Description/Relevance: Section 5 of the FTC Act prohibits unfair or deceptive acts or practices in or affecting commerce. The FTC has used its authority under this act to challenge home equity fraud. In Federal Trade Commission v Nationwide Mortgage Corp., Civ. No. 85-0976 (D.D.C. 1985), the FTC's complaint alleged that Nationwide solicited consumers whose mortgages were in default and offered them one year, interest-only loans with balloon payments of the entire loan balance due at the end of the year. The complaint stated that Nationwide's practices were deceptive and violated Section 5 of the FTC Act because Nationwide told consumers falsely that they would be able to obtain refinancing at the end of the year. The complaint also alleged violations of the TILA based on Nationwide's alleged failure to disclose the balloon payment. In Federal Trade Commission v R. A. Walker and Associates, Civ. No. 83-2462 (D.D.C. 1983), the FTC's complaint alleged that Rita Walker solicited consumers whose mortgages were in default, persuading them to transfer title to their property to Rita Walker, and that Rita Walker engaged in unfair and deceptive practices in violation of Section 5 of the FTC Act by claiming falsely that the transfer of title was a temporary measure to avoid foreclosure and that Rita Walker would obtain financing for the consumers that would allow them to remain in their homes. The FTC also has used its authority under Section 5 to challenge "packing" of extras into loans. In re the Money Tree, Inc., Docket No. C-3735 (F.T.C. 1997), the FTC's complaint alleged that Money Tree violated Section 5 by inducing consumers to execute documents stating that the consumers had voluntarily chosen certain "extras" such as credit-life insurance, credit disability insurance and/or an auto club membership, when in fact, the extras were mandatory to obtain the loan. The complaint also alleged violations of TILA based on Money Tree's failure to include the "extras" in the finance charge and APR.
Enforcement: The FTC enforces the Act. Consumers cannot use it to bring private suits.
The Truth In Lending Act (TILA) and Regulation Z
Description/Relevance: Generally, the TILA and its implementing Regulation Z require that accurate disclosure of the cost and terms of credit be provided to the consumer before the consummation of the transaction. Charges that consumers are required to pay in order to obtain credit, including mandatory credit insurance, must be disclosed as a part of the annual percentage rate and finance charge. For certain high rate or high fee loans, a portion of the TILA known as the Home Ownership and Equity Protection Act ("HOEPA") provides greater protections. HOEPA generally prohibits balloon payments due in less than five years, increases in rates upon default, prepayment penalties, a pattern of lending based on equity, and disbursal directly to home improvement contractors. A homeowner whose loan is subject to HOEPA should receive special disclosures, including a warning that the borrower could lose his/her home if he/she fails to make payments.
Enforcement: The FTC and other federal agencies have responsibility for the administrative enforcement of the TILA for lenders subject to their regulatory jurisdiction. The TILA also gives aggrieved consumers the right to sue individually or as a class.
The Equal Credit Opportunity Act (ECOA) and Regulation B
Description: The ECOA and its implementing Regulation B prohibit discrimination in any aspect of a credit transaction on the basis of race, color, religion, national origin, sex or marital status, age, because an applicant derives income from public assistance, or because the applicant has in good faith exercised any right under the Consumer Credit Protection Act. Regulation B imposes procedural requirements to ensure compliance with the ECOA, including requiring that creditors: take mortgage credit applications in writing; collect information about the applicant's race/national origin, sex, marital status, and age for monitoring purposes; provide written notice of adverse action; and retain records of applications for 25 months.
Relevance: Lenders who target elderly homeowners or residents of minority areas for high cost loans, while lending on more favorable terms to others, may violate the ECOA.
Enforcement: The FTC has responsibility for the administrative enforcement of the ECOA for lenders subject to their regulatory jurisdiction. The ECOA also gives aggrieved applicants the right to sue individually or as a class.
Fair Debt Collection Practices Act (FDCPA)
Description/Relevance: The FDCPA prohibits certain unfair and deceptive collection practices by third party debt collectors, including the collection of fees not provided for in the loan contract or state law. The FDCPA applies to a mortgage servicing company to which a debt is assigned if the debt was in default at the time of the assignment. In addition, while creditors who collect their own debts are generally excluded from coverage, the FDCPA applies to a creditor "who, in the process of collecting its own debts, uses any name other than his own which would indicate that a third person is" involved in collecting the debt. Where the FDCPA applies to a mortgage servicer or a lender, the FDCPA's prohibition against collection of fees not provided for in the loan contract or state law can be used against a mortgage servicer or a lender who is charging excessive or unjustified fees during the servicing of the loan.
Enforcement: The FTC has responsibility for administrative enforcement of the FDCPA as it applies to debt collectors and lenders subject to their regulatory jurisdiction. The FDCPA also gives aggrieved consumers the right to sue individually or as a class.