Bankrate.com Sued for Deceptive Online Mortgage Ads (RATE, BPOP, IACI)

Excerpt from our One Page Annotated Wall Street Journal Summary (get it e-mailed to you every morning by signing up here):

Popular Mortgage Web Site Under Scrutiny

• Summary: A former advertiser is suing Bankrate.com for carrying misleading "bait and switch" ads from competitors. The suit, against the advertisers themselves and Bankrate.com as well, seeks $16.5 million in damages and a minimum of $33 million in punitive damages. Bankrate is accused of knowingly carrying ads from mortgage lenders that offered unrealistically low rates that were never in practice given to borrowers in an attempt to lure them into more expensive deals. The plaintiff, the founder of mortgage lender American Interbanc, alleges that Bankrate received 529 complaints from users about the ads, mostly before Bankrate CEO Thomas Evans took office, but some after he did so. The president of another mortgage lender is quoted in the article saying he stopped using Bankrate because it is "not a level playing field". In contrast, competing sites E-LOAN and Lending Tree have received relatively few complaints.
• Comment on related stocks/ETFs: Other than the financial impact of the lawsuit, this article is a major blow to Bankrate's (RATE) credibility. Incrementally positive for competitors IAC/Interactive (IACI) which owns Lending Tree and Popular Inc. (BPOP) which owns E-LOAN.

Comments

[maria secor:]

I have had many clients come to our office and expect us to do the impossible because of a rate they saw on line or got in the mail. We explain to them it's just an advertisement, it's not real, they can't give that rate when it doesn't exsist. We loose clients because they run around trying to find someone who will tell them yes, it's possible. Later, most of the clients come back after understanding they were lied to or they have a horror story and actually closed and was mislead. We are honest and sometimes you don't always get the client first if they don't hear what they want to hear. Http://affordablehomefunding....

2006 Aug 08 10:58 AM

[pranjan252:]

So many clients will come and tell us that they saw some low rates on bankrate.com and some online business stuff. They will give unrealistic good faith estimate and which will be a estimate only not a reality. They will get some paper signed that they have this rate right now but client is not approved till last minute because no case is clear cut deal some have "A" problem and some have "B" problem. So in the end they will say client has problem "A" , "B" and so many other and they can not qualify. Closing date is just a week ahead, client is emotionally stressed, then they will ask you will qualify for a higher rate if they take they will close if not they will say they can fax the denial letter. But client need to close the home in a week because pressure from seller or his realtor, ok in this pressure client make an unwanted decision to go with them and get a higher rate. So when you shop for a mortgage always prefer people inside brick and mortar not online. Online is good for information and getting educated not shopping for mortgage rate. Here is the most famous line "When Bank Competes on a tree you always get a higher Rate" because bank has to spend lot of money to be on tree. If you are trying get a financing for residence in State of Texas call or visit us. www.lonestarfundings.c....

2007 Jun 24 02:01 PM