Requiring Lawyers at all Closings Would Decrease Competition and Increase Costs for North Carolina Consumers
TTwo members of the Federal Trade Commission's Office of Policy Planning (OPP) gave oral testimony today before the North Carolina State Bar's Ad Hoc Committee on Residential Real Estate Closings urging that the Bar reconsider two recently adopted Opinions that would prevent non-lawyers from competing with lawyers in performing real estate closings in the state. The meeting at which they testified was set up specifically to help the Committee assess how to respond to a December 14, 2001 joint letter from the FTC and U.S. Department of Justice (DOJ) that similarly suggested the State Bar reconsider the two ethics Opinions.
OPP Deputy Director Dr. Jerry Ellig and staff attorney Maureen Ohlhausen explained how the Opinions, which bar non-lawyers from performing real estate and mortgage closings, likely will harm North Carolina consumers. Issued in 2001, the two opinions, together with previous North Carolina Bar decisions, require the physical presence of a lawyer at all residential real estate purchase closings and refinancings.
Dr. Ellig noted that the North Carolina restrictions likely will harm consumers and also diminish competition from national, Internet-based lenders. "North Carolina consumers would be much better off if they could choose whether or not to hire a lawyer - the Bar shouldn't force them to hire a lawyer for every real estate closing and refinancing," he said. Additionally, under the terms of the two Opinions, Dr. Ellig said, "Internet-based lenders would have to hire North Carolina attorneys or duplicate the local lenders' network of bricks-and-mortar offices, which might negate many of the cost savings that e-lending makes possible."
Appearing along with Dr. Ellig, Ohlhausen said that there is no significant consumer protection rationale for forcing all borrowers to pay for an attorney to be present at closing.
"The FTC has prosecuted numerous deceptive lending cases, and the deception often involves oral misrepresentations that occurred prior to closing," she said. Ohlhausen also doubted that the Bar Opinions would provide much consumer protection. "The Opinions just say that an attorney has to be present; there's no requirement that the attorney represent the buyer or borrower," she noted.
The December 14 letter, signed by FTC Chairman Timothy J. Muris and DOJ's Assistant Attorney General for Antitrust Charles A. James, cited evidence from other states showing that non-lawyer closings save consumers significant amounts of money. A 1996 study found that in Virginia, median costs for non-lawyer closings were $150 less than for closings handled by a lawyer. In 1995, an investigation conducted for the New Jersey Supreme Court found that in parts of New Jersey where non-lawyer closings are prevalent buyers on average paid $350 less and sellers paid $400 less.
The Commission vote authorizing staff to speak before the Bar was 5-0.
NOTE: The joint FTC-DOJ letter signed by Chairman Muris represents the views of the Federal Trade Commission. The views expressed orally at the Committee meeting are those of the staff of the FTC's Office of Policy Planning, and do not necessarily represent those of the Commission or of any individual Commissioner.
Copies of the joint FTC-DOJ letter on which Dr. Ellig's and Ms. Ohlhausen's remarks are based are available from the FTC's Web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC works for the consumer to prevent fraudulent, deceptive and unfair business practices in the marketplace and to provide information to help consumers spot, stop and avoid them. To file a complaint, or to get free information on any of 150 consumer topics, call toll-free, 1-877-FTC-HELP (1-877-382-4357), or use the complaint form at http://www.ftc.gov. The FTC enters Internet, telemarketing, identity theft and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.
(FTC File No. V020006)
- Media Contact:
- Mitchell J. Katz
Office of Public Affairs
- Staff Contact:
- R. Ted Cruz, Director
Office of Policy Planning