in the context of mortgage origination activities,   (2) assess the risk that certain practices may be unfair, deceptive, or abusive; (3) identify unfair, deceptive or abusive acts or practices and  (4) understand the interplay between unfair, deceptive, or abusive acts or practices and other consumer protection statutes.

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Unfair Deceptive Abusive Acts and Practices (UDAAP) Overview

Unfair, deceptive, or abusive acts and practices (UDAAPs) can cause significant financial injury to consumers, erode consumer confidence, and undermine the financial marketplace. Under the Dodd-Frank Act (“The Act”) it is unlawful for any provider of consumer financial products or services or a service provider to engage in any unfair, deceptive or abusive act or practice. Predatory lending is the use of unfair, deceptive or abusive mortgage lending practices that result in a borrower paying more through high fees or interest rates than his/her credit history warrants. Due to the complexity of mortgage transactions, it is often difficult to tell the difference between a legitimate and predatory loan.

Other predatory lending practices include, but is not limited to the following UDAAPs, prepayment penalties, repeated refinancing or property flipping, targeting protected classes, deceptive advertising practices, misrepresentation of loan terms, bait and switch marketing and loan origination practices.

UDAAPs can cause significant financial injury to consumers, erode consumer confidence, and undermine fair competition in the financial marketplace. Unfair acts or practices are prohibited under both state and federal laws.

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Generally, an act or practice is unfair when:

1. It causes or is likely to cause substantial injury to consumers;
2. Substantial injury usually involves monetary harm. Monetary harm includes, for example, costs or fees paid by consumers as a result of an unfair practice.
3. An act or practice that causes a small amount of harm to a large number of people may be deemed to cause substantial injury.
4. Actual injury is not required in every case. A significant risk of concrete harm is also sufficient.
5. However, trivial or merely speculative harms are typically insufficient for a finding of substantial injury.
6. Emotional impact and other more subjective types of harm also will not ordinarily amount to substantial injury.
7. Nevertheless, in certain circumstances, such as unreasonable debt collection harassment, emotional impacts may amount to or contribute to substantial injury.
8. The injury is not reasonably avoidable by consumers; and
9. Consumers cannot reasonably avoid injury if the act or practice interferes with their ability to effectively make decisions or to take action to avoid injury.
10. Normally the marketplace is self-correcting; it is governed by consumer choice and the ability of individual consumers to make their own private decisions without regulatory intervention.
11. If material information about a product, such as pricing, is modified after, or withheld until after, the consumer has committed to purchasing the product; however, the consumer cannot reasonably avoid the injury.
12. Moreover, consumers cannot avoid injury if they are coerced into purchasing unwanted products or services or if a transaction occurs without their knowledge or consent.
13. A key question is not whether a consumer could have made a better choice. Rather, the question is whether an act or practice hinders a consumer’s decision-making.
14. For example, not having access to important information could prevent consumers from comparing available alternatives, choosing those that are most desirable to them, and avoiding those that are inadequate or unsatisfactory.
15. If most lenders engage in a practice, a consumer’s incentive to search for better terms is reduced, and the practice may not be reasonably avoidable.
16. The actions that a consumer is expected to take to avoid injury must be reasonable.
17. While a consumer might avoid harm by hiring independent experts to test products in advance or by bringing legal claims for damages in every case of harm, these actions generally would be too expensive to be practical for individual consumers and, therefore, are not reasonable.
18. The injury is not outweighed by countervailing benefits to consumers or to competition.
19. To be unfair, the act or practice must be injurious in its net effects — that is, the injury must not be outweighed by any offsetting consumer or competitive benefits that also are produced by the act or practice.
20. Offsetting consumer or competitive benefits of an act or practice may include lower prices to the consumer or a wider availability of products and services resulting from competition.
21. Costs that would be incurred for measures to prevent the injury also are taken into account in determining whether an act or practice is unfair.
22. These costs may include the costs to the institution in taking preventive measures and the costs to society as a whole of any increased burden and similar matters.
23. Public policy, as established by statute, regulation, judicial decision, or agency determination, may be considered with all other evidence to determine whether an act or practice is unfair.
24. However, public policy considerations by themselves may not serve as the primary basis for determining that an act or practice is unfair.

A substantial injury typically takes the form of monetary harm, such as fees or costs paid by consumers because of the unfair act or practice.

However, the injury does not have to be monetary. In certain circumstances, emotional impacts may amount to or contribute to substantial injury to consumers who must bear the consequences of unfair, predatory lending practices.

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Deceptive Acts or Practices

A representation, omission, act or practice is deceptive when:

1. The representation, omission, act or practice misleads or is likely to mislead the consumer;
2. The consumer’s interpretation of the representation, omission, act or practice is reasonable under the circumstances; and
3. The misleading representation, omission, act, or practice is material.
5. Deception is not limited to situations in which a consumer has already been misled. Instead, an act or practice may be deceptive if it is likely to mislead consumers.
6. It is necessary to evaluate an individual statement, representation, or omission not in isolation, but rather in the context of the entire advertisement, transaction, or course of dealing, to determine whether the overall net impression is misleading or deceptive.
7. A representation may be an express or implied claim or promise, and it may be written or oral.
8. If material information is necessary to prevent a consumer from being misled, it may be deceptive to omit that information.
9. Written disclosures may be insufficient to correct a misleading statement or representation, particularly where the consumer is directed away from qualifying limitations in the text or is counseled that reading the disclosures is unnecessary.
10. Likewise, oral or fine print disclosures or contract disclosures may be insufficient to cure a misleading headline or a prominent written representation.
11. Similarly, a deceptive act or practice may not be cured by subsequent truthful disclosures.
12. Acts or practices that may be deceptive include:
13. making misleading cost or price claims;
14. offering to provide a product or service that is not in fact available;
15. using bait-and-switch techniques;
16. omitting material limitations or conditions from an offer;
17. or failing to provide the promised services.

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The Federal Trade Commission (FTC) “Four Ps” Test

The FTC’s “four Ps” test can assist in the evaluation of whether a representation, omission, act, or practice is likely to mislead:

1. Prominence:  Is the statement Prominent enough for the consumer to notice
2. Presentation:  Is the information Presented in an easy-to-understand format that does not contradict other information in the package and at a time when the consumer’s attention is not distracted elsewhere?
3. Placement: Is the placement of the information in a location where consumers can be expected to look or hear?
4. Proximity: Is the information in close proximity to the claim it qualifies?

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UDAAP’s Reasonable Consumer Standard

The representation, omission, act, or practice must be considered from the perspective of the reasonable consumer. In determining whether an act or practice is misleading, one also must consider whether the consumer’s interpretation of or reaction to the representation, omission, act, or practice is reasonable under the circumstances. In other words, whether an act or practice is deceptive depends on how a reasonable member of the target audience would interpret the representation. For example:

1. When representations or marketing practices target a specific audience, such as older Americans, young people, or financially distressed consumers, the communication must be reviewed from the point of view of a reasonable member of that group.
2. Moreover, a representation may be deceptive if the majority of consumers in the target class do not share the consumer’s interpretation, so long as a significant minority of such consumers is misled.
3. When a seller’s representation conveys more than one meaning to reasonable consumers, one of which is false, the seller is liable for the misleading interpretation.

Exaggerated claims or “puffery,” however, are not deceptive if the claims would not be taken seriously by a reasonable consumer. Nonetheless, it is AFC’s policy not to engage in puffery or exaggerated claims in advertising, origination or other aspects of providing mortgage services to our consumers.

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Material Misrepresentation

A representation, omission, or practice must be material. A representation, omission, act, or practice is material if it is likely to affect a consumer’s choice of, or conduct regarding, the product or service.

Information that is important to consumers is material.  Certain categories of information are presumed to be material. In general, information about the central characteristics of the mortgage – such as,

1. Costs
2. Benefits
3. Restrictions on the use or availability

Express claims made with respect to a mortgage loan are presumed material. Implied claims are presumed to be material when evidence shows that a mortgage lender intended to make the claim. AFC Mortgage is aware that the intent to deceive is not necessary for deception to exist. To prevent acts of material misrepresentation, whether or not intentional, AFC requires clear, straightforward disclosure of information and mortgage programs to consumers.

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Abusive Acts or Practices

The Dodd-Frank Act makes it unlawful for any covered person or service provider to engage in an “abusive act or practice.” An abusive act or practice:

1. Materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service or
2. Takes unreasonable advantage of

1. A lack of understanding on the part of the consumer of the material risks, costs, or conditions of the product or service;
2. The inability of the consumer to protect its interests in selecting or using a consumer financial product or service; or
3. The reasonable reliance by the consumer on a covered person to act in the interests of the consumer.

AFC does not engage in any act or practice that interferes with the ability of our consumers to understand a term or condition of a financial product or service. AFC prohibits any act or conduct designed to take advantage of a client’s lack of understanding. It is the policy of AFC to always acts in the best interest of our consumers.

Fair Lending

The legal aspects of fair lending are contained in several federal and state laws. The purpose of these laws is to ensure that fair and equal treatment is provided to individuals seeking financing. The Federal Equal Credit Opportunity Act (ECOA) (15 U.S.C. §§ 1691 et seq.) and its implementing regulation, Regulation B (12 CFR 1002.4,), prohibit discrimination in any aspect of a credit transaction. ECOA prohibits discrimination are the following:

1. race;
2. religion;
3. national origin;
4. sex; marital status;
5. age;
6. the applicant’s receipt of income through a public assistance program; and
7. the good faith exercise of the applicant of a right under the federal Consumer Credit Protection Act (15 U.S.C. §§ 1601 et seq.).

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Various state laws also govern Fair Lending, making it an unlawful discriminatory practice for any creditor to discriminate on the basis of,

1. race,
2. creed,
3. color,
4. national origin,
5. age,
6. sex,
7. marital status,
8. disability,
9. sexual orientation,
10. military status;
11. to use any form of application for credit or use or make any record or inquiry which expresses, directly or indirectly, any limitation, specification, or discrimination as to a prohibited basis;
12. to make any inquiry of an applicant concerning his or her capacity to reproduce, or
13.  his or her use or advocacy of any form of birth control or family planning;
14. to refuse to consider sources of an applicant’s income or to subject an applicant’s income to discounting, in whole or in part, because of a prohibited basis or childbearing potential; or
15.  to discriminate against a married person because he or she neither uses nor is known by the spouse’s surname.

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Organizational Compliance

AFC’s employees share responsibility for compliance with fair lending laws and for protecting consumers from predatory lending practices at every level of the organization. Management is responsible for approving, adopting, and implementing the Policy. AFC’s Management is responsible for ensuring that AFC’s business practices comply with its Fair Lending Policy in the following ways:

1. Communicating AFC’s fair lending and anti-predatory lending policies to the applicable business units;
2. Allocating, on an ongoing basis, sufficient resources to ensure the successful implementation of this Policy.
3. Obtaining input and guidance from AFC’s Compliance Counsel on significant business decisions that have potential fair lending impact; and
4. Monitoring results and recommending corrective action where necessary.
   

Our Compliance Officer implements the policies outlined in this Policy in the following ways:

1. Monitoring implementation of and compliance with the Anti-Predatory Lending and Fair Lending Policy policies and procedures;
2. Reviewing and addressing fair lending complaints;
3. Monitoring, as appropriate, AFC ’s loan application and processing as well as our pricing policies;
4. Ensuring that MLO Compensation complies with Regulation Z (12 CFR 226.36(d)) which prohibits compensation to MLOs based on the terms and conditions of individual loans except for the amount of the loan.
5. Regulation Z also prohibits MLOs from steering consumers toward loans with adverse terms and conditions based on the compensation the MLO may receive on the transaction.
6. Reviewing, on a regular basis, the Anti-Predatory Lending and Fair Lending Policy to determine that it still accurately reflects the procedures followed by AFC and conforms to federal and state law;
7. Maintaining training materials to keep current with changes in the law, regulation, and judicial interpretation; and
8. Providing, at least semi-annually, updates on UDAAP, predatory lending and fair lending issues to all AFC employees involved in the loan origination and loan processing.
   

AFC also ensures that all affiliated business relationships (if applicable) conform to its responsibility to comply with all Fair Lending Laws and consumer protection laws, and the policy and procedures contained in the Policy.

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Training

AFC provides Anti-Predatory Lending and Fair Lending training for all employees including Corporation Officers and other key personnel. Training for all employees will correctly and adequately describing prohibited bases under the Equal Credit Opportunity Act, Regulation B and applicable state anti-predatory lending laws. All participants will certify that they understand and commit to upholding all Anti-Predatory Lending and Fair Lending Laws and the policy and procedures contained in the Policy.

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Marketing

AFC’s Compliance Officer will review prior to distribution, all marketing strategies directed to any protected class applicants or minority communities to ensure compliance with Anti-Predatory Lending and Fair Lending laws and the Mortgage Acts and Practices Rule for advertising (MAP). The Compliance Officer also periodically reviews such existing marketing

strategies to confirm that they remain in compliance with Anti-Predatory Lending and Fair Lending Laws.

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Fair Lending Policy and Loan Process

AFC is aware that the risk of unfair lending practices runs throughout the loan process. AFC’s internal training and policies protect against discriminatory practices at every level of the loan process, from application to loan closing, and post-closing as applicable, and to taking immediate corrective action if fair lending discrimination occurs.

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Consumer Complaints in Identifying Unfair, Deceptive, or Abusive Acts or Practices

AFC is aware that consumer complaints play a key role in the detection of unfair, deceptive, or abusive practices. Regulators consider consumer complaints as an essential source of information for examinations, enforcement, and rulemaking.  AFC understands that consumer complaints can indicate weaknesses in elements of a company’s compliance management system, such as training, internal controls, or monitoring.   AFC is also aware that the absence of complaints by itself, does not ensure that unfair, deceptive, or abusive practices are not occurring, but recognize that complaints may be one indication of UDAAPs. AFC monitors its personnel and ensures frequent and ongoing contact with consumers to ensure that our clients understand the terms of the loan programs being offered, and that that employees do not engage in misrepresentation, omission, deceptive acts  or practices in the origination of mortgage loans.   AFC also complies with our Consumer Complaint and Escalation Policy, to provide prompt response to any consumer inquiry or concern.

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Monitoring Mortgage Loan Originators (MLOs)

AFC complies with the Federal Equal Credit Opportunity Act and employs business practices that promote Fair Lending and will not tolerate unlawful discrimination. AFC complies with all Anti-Predatory Lending and Fair Lending laws and will not condone discrimination, deception or any unfair or unlawful practices in any transaction.  MLOs who violate this policy may be subject to disciplinary action, including termination of employment.

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Monitoring Other Personnel

AFC’s employee monitoring program is focused on detecting deficiencies and ensuring that AFC’s personnel understand their duties and responsibilities under this Policy and are performing such duties and responsibilities efficiently and effectively. AFC’s Compliance Officer ensures audits of loan files to monitor data integrity for funded and non-funded loans, including withdrawn applications and declined applications. All employees who violate this policy may be subject to disciplinary action, including termination of employment.

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Management Approval

AFC approves this Fair Lending and Prevention of UDAAP Policy as reasonably designed to enable AFC Mortgage Group, LLC. to protect consumers from unfair, deceptive abusive acts and practices in mortgage loan origination.

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Date of Last Review: October 5, 2022

Frank Ciambriello, President                                    

NMLS # 4757  

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