26130 Federal Register / Vol. 74, No. 103 / Monday, June 1, 2009 / Proposed Rules

types of loans? What are the costs and d. making claims to borrowers about related to servicing of mortgage loans in benefits of mandating its disclosure? their loan accounts without a reasonable connection with bankruptcy iii. What would be the effect on basis (i.e., lack of substantiation); proceedings, such as: competition and consumers if the e. failing to have a adequate a. failing to disclose fees incurred Commission were to require non-bank procedures to ensure accuracy of during a Chapter 13 bankruptcy case financial companies to make these information used to service loans; or and then seeking to collect them from disclosures, but banks, thrifts, and f. failing to maintain and provide the consumer after discharge/dismissal? federal credit unions were not similarly adequate customer service to handle b. filing of proofs of claim or other required to do so? disputes? bankruptcy filings without a reasonable 18. Should the FTC consider Identify any such act or practice, and basis (i.e., impose a substantiation prohibiting or restricting as unfair or for each, please answer the following requirement beyond Rule 11 of the deceptive certain acts and practices questions: Federal Rules of Civil Procedure); related to mortgage servicing fees or i. Why is it unfair or deceptive under c. failing to apply properly payments related charges, such as: Section 5 of the FTC Act? in bankruptcy to pre-petition/post- a. charging fees not authorized under ii. Should it be prohibited or petition categories of the consumer’s the mortgage contract; restricted? If so, how? For all loans or debts; or b. charging fees not authorized by only certain types of loans? What are the d. charging of specific unnecessary or state law; costs and benefits of such prohibitions excessive fees in bankruptcy cases (e.g., c. charging for ‘‘estimated’’ attorney or restrictions? duplicative attorneys’ fees)? fees or other fees for services not iii. What would be the effect on Identify any such act or practice, and rendered; competition and consumers if the for each, please answer the following d. charging late fees that are not Commission were to prohibit or restrict questions: permitted under the service agreement non-bank financial companies with i. Why is it unfair or deceptive under or that are otherwise improper (other respect to the act or practice, but banks, Section 5 of the FTC Act? than ‘‘fee pyramiding,’’ which is already thrifts, and federal credit unions were ii. Should it be prohibited or prohibited under the Board’s Regulation not similarly prohibited or restricted? restricted? If so, how? For all loans or 114 Z amendments ); 20. Should the FTC consider only certain types of loans? What are the e. failing to disclose and itemize prohibiting or restricting as unfair or costs and benefits of such prohibitions adequately fees in billing statements or deceptive certain acts and practices or restrictions? other relevant communications with related to how mortgage servicers iii. What would be the effect on borrowers; or handle loan performance and loss competition and consumers if the f. forcing consumers to buy insurance mitigation issues, such as: Commission were to prohibit or restrict on their homes when the servicer knows a. taking foreclosure action without non-bank financial companies with or should know that insurance is first verifying loan information and respect to the act or practice, but banks, already in place? investigating any disputes; thrifts, and federal credit unions were Identify any such act or practice, and b. taking foreclosure action without not similarly prohibited or restricted? for each, please answer the following first giving the consumer an opportunity 22. Do any recent reports, studies, or questions: to attend foreclosure counseling or research provide data relevant to i. Why is it unfair or deceptive under mediation; mortgage servicing rulemaking? If so, Section 5 of the FTC Act? c. requiring consumers to release all please provide or identify such reports, ii. Should it be prohibited or claims (or other requirements, such as studies, or research. restricted? If so, how? For all loans or requiring binding arbitration By direction of the Commission. only certain types of loans? What are the agreements) in connection with loan costs and benefits of such prohibitions modifications or other workout Donald S. Clark or restrictions? agreements/repayment plans; or Secretary iii. What would be the effect on d. making loan modifications or other [FR Doc. E9–12595 Filed 5–29–09: 8:45 am] competition and consumers if the workout agreements/repayment plans BILLING CODE 6750–01–S Commission were to prohibit or restrict without regard to the consumer’s ability non-bank financial companies with to repay? respect to the act or practice, but banks, Identify any such act or practice, and FEDERAL TRADE COMMISSION thrifts, and federal credit unions were for each, please answer the following not similarly prohibited or restricted? questions: 16 CFR Parts 321 and 322 19. Should the FTC consider i. Why is it unfair or deceptive under [RIN 3084-AB18] prohibiting or restricting as unfair or Section 5 of the FTC Act? deceptive certain acts and practices ii. Should it be prohibited or Advance Notice of Proposed related to how mortgage servicers restricted? If so, how? For all loans or Rulemaking: Mortgage Assistance handle payments, amounts owed, or only certain types of loans? What are the Relief Services consumer disputes, such as: costs and benefits of such prohibitions a. failing to post payments in a timely or restrictions? AGENCY: Federal Trade Commission and proper manner (beyond the new iii. What would be the effect on (FTC or Commission) prohibition under the Board’s competition and consumers if the ACTION: Advance Notice of Proposed Regulation Z amendments); Commission were to prohibit or restrict Rulemaking; request for comment b. mishandling of partial payments or non-bank financial companies with suspense accounts; respect to the act or practice, but banks, SUMMARY: President Obama signed the c. misrepresentation of amounts owed thrifts, and federal credit unions were 2009 Omnibus Appropriations Act on or other account terms or the status of not similarly prohibited or restricted? March 11, 2009. Section 626 of the Act the account; 21. Should the FTC consider directed the Commission to initiate, prohibiting or restricting as unfair or within 90 days of the date of enactment, 114 See note 102, supra. deceptive certain acts and practices a rulemaking proceeding with respect to

VerDate Nov<24>2008 15:29 May 29, 2009 Jkt 217001 PO 00000 Frm 00013 Fmt 4702 Sfmt 4702 E:\FR\FM\01JNP1.SGM 01JNP1 Federal Register / Vol. 74, No. 103 / Monday, June 1, 2009 / Proposed Rules 26131

mortgage loans. To implement the Act, ‘‘Confidential,’’ and must comply with comments filed by individuals before the Commission has commenced a FTC Rule 4.9(c), 16 CFR 4.9(c).1 placing those comments on the FTC rulemaking proceeding in two parts. Because paper mail addressed to the website. More information, including This Advance Notice of Proposed FTC is subject to delay due to routine uses permitted by the Privacy Rulemaking (ANPR), the Mortgage heightened security screening, please Act, may be found in the FTC’s privacy Assistance Relief Services Rulemaking, consider submitting your comments in policy, at (http://www.ftc.gov/ftc/ addresses the practices of entities (other electronic form. Comments filed in privacy.shtm). than mortgage servicers) who offer electronic form should be submitted by FOR FURTHER INFORMATION CONTACT: assistance to consumers in dealing with using the following weblink: (https:// Evan Zullow or Stephen Shin, owners or servicers of their loans to secure.commentworks.com/ftc-mortgage Attorneys, (202) 326-3224, Division of modify them or avoid foreclosure. assistancereliefservices) (and following Financial Practices, Federal Trade Another ANPR, the Mortgage Acts and the instructions on the web-based form). Commission, 600 Pennsylvania Avenue, Practices Rulemaking, will address more To ensure that the Commission NW, Washington, DC 20580. generally activities that occur considers an electronic comment, you SUPPLEMENTARY INFORMATION: throughout the life-cycle of a mortgage must file it on the web-based form at the loan, i.e., practices with regard to weblink (https://secure.commentworks. I. Background mortgage loan advertising and com/ftc-mortgage A. FTC Rulemaking Authority Pursuant marketing, origination, appraisals, and assistancereliefservices). If this Notice to the Omnibus Appropriations Act of servicing. The Commission is seeking appears at (http://www.regulations.gov/ 2009 public comment with regard to the search/index.jsp), you may also file an electronic comment through that Section 626 of the Omnibus unfair and deceptive acts and practices 2 that should be prohibited or restricted website. The Commission will consider Appropriations Act of 2009 requires pursuant to any rules adopted in these all comments forwarded to it by that, within 90 days of enactment, the proceedings. Any rules adopted will regulations.gov. You may also visit the FTC initiate a rulemaking proceeding apply to entities, other than banks, FTC website at http://www.ftc.gov to with respect to mortgage loans. Pursuant to the Act, the rulemaking proceeding thrifts, federal credit unions, and non- read the Notice and the news release will be conducted in accordance with profits, that are engaged in such unfair describing it. A comment filed in paper form the requirements of Section 553 of the and deceptive acts and practices. 3 should include the reference ‘‘Mortgage Administrative Procedure Act. To DATES: Comments must be received by Assistance Relief Services Rulemaking, implement the Omnibus Appropriations July 15, 2009. Rule No. R911003’’ both in the text of Act of 2009, the Commission has commenced a rulemaking proceeding in ADDRESSES: Interested parties are the comment and on the envelope, and should be mailed or delivered to the two parts. invited to submit written comments This ANPR, the Mortgage Assistance following address: Federal Trade electronically or in paper form. Relief Services (MARS) Rulemaking, Commission, Office of the Secretary, Comments should refer to ‘‘Mortgage addresses the practices of entities (other Room H-135 (Annex W), 600 Assistance Relief Services Rulemaking, than mortgage servicers) who offer Pennsylvania Avenue, NW., Rule No. R911003’’ to facilitate the assistance to consumers in dealing with organization of comments. Please note Washington, DC 20580. The FTC owners or servicers of their loans to that comments will be placed on the requests that any comment filed in modify them or avoid foreclosure. public record of this proceeding— paper form be sent by courier or Another ANPR, the Mortgage Acts and including on the publicly accessible overnight service, if possible, because Practices (MAP) Rulemaking, addresses FTC website, at (http://www.ftc.gov/os/ U.S. postal mail in the Washington area more generally activities that occur publiccomments.shtm)—and therefore and at the Commission is subject to throughout the life-cycle of a mortgage should not include any sensitive or delay due to heightened security loan, i.e., practices with regard to confidential information. In particular, precautions. mortgage loan advertising and comments should not include any The FTC Act and other laws marketing, origination, appraisals, and sensitive personal information, such as administered by the Commission permit servicing. Although the Omnibus an individual’s Social Security Number; the collection of public comments to Appropriations Act of 2009 specifies date of birth; driver’s license number or consider and use in this proceeding as neither the type of conduct nor the other state identification number, or appropriate. The Commission will types of entities any proposed rules foreign country equivalent; passport consider all timely and responsive should address, the Commission has number; financial account number; or public comments received, whether used its organic statute, the FTC Act, in credit or debit card number. Comments filed in paper or electronic form. establishing the parameters for this also should not include any sensitive Comments received will be available to rulemaking.4 In particular, the types of health information, such as medical the public on the FTC website, to the records or other individually extent practicable, at (http:// 2 Omnibus Appropriations Act of 2009, Pub. L. identifiable health information. In www.ftc.gov/os/publiccomments.shtm). No. 111-8, § 626, 123 Stat. 524 (Mar. 11, 2009). addition, comments should not include As a matter of discretion, the 3 5 U.S.C. 553. Section 626 of the Omnibus Commission makes every effort to Appropriations Act of 2009 authorizes use of these any ‘‘[t]rade secrets and commercial or procedures in lieu of the procedures set forth in financial information obtained from a remove home contact information from Section 18 of the FTC Act, 15 U.S.C. 57a. Note that, person and privileged or confidential because this rulemaking is not undertaken pursuant . . . .,’’ as provided in Section 6(f) of the 1 The comment must be accompanied by an to Section 18, 15 U.S.C. 57a(f), federal banking explicit request for confidential treatment, agencies are not required to promulgate FTC Act, 15 U.S.C. 46(f), and including the factual and legal basis for the request, substantially similar regulations for entities within Commission Rule 4.10(a)(2), 16 CFR and must identify the specific portions of the their jurisdiction. Nonetheless, the Commission 4.10(a)(2). Comments containing comment to be withheld from the public record. plans to consult with the federal banking agencies material for which confidential The request will be granted or denied by the in this proceeding. Commission’s General Counsel, consistent with 4 The available legislative history is consistent treatment is requested must be filed in applicable law and the public interest. See FTC with the Commission’s determination as to the paper form, must be clearly labeled Rule 4.9(c), 16 CFR 4.9(c). Continued

VerDate Nov<24>2008 15:29 May 29, 2009 Jkt 217001 PO 00000 Frm 00014 Fmt 4702 Sfmt 4702 E:\FR\FM\01JNP1.SGM 01JNP1 26132 Federal Register / Vol. 74, No. 103 / Monday, June 1, 2009 / Proposed Rules

conduct that the FTC proposes to cover B. FTC Authority Over Mortgage Loans jurisdiction.21 However, non-bank include acts and practices that meet the and Other Financial Services affiliates of banks, such as parent FTC’s standards for unfairness or The Commission has law enforcement companies or subsidiaries, are subject to 22 deception under Section 5 of the FTC authority over a wide range of acts and the Commission’s jurisdiction. Act.5 In addition, the entities that the practices throughout the consumer Likewise, the FTC has jurisdiction over FTC intends to cover are those over credit life-cycle. The agency enforces entities that have contracted with banks which the FTC has jurisdiction under Section 5 of the Federal Trade to perform certain services on behalf of the FTC Act—specifically, entities other Commission Act, which prohibits banks, such as credit card marketing than banks, thrifts, federal credit ‘‘unfair or deceptive acts or practices in and other services, but which are not themselves banks.23 As a result, non- unions,6 and non-profits7 that engage in or affecting commerce.’’10 The bank entities that provide financial the conduct the rules would cover. Commission also enforces other consumer protection statutes that services to consumers are subject to The Commission is seeking comments govern financial services providers. Commission jurisdiction, even if they on a series of questions related to loan These include the Truth in Lending Act are affiliated with, or are contracted to modification and foreclosure rescue. (TILA),11 the Home Ownership and perform services for, banking entities. The FTC is seeking comments to Equity Protection Act,12 the Consumer The Commission also does not have determine whether certain acts and 13 jurisdiction under the FTC Act over Leasing Act, the Fair Debt Collection 24 practices of loan modification and Practices Act,14 the Fair Credit non-profit organizations. However, the foreclosure rescue entities are unfair or Reporting Act (FCRA),15 the Equal FTC does have jurisdiction over for- deceptive under Section 5 of the FTC Credit Opportunity Act,16 the Credit profit entities that provide mortgage- Act and should be incorporated into a Repair Organizations Act,17 the related services as a result of a proposed rule. These acts and practices 18 contractual relationship with a non- Electronic Funds Transfer Act, the 25 include conduct that the FTC currently Telemarketing and Consumer Fraud and profit organization. As discussed above, the Commission could challenge in a law enforcement Abuse Prevention Act,19 and the privacy intends that any rules that it issues in provisions of the Gramm-Leach-Bliley action as violating Section 5 of the FTC this proceeding would apply only to the (GLB) Act.20 Act. However, the Commission is not same types of entities over which the seeking comments on statutes that have Notwithstanding the Commission’s broad authority over acts and practices Commission has jurisdiction under the been enacted and rules that have been FTC Act. issued on these topics. related to financial services, the FTC does not have jurisdiction over all Pursuant to Section 626 of the 21 15 U.S.C. 45(a)(2). The FTC Act defines providers of these services. The FTC Act ‘‘banks’’ by reference to a listing of certain distinct Omnibus Appropriations Act of 2009, specifically excludes banks, thrifts, and types of legal entities. See 15 U.S.C. 44, 57a(f)(2). any violation of a rule adopted under federal credit unions from the agency’s That list includes: national banks, federal branches that section will be treated as a violation of foreign banks, member banks of the Federal 10 Reserve System, branches and agencies of foreign of a rule promulgated pursuant to 15 U.S.C. 45(a)(1). banks, commercial lending companies owned or 11 Section 18 of the FTC Act.8 Therefore, 15 U.S.C. 1601-1666j (mandates disclosures controlled by foreign banks, banks insured by the and other requirements in connection with Federal Deposit Insurance Corporation, and insured pursuant to Section 5(m)(1)(A) of the consumer credit transactions). 9 state branches of foreign banks. FTC Act, the Commission may seek 12 15 U.S.C. 1639 (provides protections for 22 Congress clarified FTC jurisdiction when it civil penalties as a remedy for such rule consumers entering into certain high-cost mortgage enacted the GLB Act. Section 133(a) of the GLB Act violations. In addition, pursuant to refinance loans). states that an entity that is affiliated with a bank, 13 Section 626(b) of the Omnibus 15 U.S.C. 1667-1667f (requires disclosures, but which is not itself a bank, is not a bank for limits balloon payments, and regulates advertising purposes of the FTC Act. Section 133(a) of the GLB Appropriations Act of 2009, a state may in connection with consumer lease transactions). Act specifically provides: bring a civil action, in either state or 14 15 U.S.C. 1692-1692p (prohibits abusive, CLARIFICATION OF FEDERAL TRADE federal court, to enforce the FTC deceptive, and unfair debt collection practices by COMMISSION JURISDICTION. Any person that third-party debt collectors). mortgage loan rules and obtain civil directly or indirectly controls, is controlled directly 15 15 U.S.C. 1681-1681x (imposes standards for or indirectly by, or is directly or indirectly under penalties and other relief for violations. consumer reporting agencies and information common control with, any bank or savings Before initiating an enforcement action, furnishers; places restrictions on the use of association . . . and is not itself a bank or savings the state must notify the FTC, at least 60 consumer report information). The Fair and association shall not be deemed to be a bank or Accurate Credit Transactions Act of 2003 amended savings association for purposes of any provisions days in advance, and the Commission the FCRA. Pub. L. No. 108-159, 117 Stat. 1952 applied by the Federal Trade Commission under the may intervene in the action. (2003). Federal Trade Commission Act. 16 15 U.S.C. 1691-1691f (prohibits creditor Pub. L. No. 106-102, § 133(a), 113 Stat. 1383; 15 practices that discriminate on the basis of race, U.S.C. 41 note (a). This section has been interpreted scope of the FTC’s rulemaking. See 155 Cong. Rec. religion, national origin, sex, marital status, age, to apply to subsidiaries of banks that are not S2816-S2817 (2009). receipt of public assistance, or the exercise of themselves banks. Minnesota v. Fleet Mortgage 5 15 U.S.C. 45(a)(1). For a comprehensive certain legal rights). Corp., 181 F. Supp. 2d 995 (D. Minn. 2001). description of the FTC’s application of its 17 15 U.S.C. 1679-1679j (mandates disclosures 23 See, e.g., FTC v. CompuCredit Corp., Civil unfairness and deception authority in the context and other requirements in connection with credit Action No. 1:08-CV-01976-BBM-RGV (N.D. Ga. of financial services, see Letter from the FTC staff repair organizations, including a prohibition against 2008) (approving stipulated final order involving to John E. Bowman, Chief Counsel of the Office of charging fees until services are completed). FTC action against entity that contracted to perform Thrift Supervision (Dec. 12, 2007), available at 18 15 U.S.C. 1693-1693r (establishes rights and credit card marketing services for a bank); FTC v. (http://www.ftc.gov/os/2007/12/P084800anpr.pdf). responsibilities of institutions and consumers in Am. Standard Credit Sys., 874 F. Supp. 1080, 1086 6 15 U.S.C. 45(a)(2). connection with electronic fund transfer services). (C.D. Cal. 1994) (dismissing argument that entity 19 that contracted to perform credit card marketing 7 15 U.S.C. 44. Bona fide non-profit entities are 15 U.S.C. 6101-6108 (provides consumer and other services for a bank is not subject to FTC exempt from the jurisdiction of the FTC Act. protection from telemarketing deception and abuse and requires the Commission to promulgate Act). Sections 4 and 5 of the FTC Act confer on the implementing rules). 24 See 15 U.S.C. 44. Commission jurisdiction only over persons, 20 15 U.S.C. 6801-6809 (requires financial 25 See Nat’l Fed’n of the Blind v. FTC, 420 F.3d partnerships, or corporations organized to carry on institutions to provide annual privacy notices; 331, 334-35 (4th Cir. 2005). In addition, the business for their profit or that of their members. provides consumers the means to opt out from Commission asserts jurisdiction over ‘‘sham See 15 U.S.C. 44, 45(a)(2). having certain information shared with non- charities’’ that operate as for-profit entities in 8 15 U.S.C. 57a. affiliated third parties; and safeguards customers’ practice. See, e.g., FTC v. Ameridebt, Inc., 343 F. 9 15 U.S.C. 45(m)(1)(A). personally identifiable information). Supp. 2d 451 (D. Md. 2004).

VerDate Nov<24>2008 15:29 May 29, 2009 Jkt 217001 PO 00000 Frm 00015 Fmt 4702 Sfmt 4702 E:\FR\FM\01JNP1.SGM 01JNP1 Federal Register / Vol. 74, No. 103 / Monday, June 1, 2009 / Proposed Rules 26133

C. Deceptive and Unfair Acts and more than one reasonable interpretation, well-informed consumers are capable of Practices and if one such interpretation is making choices for themselves. The misleading, the advertisement is agency therefore may prohibit or restrict 1. Deceptive Acts and Practices deceptive, even if other non-deceptive acts and practices if they unreasonably Section 5 of the FTC Act broadly interpretations are possible.29 create, or take advantage of, an obstacle proscribes deceptive or unfair acts or Third, to conclude that deception has to the ability of consumers to make practices in or affecting commerce. An occurred, the Commission must informed choices, thus causing, or being act or practice is deceptive if there is a determine that the representation, likely to cause, consumer injury.33 representation, omission of information, omission, or practice is material, i.e., II. Loan Modification and Foreclosure or practice that is likely to mislead one that is likely to affect a consumer’s Rescue Services consumers, who are acting reasonably decision to purchase or use a product or under the circumstances, and the service. A deceptive representation, With the recent economic downturn, representation, omission, or practice is omission, or practice that is material is more consumers have become one that is material.26 Injury is likely if likely to cause consumer injury—that is, delinquent on their mortgages or at risk the misleading or omitted information is but for the deception, the consumer may of foreclosure. Others, even if not yet material to consumers, i.e., likely to have made a different choice.30 Express delinquent, are struggling to pay their affect a decision to purchase or use a claims about a product or service, such mortgage debt. To respond to these product or service. as statements about cost, are presumed problems, many consumers have sought To determine that an act or practice to be material. Claims about purpose to modify their loans or purchase is deceptive, the Commission first must and efficacy of a product or service are services to assist them in avoiding conclude that there is a representation, also presumed to be material.31 foreclosure. However, the acts and omission of information, or a practice practices of some companies that that is likely to mislead consumers. A 2. Unfair Acts and Practices provide or advertise loan modification claim about a product or service may be Section 5(n) of the FTC Act also sets and foreclosure rescue services have either express or implied. An express forth a three-part test to determine raised substantial consumer protection claim generally is established by the whether an act or practice is unfair.32 concerns. To date, the Commission has representation itself. An implied claim, First, the practice must be one that addressed these concerns primarily on the other hand, is an indirect causes or is likely to cause substantial through law enforcement under Section representation, which must be injury to consumers. Second, the injury 5 of the FTC Act. Through this ANPR, examined within the context of other must not be outweighed by the FTC seeks comment on whether it information that is either presented or countervailing benefits to consumers or should also issue rules to address the omitted. Deception may occur based on to competition. Third, the injury must conduct of those who provide or what is stated or because of the be one that consumers could not advertise loan modification and omission of information that would be reasonably have avoided. foreclosure rescue services. important to the consumer. In In analyzing whether injury is A. Mortgage Loan Servicing determining that an advertisement is substantial, the Commission is not deceptive, for example, the Commission concerned with trivial, speculative, or In the past, mortgage lenders usually considers whether the overall net more subjective types of harm. The made loans to consumers and then held impression of the ad (including substantial injury test may be met by the loans until consumers paid off their language and graphics) is likely to small harm to a large number of mortgages or sold their homes. In more mislead consumers.27 consumers. In most cases, substantial recent years, however, more mortgage Second, the Commission considers injury involves monetary harm. Once it lenders have regularly sold their loans the act or practice from the perspective determines that there is substantial to others. Thus, the owner of a mortgage of a consumer acting reasonably under consumer injury, the Commission loan may be either the originating the circumstances.28 Reasonableness is considers whether the harm is offset by lender or an investor who has evaluated based on the sophistication any countervailing benefits to purchased the loan. Owners of loans often contract with and understanding of consumers in the consumers or to competition. Thus, the others to service their loans. A mortgage group to whom the representation or Commission considers both the costs of servicer is the agent responsible for sales practice is directed. If a specific imposing a remedy and any benefits that handling the day-to-day aspects of a audience is targeted, the Commission consumers enjoy as a result of the loan on behalf of the loan’s owner. A will consider the effect on a reasonable practice at issue. Finally, the injury mortgage servicer’s responsibilities member of that target group. A must be one that consumers cannot representation may be susceptible to reasonably avoid. If consumers 33 See Letter from the FTC to Hon. Wendell Ford reasonably could have made a different and Hon. John Danforth, Committee on Commerce, 26 Federal Trade Commission Policy Statement on choice that would have avoided the Science and Transportation, United States Senate, Deception, appended to In re Cliffdale Assocs., 103 injury, but did not do so, the practice is Commission Statement of Policy on the Scope of F.T.C. 110, 174-84 (1984) (Deception Policy Consumer Unfairness Jurisdiction (December 17, Statement). not deemed to be unfair under the FTC 1980), reprinted in In re Int’l Harvester Co., 104 27 Disclaimers or qualifying statements are Act. F.T.C. 949, 1070, 1073 (1984) (Unfairness Policy important to consider for deception analysis. Such In applying its unfairness standard, Statement); see also Trade Regulation Rule disclaimers must be sufficiently clear, prominent, the Commission takes the approach that Concerning Cooling-Off Period for Sales Made at and understandable to convey the qualifying Homes or at Certain Other Locations, 16 CFR 429 information effectively to consumers. The (making it an unfair and deceptive practice for 29 Commission recognizes that often ‘‘reasonable Id. at 178. anyone engaged in ‘‘door-to-door’’ sales of consumers do not read the entirety of an ad or are 30 Id. at 182-83. consumer goods or services with a purchase price directed away from the importance of the qualifying 31 Novartis Corp. v. FTC, 223 F.3d 783, 786-87 of $25 or more to fail to provide buyer with certain phrase by the acts or statements of the seller.’’ (D.C. Cir. 2000). oral and written disclosures regarding buyer’s right Deception Policy Statement at 181. Thus, fine print 32 15 U.S.C. 45(n). Section 5(n) of the FTC Act to cancel within three business days); FTC v. disclosures at the bottom of a print ad or television also provides that ‘‘[i]n determining whether an act Holland Furnace, 295 F.2d 302 (7th Cir. 1961) screen are unlikely to cure an otherwise deceptive or practice is unfair, the Commission may consider (seller’s servicemen dismantled home furnaces then representation. established public policies as evidence to be refused to reassemble them until consumers agreed 28 Deception Policy Statement at 177-81. considered with all other evidence.’’ to buy services or replacement parts).

VerDate Nov<24>2008 15:29 May 29, 2009 Jkt 217001 PO 00000 Frm 00016 Fmt 4702 Sfmt 4702 E:\FR\FM\01JNP1.SGM 01JNP1 26134 Federal Register / Vol. 74, No. 103 / Monday, June 1, 2009 / Proposed Rules

include collecting monthly mortgage borrower’s monthly payments more of the loan to file lawsuits against payments and crediting borrowers’ affordable.35 borrowers who have defaulted. If the accounts. A servicer may also maintain A loan modification, in particular, borrower cannot pay the mortgage debt an escrow account which covers charges benefits distressed homeowners because within the period of time set by court such as property taxes and homeowners borrowers can avoid foreclosure and are order, the property title goes directly to insurance. If a borrower falls behind on more likely to be able stay in their the owner of the loan. homes with more affordable payments. monthly payments and becomes C. Developments in the Mortgage In addition, if loans are in default, once delinquent on the loan, the mortgage Marketplace servicer also conducts activities they have been modified, servicers will As a result of the recent downturn in associated with a defaulted loan, such reinstate the loans and treat borrowers the economy and housing market, many as attempting to collect overdue as being current on their mortgages. The American homeowners are in financial payments, negotiating loss mitigation specific loan modification policies used vary by mortgage servicer. distress. The rate of mortgage loan options, and, if necessary, overseeing delinquency and foreclosure has risen to foreclosure proceedings. B. Mortgage Foreclosure the highest level in three decades.37 The Generally, financially distressed Foreclosure is the legal means an recent economic downturn has also homeowners having difficulty making owner of a mortgage loan can use to take given rise to a new and broader range mortgage payments can contact their possession of a home when a borrower of third-party providers who offer to mortgage servicers directly and seek defaults on the loan. In general, a assist homeowners—for free or for a assistance. Pursuant to guidelines or borrower is in default thirty days after fee—in obtaining a loan modification or agreements with the owners of loans, the first missed mortgage payment. preventing foreclosure. many servicers provide loss mitigation Typically, a mortgage servicer may The FTC and other agencies like the options for distressed homeowners. attempt various loss mitigation options U.S. Department of Housing and Urban Owners of loans often have an incentive prior to initiating foreclosure Development (HUD) have generally to consider such options because of the proceedings, which generally occur advised consumers who are behind on cost associated with foreclosure three to six months after the first missed their mortgage payments to contact their proceedings. mortgage payment.36 mortgage servicer about the possibility of loan modification or other options.38 Mortgage servicers may provide Foreclosure processes differ by state and depend on the details of state The Commission has initiated a various loss mitigation options to help stepped-up consumer outreach initiative distressed homeowners avoid foreclosure laws. Differences among states include the requirements of on foreclosure rescue and loan foreclosure, including a repayment plan, notification and the types of foreclosure modification fraud. The Commission forbearance agreement, short sale, deed- proceedings available. Generally, there has issued consumer education in-lieu of foreclosure, or loan are three types of foreclosures processes: publications warning homeowners modification.34 A repayment plan gives judicial foreclosure, power of sale against foreclosure rescue and loan a borrower a fixed amount of time to foreclosure, and strict foreclosure. modification scams. Most recently, the repay the overdue amount by adding a Judicial foreclosure involves the owner Commission issued a new consumer portion of what is past due to the of the loan filing suit in court and the education publication on this topic, regular payment. A forbearance home being sold under the court’s which several servicers have provided agreement reduces or suspends supervision. All states allow judicial directly to consumers, including during payments for a period of time, at the end foreclosure, and in some states it is the loan counseling sessions, in monthly of which the borrower resumes regular only foreclosure option available. Power statements, in correspondence to payments as well as a lump sum delinquent borrowers, and on their of sale foreclosure, also known as 39 payment or additional partial payments. ‘‘statutory foreclosure,’’ involves the websites. In addition, government agencies A short sale is an agreement to sell the sale of the home at public auction by the have instituted new programs to help house before foreclosure and to have the servicer if the mortgage contains a homeowners in financial distress. For servicer forgive any shortfall between ‘‘power of sale’’ clause or if a deed of the sales price and the mortgage trust was used instead of a mortgage. 37 balance. A deed-in-lieu of foreclosure See Mortgage Bankers Association, Many states permit power of sale Delinquencies Continue to Climb in Latest MBA allows a borrower to transfer voluntarily foreclosure, which is often more National Delinquency Survey (Mar. 5, 2009), the property title to the servicer, in expedient than judicial foreclosure. In a available at (http://www.mbaa.org/NewsandMedia/ exchange for cancellation of the PressCenter/68008.htm). According to the Mortgage power of sale foreclosure, the owner of Bankers Association’s (MBA) National Delinquency remainder of the debt. A loan the loan sends notices demanding Survey, the delinquency rate for mortgage loans on modification is an agreement to change payment to borrowers who have one-to-four unit residential properties rose to a permanently one or more of the terms of defaulted. Once the required waiting seasonally adjusted rate of 7.88% of all loans, as of the end of the fourth quarter of 2008, which is the the mortgage loan to make the period has passed, the mortgage servicer highest rate ever based on data dating back to 1972. can sell the home at public auction, Over 11% of loans are either in foreclosure or 34 Servicers consider loss mitigation options if a subject to judicial review. Strict delinquent by at least one payment, which is the delinquent borrower does not have adequate equity foreclosure is available in a limited highest rate ever recorded in the MBA national delinquency survey. to sell the house and pay off the mortgage in full number of states and permits the owner or to refinance into a more affordable loan. A 38 See FTC Publication, Mortgage Payments delinquent borrower can also file Chapter 13 Sending You Reeling? Here’s What to Do, available personal bankruptcy to prevent foreclosure, often as 35 For example, the servicer may lower the at (http://www.ftc.gov/bcp/edu/pubs/consumer/ a debt management option of last resort. If a monthly payment, alter the payment schedule, fix homes/rea04.shtm). borrower has regular income, Chapter 13 may allow or lower the interest rate, apply fees and arrearage 39 See FTC Publication, A Note to Homeowners, the borrower to keep property, such as a mortgaged to the principal, or even reduce the unpaid available at (http://www.ftc.gov/bcp/edu/pubs/ house or car. In Chapter 13, the court may approve principal balance. consumer/homes/rea16.pdf); see also FTC a repayment plan that allows the use of future 36 See U.S. Department of Housing and Urban Publication, Foreclosure Rescue Scams: Another income toward payment of debts during a three-to- Development, Foreclosure Process, available at Potential Stress for Homeowners in Distress, five year period, rather than requiring surrender of (http://www.hud.gov/foreclosure/ available at (http://www.ftc.gov/bcp/edu/pubs/ property. foreclosureprocess.cfm). consumer/credit/cre42.shtm).

VerDate Nov<24>2008 15:29 May 29, 2009 Jkt 217001 PO 00000 Frm 00017 Fmt 4702 Sfmt 4702 E:\FR\FM\01JNP1.SGM 01JNP1 Federal Register / Vol. 74, No. 103 / Monday, June 1, 2009 / Proposed Rules 26135

example, on March 4, 2009, the U.S. targeted written solicitations to free services available to them. They Department of the Treasury introduced consumers facing mortgage rate resets42 also may be unwilling or unable to work the Making Home Affordable Program to or foreclosure.43 Specifically, directly with their mortgage servicer or assist eligible homeowners to refinance foreclosure rescue and loan with a non-profit organization. For or modify their mortgage loans to an modification entities often identify such example, consumers may be wary of or affordable payment. Under the program, consumers by reviewing notices of unsatisfied with a mortgage servicer’s mortgage servicers who adopt certain default and other publicly-available loss mitigation offer, or frustrated with loan modification guidelines and records. their inability to contact the appropriate provide eligible homeowners with loan Foreclosure rescue and loan person at their servicer. modifications can qualify to receive modification entities, sometimes also substantial government incentives.40 . referred to as ‘‘foreclosure consultants,’’ III. FTC Law Enforcement In addition to federal efforts, state and generally offer to negotiate with a A. Application of the FTC Act and local agencies and non-profit consumer’s servicer to secure a Consumer Protection Concerns organizations also offer similar reduction in mortgage payments or foreclosure prevention assistance and otherwise obtain a favorable The FTC has taken a number of law other housing-related services. Non- modification of loan terms on behalf of enforcement actions to protect profit organizations and housing a consumer. Foreclosure rescue and consumers from unfair and deceptive counseling agencies continue to provide loan modification entities charge a fee loan modification and foreclosure a wide array of free services to for their services, and this fee is almost rescue practices. The Commission has homeowners who are in financial always charged up-front. In many recently filed numerous lawsuits against distress. HUD has certified numerous instances, these entities claim that they defendants for allegedly engaging in 44 non-profit housing counseling agencies. have knowledge of and experience with deceptive practices. Most recently, the These agencies provide homeowners the mortgage industry and lending FTC—along with other federal and state with assistance, such as offering because they are attorneys or mortgage regulators—announced law enforcement consumer education, assisting with debt brokers. In some cases, instead of actions as part of a broader crackdown management, negotiating directly with simply offering to negotiate on behalf of on loan modification and foreclosure 45 servicers to make mortgage payments a consumer, foreclosure rescue rescue entities. In connection with more affordable—thereby providing operations require consumers to enter a this effort, the Commission also sent foreclosure relief and helping new loan with them or to transfer title warning letters to 71 companies for consumers stay in their homes. to the property (for example, to remain marketing potentially deceptive The private sector also has developed in the home as a renter with the option mortgage loan modification and and offered programs at no cost to help to repurchase or otherwise maintain the foreclosure assistance programs.46 distressed homeowners. HUD-approved opportunity to reacquire title). In the FTC’s law enforcement actions counseling agents, mortgage companies, Consumers may choose to pay a fee against those who offer loan investors, and other mortgage market for the services of providers of modification and foreclosure rescue participants created the HOPE NOW foreclosure rescue and loan services, the Commission has alleged Alliance (Hope Now) to provide modification services rather than use that a number of acts and practices were homeowners with free foreclosure free services for a variety of reasons. deceptive under Section 5 of the FTC prevention assistance. Consumers can Some distressed homeowners may be Act: visit Hope Now’s website, drawn to, or targeted for, aggressive First, many defendants promised a www.hopenow.com, or call the advertisements by fee for service high likelihood of success but failed to Homeowner’s HOPE Hotline, 1-888-995- providers and may be unaware of the fulfill their promise to modify HOPE, to find housing counselors from 44 HUD-certified agencies who can help 42 Mortgage loans are sometimes categorized as See, e.g., FTC v. New Hope Property LLC, Case having either a ‘‘fixed’’ or ‘‘adjustable’’ rate. A fixed No. 1:09-cv-01203-JBS-JS (D.N.J. filed Mar. 17, guide them through various foreclosure rate mortgage loan maintains the same interest rate 2009); FTC v. Hope Now Modifications, LLC, Case prevention options, including loan throughout its term. An adjustable mortgage, by No. 1:09-cv-01204-JBS-JS (D.N.J. filed Mar. 17, modification. contrast, has an interest rate which is subject to 2009); FTC v. National Foreclosure Relief, Inc., Case At the same time that governmental change (or ‘‘reset’’) after a certain introductory No. SACV09-117 DOC (MLGx) (C.D. Cal. filed Feb. period; and that reset can result in an increased 2, 2009); FTC v. United Home Savers, LLP, Case No. and private sector entities (both for- interest rate. 8:08-cv-01735-VMC-TBM (M.D. Fla. filed Sept. 3, profit and non-profit) are increasing 43 See, e.g., Testimony of Prentiss Cox, before the 2008); FTC v. Foreclosure Solutions, LLC, No. 1:08- their efforts to assist distressed U.S. Senate Committee on Commerce Science & cv-01075 (N.D. Ohio filed Apr. 28, 2008); FTC v. homeowners, there has been an increase Technology (Feb. 26, 2009) at 2 (noting that Mortgage Foreclosure Solutions, Inc., Case No. 8:08- cv-388-T-23EAJ (M.D. Fla. filed Feb. 26, 2008); FTC in individuals and entities offering to ‘‘families are often desperate to save their homes,’’ and that ‘‘[a]s soon as a house enters the foreclosure v. National Hometeam Solutions, Inc., Case No. assist consumers in securing loan process, the homeowner in foreclosure typically is 4:08-cv-067 (E.D. Tex. filed Feb. 26, 2008). modifications and foreclosure rescue subject to an avalanche of mail, phone calls and 45 See FTC v. Federal Loan Modification Law services in exchange for a fee. personal visits from people promising to help the Center, LLP, Case No. SACV09-401 CJC (MLGx) Foreclosure rescue and loan homeowner’’); see also Steve Tripoli & Elizabeth (C.D. Cal. filed Apr. 3, 2009); FTC v. Thomas Ryan, Renuart, National Consumer Law Center, Dreams Civil No. 1:09-00535 (HHK) (D.D.C. filed March 25, modification entities frequently market Foreclosed: The Rampant Theft of Americans’ 2009); FTC v. Home Assure, LLC, Case No. 8:09-CV- their services via direct mail, email, Home Through Foreclosure ‘‘Rescue’’ Scams (2005), 00547-T-23T-SM (M.D. Fla. filed Mar. 24, 2009); see radio, television, and Internet at 9 (‘‘The ‘rescuer’ identifies distressed also, Press Release, Federal and State Agencies advertisements.41 They sometimes send homeowners through public foreclosure notices in Crack Down on Mortgage Modification and newspapers or at government offices.... The Foreclosure Rescue Scams (Apr. 6, 2009), available ‘rescuer’ then contacts the homeowner by phone, at (http://www.ftc.gov/opa/2009/04/hud.shtm); 40 See Home Affordable Modification Program personal visit, card or flyer left at the door . . . or Press Release, Federal, State Partners Announce Guidelines (Mar. 4, 2009), available at (http:// advertising. Initial contact typically revolves Multi-Agency Crackdown Targeting Foreclosure www.financialstability.gov/roadtostability/ around a simple message such as ‘Stop foreclosure Rescue Scams, Loan Modification Fraud (Apr. 6, homeowner.html) with just one phone call,’ ‘I’d like to $ buy $ your 2009), available at (http://www.ftc.gov/opa/2009/ 41 See, e.g., FTC v. National Foreclosure Relief, house,’ ‘You have options,’ or ‘Do you need instant 04/loanfraud.shtm). Inc., Case No. SACV09-117 DOC (MLGx) (C.D. Cal. debt relief and CASH?’’’), available at (http:// 46 An example of these letters is available at filed Feb. 2, 2009) (alleging that defendants targeted www.consumerlaw.org/news/content/ (http://www.ftc.gov/os/2009/04/ consumer in arrears with mailer advertisements). ForeclosureReportFinal.pdf). 090406warningletter.pdf).

VerDate Nov<24>2008 15:29 May 29, 2009 Jkt 217001 PO 00000 Frm 00018 Fmt 4702 Sfmt 4702 E:\FR\FM\01JNP1.SGM 01JNP1 26136 Federal Register / Vol. 74, No. 103 / Monday, June 1, 2009 / Proposed Rules

consumers’ existing loans or to stop Moreover, most defendants charged applied existing statutes specifically foreclosure.47 For example, some substantial, up-front fees, which appears regulating the debt settlement, debt defendants assured consumers that they to be a prevalent practice in the for- management, or credit counseling could stop foreclosure or obtain a loan profit foreclosure rescue and loan industries to cover foreclosure rescue modification with claims such as a modification industry. When defendants and loan modification practices.56 ‘‘97% success rate.’’48 However, many use deception to secure advance Third, numerous states and the District defendants allegedly did little or payment and then fail to fulfill their of Columbia have recently enacted nothing to negotiate with the mortgage promise to stop a foreclosure or obtain statutes that specifically restrict or ban servicer or to stop foreclosure. Second, a loan modification, consumers are ‘‘foreclosure consultants’’ from engaging many defendants promised to fully or unlikely to receive a refund or recover in some of the foreclosure rescue and partially refund consumers’ payments in their money.52 Payment of up-front fees, loan modification practices detailed the event that negotiation efforts to which are sometimes thousands of above.57 State law enforcement agencies obtain a loan modification or to prevent dollars, exacerbates the consumer injury have filed numerous suits against foreclosure were unsuccessful.49 Often, from deception, and imposes a individuals and entities for violations of defendants allegedly did not provide the significant burden on consumers these statutes.58 promised refunds. Third, some already in financial distress. defendants represented that they were In addition, some defendants advise available at (http://www.ftc.gov/os/2009/04/ affiliated with governmental or free non- consumers, including those who are still 090406foreclosurerescue.pdf); see also Press 50 current on their loans, to stop making Release, Federal and State Agencies Crack Down on profit programs, when in fact they Mortgage Modification and Foreclosure Rescue 51 were not. mortgage payments and to cease Scams (Apr. 6, 2009), available at (http:// communication with their mortgage www.ftc.gov/opa/2009/04/hud.shtm); Press Release, 47 For example, in one case the Commission servicer while the foreclosure rescue or Federal, State Partners Announce Multi-Agency charged a foreclosure rescue operation for loan modification operator purportedly Crackdown Targeting Foreclosure Rescue Scams, Loan Modification Fraud (Apr. 6, 2009), available promising consumers that it could stop ‘‘any negotiates on their behalf.53 If the foreclosure,’’ but then failing to stop foreclosure or at (http://www.ftc.gov/opa/2009/04/ taking minimal steps to do so.See FTC v. National operator fails to take adequate steps to loanfraud.shtm). Hometeam Solutions, LLC, Case No. 4:08-cv-067 obtain a loan modification or to prevent 56 See, e.g., Ohio Attorney General, Press Release, (E.D. Tex. filed Feb. 26, 2008). foreclosure, the operator may actually Attorney General Dann Files 6 Suits Against 48 See, e.g., FTC v. Federal Loan Modification Law increase the likelihood of foreclosure, Companies For Foreclosure Rescue Scams (Aug. 8, Center, LLP, Case No. SACV09-401 CJC (MLGx) 2007) (including count under state ‘‘debt (C.D. Cal. filed Apr. 3, 2009); FTC v. National because consumers fail to take adjustment’’ statute). Foreclosure Relief, Inc., Case No. SACV09-117 DOC advantage of other options available to 57 See, e.g., Cal. Civ. Code § 2945, et seq.; Colo. (MLGx) (C.D. Cal. filed Feb. 2, 2009); FTC v. them that might help save their Rev. Stat. § 6-1-1101, et seq.; 6 Del C. § 2400B, et Foreclosure Solutions, LLC, No. 1:08-cv-01075 (N.D. homes.54 seq.; D.C. Code Ann. § 42-2431, et seq.; Fla. Stat. Ohio filed Apr. 28, 2008); FTC v. Mortgage Ann. § 501.1377; GA. Code Ann. § 10-1-393; Hawaii Foreclosure Solutions, Inc., Case No. 8:08-cv-388-T- B. State Law Enforcement Rev. Stat. Ann. § 480E-1, et seq.; IL Comp. Stat, 23EAJ (M.D. Fla. filed Feb. 26, 2008). Additionally, Ann., Ch. 765 § 940/1, et seq.; Ind. Code Ann § 24- some entities claim to be associated with or to have Many states have engaged in 5.5-1-1, et seq.; Iowa Code § 714E.1, et seq.; ME Rev. good relationships with the consumer’s mortgage legislative and law enforcement efforts Stat. Ann. tit 32 § 6191, et seq.; MD Real Property servicer. FTC v. Home Assure, LLC, Case No. 8:09- to address conduct in the loan Code Ann.§ 7-301, et seq.; Code Mass. Reg., 940 CV-00547-T-23T-SM (M.D. Fla. filed Mar. 24, 2009). CMR § 25.01, et seq.; Minn. Stat. Ann. § 325N.01, 49 See, e.g., FTC v. Home Assure, LLC, Case No. modification and foreclosure rescue et seq.; MO Ann. Stat. § 407.935, et seq.; Neb. Rev. 8:09-CV-00547-T-23T-SM (M.D. Fla. filed Mar. 24, industry. First, several states have filed Stat. Ann. § 76-2701, et seq.; NH Rev. Stat. § 479- 2009) (alleging that defendant promised ‘‘100% lawsuits against loan modification or B:1, et seq.; NY CLS Real Prop. § 265-b; RI Gen. SATISFACTION GUARANTEE OR YOUR MONEY foreclosure rescue entities for violating Laws § 5-79-1, et seq. BACK’’); FTC v. United Home Savers, LLP, Case No. state consumer protection laws 58 See, e.g., Press Release, Massachusetts Attorney 8:08-cv-01735-VMC-TBM (M.D. Fla. filed Sept. 3, General, Attorney General Martha Coakley Obtains 2008); FTC v. National Hometeam Solutions, LLC, prohibiting unfair and deceptive Temporary Restraining Order against Perpetrators Case No. 4:08-cv-067 (E.D. Tex. filed Feb. 26, 2008). practices.55 Second, some states have of Loan Modification Scam; Warns Public About 50 The Federal Reserve Board recently Scams Targeting Homeowners (Apr. 7, 2009) promulgated amendments to Regulation Z of TILA, the impression his business was associated with the (alleging defendant loan modification service generally effective October 1, 2009, which would U.S. government. FTC v. Thomas Ryan, Civil No. violated state law prohibiting advance fees), ban various mortgage entities from a number of 1:09-00535 (HHK) (D.D.C. filed Mar. 25, 2009); see available at (http://www.mass.gov/?pageID relevant practices, including banning mortgage alsoFTC v. Federal Loan Modification Law Center, =cagopressrelease&L=1&L0=Home&sid= advertisers from: misrepresenting an advertised LLP, Case No. SACV09-401 CJC (MLGx) (C.D. Cal. Cago&b=pressrelease&f=2009_04_07_fox_loan_ loan as being part of a ‘‘government loan program’’ filed Apr. 3, 2009) (charging defendant with mods&csid=Cago); Press Release, Illinois Attorney or otherwise endorsed or sponsored by a misrepresenting that it is part of or affiliated with General, MADIGAN FILES TWO MORTGAGE government entity; making misleading claims of the federal government). RESCUE FRAUD LAWSUITS, SEEKS IMMEDIATE debt elimination; and using the term ‘‘counselor’’ to 52 Note that, even if providers do fulfill their BAN ON COMPANIES’ OPERATIONS (Apr. 6, refer to for-profit mortgage creditors or brokers. See promises to provide refunds, this action does not 2009) (alleging defendant loan modification entity 73 FR 44589-90, 44602. To the extent that loan cure the deception employed in enrolling the violated Illinois Mortgage Rescue Fraud Act for, modification or foreclosure rescue entities are consumer in the program. See, e.g., FTC v. Think inter alia, charging up-front fee), available at offering loans to consumers, they may fall within Achievement Corp., 312 F.3d 259, 262 (7th Cir. (http://www.ag.state.il.us/pressroom/2009_04/ the ambit of these rules. 2002) (‘‘[A] money-back guaranty does not sanitize 20090406.html); Press Release, Florida Attorney 51 For example, in two cases the Commission a fraud.’’) General, Court Grants Request to Temporarily Stop charged defendants for falsely advertising 53 See, e.g., FTC v. Home Assure, LLC, Case No. Loan Modification Company’s Up-Front Fees (Feb. themselves to be associated with the HOPE NOW 8:09-CV-00547-T-23T-SM (M.D. Fla. filed Mar. 24, 23, 2009) (noting that Florida statute ‘‘governs Alliance, and then breaking promises to secure loan 2009); FTC v. National Hometeam Solutions, LLC, companies providing foreclosure-related rescue modifications or alternatively, to refund the money Case No. 4:08-cv-067 (E.D. Tex. filed Feb. 26, 2008). services including loan modification’’), available at of consumers whose loans could not be modified. 54 The FTC has warned consumers about for- (http://www.myfloridalegal.com/newsrel.nsf/pv/ SeeFTC v. New Hope Property LLC, Case No. 1:09- profit loan modification and foreclosure rescue FF973C8A0EEE167B85257566006916E8; Press cv-01203-JBS-JS (D.N.J. filed Mar. 2009); FTC v. operations which charge hefty fees for services Release, Minnesota Attorney General, Attorney Hope Now Modifications, LLC, Case No. 1:09-cv- which consumers can undertake themselves by General Lori Swanson Expands Litigation Against 01204-JBS-JS (D.N.J. filed Mar. 2009). In another contacting their mortgage servicer directly or obtain Fraudulent Foreclosure Consultants And Issues case, a defendant marketing purported loan for free through organizations like Hope Now. See Warning To Minnesota Homeowners In Mortgage modification services allegedly represented, via his FTC Publication, A note to Homeowners, available Trouble To Seek Reputable Help And Steer Clear website, that he was the ‘‘House and Urban at (http://www.ftc.gov/bcp/edu/pubs/consumer/ Of Scam Artists (Jan. 29, 2009), available at (http:// Department,’’ displaying a government-like seal; homes/rea16.pdf). www.ag.state.mn.us/consumer/pressrelease/ and using a web address (‘‘bailout-hud-gov.us’’ or 55 See, e.g., State Foreclosure Rescue Enforcement 090129foreclosureconsultants.asp); Press Release, ‘‘bailout.dohgov.us’’) and other features to create Actions - Sampling of Actions: March 31, 2009, Illinois Attorney General’s Office, Madigan Sues

VerDate Nov<24>2008 15:29 May 29, 2009 Jkt 217001 PO 00000 Frm 00019 Fmt 4702 Sfmt 4702 E:\FR\FM\01JNP1.SGM 01JNP1 Federal Register / Vol. 74, No. 103 / Monday, June 1, 2009 / Proposed Rules 26137

In 1979, California enacted the first relationships between licensed impact of the loan modification and statute that specifically restricts the attorneys and foreclosure consultants foreclosure rescue industry? Please practices of entities offering foreclosure violate state ethics rules for attorneys.65; identify any such data sources. rescue or similar services.59 More Some of the consumer protections B. What business models are used to recently, in 2004, Minnesota enacted a that state statutes provide to provide loan modification and statute, based on the California law, but homeowners in financial distress do not foreclosure rescue services? Please adding several additional key commence until the owner or servicer of identify and describe any such business restrictions on foreclosure reconveyance a mortgage has served a notice of default models and their impact on consumers transactions.60 Since then, over twenty on the borrower. However, some loan and competition. states have passed their own foreclosure modification and foreclosure rescue C. What are the distinctions between consultant statutes, which are modeled services apparently provide services different models of providing loan after the California and Minnesota laws. before a notice of default has been modification and foreclosure rescue These state foreclosure consultant served, thereby limiting the protection services (e.g., free versus fee-for-service, statutes generally include a number of accorded under state law to some loan negotiation versus title transfer, requirements and restrictions, homeowners in financial distress. etc.)? including: (1) banning covered entities D. What are the costs and benefits of IV. Request for Comment from requiring or collecting advance various loan modification and fees before fully performing contracted The Commission seeks written foreclosure rescue services? or promised services to the consumer; comments on a series of questions E. What roles do mortgage servicers (2) requiring written contracts related to loan modification and play in the loan modification and containing certain provisions and foreclosure rescue. The FTC is seeking foreclosure rescue industry? What are disclosures; and (3) providing comments to determine whether certain the costs and benefits of their conduct consumers with the right to cancel the acts and practices of loan modification in the context of loan modification and contract in certain circumstances. and foreclosure rescue entities are foreclosure rescue services? Do the Some statutes also impose additional unfair or deceptive under Section 5 of practices of mortgage servicers present requirements on foreclosure rescue the FTC Act and should be incorporated consumer protection concerns? If so, operations that require consumers to into a proposed rule. These acts and how are these concerns the same as or transfer title to their homes, and purport practices include conduct that the FTC different from those raised by third- to offer reconveyance at a later date. currently could challenge in a law party loan modification and foreclosure These statutes often include the enforcement action as violating Section rescue entities? requirement that foreclosure rescue 5 of the FTC Act. However, the F. What empirical data are available operations must verify before doing a Commission is not otherwise seeking concerning the performance of loan reconveyance that the consumer has a comments on statutes that have been modification and foreclosure rescue reasonable ability to pay for the enacted and rules that have been issued. entities in obtaining promised results? subsequent conveyance of the home The Commission invites interested Please identify any such data (broken back to the consumer.61 Other states persons to submit written comments on down by business model, if possible) have decided to ban outright certain any issue of fact, law, or policy that may used to provide loan modification and practices, like title bear upon these issues. After examining foreclosure rescue services, including reconveyances.62Some states also have the comments, the Commission will but not limited to data addressing the enacted criminal statutes covering determine whether and how to following: foreclosure rescue operations.63 incorporate them into any proposed 1. The percentage or proportion of Almost all state foreclosure consultant rule. consumers enrolled in loan laws exempt state-licensed attorneys. The Commission encourages modification or foreclosure rescue Some for-profit loan modification and commenters to respond to the specific services who successfully obtain a loan foreclosure rescue operations have questions. However, commenters do not modification or foreclosure relief. partnered with attorneys,64 which some need to respond to all questions. Please 2. For the consumers described in operations may use to avoid state provide explanations for your answers (F)(1), the percentage who, after statutory prohibitions against the and detailed, factual supporting successfully obtaining the modification collection of advance fees. Some state evidence. or foreclosure relief, remain current on bar associations have responded by Without limiting the scope of issues their mortgage payments for a issuing warnings to attorneys that many on which it seeks comment, the substantial period of time (e.g., six Commission is particularly interested in months, one year, or two years). Seven Companies For Mortgage Rescue Fraud (Nov. receiving comments on the following 18, 2008), available at (http://www. 2. Need for FTC Rule _ questions: illinoisattorneygeneral.gov/pressroom/2008 11/ A. Given that many states have 20081118.html). 1. The Loan Modification and enacted and enforced laws concerning 59 Cal. Civ. Code § 2945, et seq. Foreclosure Rescue Industry 60 Minn. Stat. Ann. § 325N.01, et seq. loan modification and foreclosure 61 See, e.g., Minn. Stat. Ann. § 325N.17. The A. What empirical data are available services and that the FTC has brought Minnesota statute also requires, among other things, concerning the nature, extent, and law enforcement actions against that the foreclosure rescue operator reconvey the providers of these types of services foreclosed property to the homeowner or pay the 65 See, e.g., Ethics Alert: Legal Services to homeowner such that the total consideration is at under Section 5 of the FTC Act, should Distressed Homeowners and Foreclosure the FTC promulgate a rule to address least 82% of the fair market value of the property. Consultants on Loan Modifications (Committee on 62 See, e.g., D.C. Code Ann. § 42-2431, et seq.; Professional Responsibility and Conduct, The State these services? Why or why not? Code Mass. Reg., 940 CMR § 25.01, et seq. Bar of California, San Francisco, CA) Feb. 2, 2009 63 See, e.g., Iowa Code § 714E.1, et seq. at 1, available at http://www.calbar.ca.gov/calbar/ 3. Scope of Covered Practices 64 See, e.g., FTC v. Federal Loan Modification Law pdfs/ethics/Ethics-Alert-Foreclosure.pdf; Ethics A. Should conduct by loan Center, LLP, Case No. SACV09-401 CJC (MLGx) Alert: Providing Legal Services to Distressed (C.D. Cal. filed Apr. 3, 2009) (alleging violations of Homeowners (The Florida Bar) Mar. 15, 2009, modification and foreclosure rescue FTC Act against professional law corporation and available at (http://www.floridabar.org/tfb/ service providers or advertisers that the an attorney). TFBETOpin.nsf/EthicsIndex?OpenForm). FTC has challenged as unfair or

VerDate Nov<24>2008 15:29 May 29, 2009 Jkt 217001 PO 00000 Frm 00020 Fmt 4702 Sfmt 4702 E:\FR\FM\01JNP1.SGM 01JNP1 26138 Federal Register / Vol. 74, No. 103 / Monday, June 1, 2009 / Proposed Rules

deceptive in violation of Section 5 of the providers to make specific disclosures By direction of the Commission. FTC Act in its law enforcement actions regarding the timing, amount, or Donald S. Clark be incorporated into a proposed FTC allocation of fees? Additionally, to what rule? If so, what conduct should be extent might such harm be prevented or Secretary included, how should it be addressed, mitigated by requiring providers to [FR Doc. E9–12596 Filed 5–29–09: 8:45 am] and why? make more general disclosures BILLING CODE 6750–01–S B. Should conduct by loan regarding the nature and material modification and foreclosure rescue restrictions of their services (e.g., the service providers or advertisers that disclosures regarding the likelihood of states have declared unlawful by statute DEPARTMENT OF HOMELAND success, timing of services or SECURITY or regulation or have challenged in law negotiations with mortgage servicers, enforcement actions be incorporated refund restrictions, or any potentially Coast Guard into a proposed FTC rule? Why or why negative ramifications of using the not? If so, what prohibitions and service)? 33 CFR Parts 100 and 165 restrictions should be incorporated in a proposed FTC rule? 4. Some states have foreclosure rescue 1. Some states require providers to laws which, in whole or in part, only [USCG–2009–0127] create written contracts and include key apply once a consumer has received a disclosures in these contracts. Should notice of default. At what stage or stages RIN 1625–AA00 of the process should a proposed FTC the Commission impose the same or Safety Zones: Annual Events rule protect consumers? Should it take similar disclosure requirements in a Requiring Safety Zones in the Captain effect before consumers receive a notice proposed FTC rule? If so, what of the Port Duluth Zone disclosures should be included and of default, after the notice of default is why? received, or once foreclosure AGENCY: Coast Guard, DHS. 2. Some states require providers to proceedings have begun? Why? ACTION: Notice of proposed rulemaking. give consumers who enroll the right to 5. Please identify any other state rescind or cancel their agreements with restrictions or challenged conduct SUMMARY: The Coast Guard proposes the providers. Should the Commission which should (or should not) be establishment of safety zones for annual include the same or similar rights of addressed in a proposed FTC rule, and events in the Captain of the Port Duluth rescission or cancellation in a proposed explain why. Zone. This rule proposes removal of a rule? If so, what rescission and safety zone currently located in part cancellation rights should be included C. Are there any unfair or deceptive 100, and the addition of it to part 165. and why? acts and practices by providers or Further, this rule proposes new safety 3. Some states have restricted the advertisers of loan modification and zones to be added to part 165. These type, amount, and timing of the fees foreclosure rescue services that neither safety zones are necessary to protect charged and refunds given by providers the FTC nor the states have addressed spectators, participants, and vessels of loan modification and foreclosure that a proposed FTC rule should from the hazards associated with rescue services. In particular, some address? If so, how should these acts fireworks displays. and practices be addressed and why? states ban advance fees until all services DATES: Comments and related materials promised or contracted for are 4. Scope of Covered Entities must reach the Coast Guard on or before completed. July 1, 2009. (i) Should the Commission address in A. As described in the text, an FTC a proposed FTC rule any fee or refunds ADDRESSES: You may submit comments proposed rule would not cover banks, identified by Coast Guard docket practices of providers of loan thrifts, federal credit unions, and non- modification and foreclosure rescue number USCG–2009–0127 to the Docket profits. To what extent do these types of Management Facility at the U.S. services? If so, what practices should be entities provide or advertise loan addressed, how they should be Department of Transportation. To avoid modification and foreclosure rescue duplication, please use only one of the addressed, and why? services? To what extent do these (ii) Should the Commission ban the following methods: entities compete with entities that an (1) Online: http:// payment of advance fees for loan FTC proposed rule would cover and modification and foreclosure rescue www.regulations.gov. what effect would an FTC proposed rule (2) Mail: Docket Management Facility services in a proposed FTC rule? If so, have on such competition? why or why not? What effect, if any, (M–30), U.S. Department of would an advance fee ban have on the B. As described in the text, many Transportation, West Building Ground willingness or ability of loan states have exempted attorneys from Floor, Room W12–140, 1200 New Jersey modification and foreclosure rescue laws (e.g., foreclosure consultant laws) Avenue, SE., Washington, DC 20590– services providers to do business? which regulate the conduct of providers 0001. (iii) Should the Commission impose and advertisers of loan modification and (3) Hand Delivery: Room W12–140 on fee restrictions in a proposed FTC rule foreclosure rescue services. What are the the ground floor of the West Building, other than a ban on the advance fees costs and benefits of exempting 1200 New Jersey Avenue, SE., that providers of loan modification and attorneys from these laws? What has Washington, DC 20590, between 9 a.m. foreclosure rescue services receive? If been the effect of such exemptions on and 5 p.m., Monday through Friday, so, what restrictions should be imposed competition between attorneys and non- except Federal holidays. The telephone and why? Would these restrictions attorneys in providing or advertising number is 202–366–9329. prevent or mitigate the potential harm loan modification and foreclosure (4) Fax: 202–493–2251. caused by payment of these fees? For rescue services? Should an FTC FOR FURTHER INFORMATION CONTACT: LT example, to what extent might the proposed rule include an exemption for Aaron Gross, Chief of Port Operations possible harm from advance fees be attorneys or any other class of persons U.S. Coast Guard Sector Duluth; (218) prevented or mitigated by requiring or entities? Why or why not? 720–5286 Ext. 111.

VerDate Nov<24>2008 15:29 May 29, 2009 Jkt 217001 PO 00000 Frm 00021 Fmt 4702 Sfmt 4702 E:\FR\FM\01JNP1.SGM 01JNP1