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The Federal Trade Commission today told the U.S. House Subcommittee on Housing and Community Opportunity of the Committee on Financial Services that, with the rapid increase in mortgage delinquencies and foreclosures, the FTC has intensified its efforts to protect consumers from foreclosure rescue and loan modification scams. The FTC also recommended legislative and other remedies to enhance the agency’s effectiveness.

Associate Director of the FTC’s Division of Financial Practices, Peggy Twohig, testified that the Commission has brought 11 cases targeting mortgage foreclosure rescue and loan modification scams in a little over one year, and is actively engaged in ongoing, non-public investigations. In April, the FTC announced law enforcement actions and consumer education initiatives as part of a federal-state crackdown that included sending warning letters to 71 companies for marketing potentially deceptive mortgage loan modification and foreclosure assistance programs. The testimony described defendants’ tactics, which sometimes include falsely appearing to be affiliated with a non-profit or government entity or endorsed by government officials. For example, the FTC recently brought a case against the Federal Loan Modification Law Center LLP for allegedly misrepresenting that they were a part of, or affiliated with, the federal government and that they could obtain a loan modification in all or virtually all instances. The agency has also brought two cases against defendants for allegedly misrepresenting that they were part of the legitimate Hope Now Alliance of housing counselors and mortgage servicers.

According to the testimony, the Commission has also initiated a stepped-up initiative to warn consumers about for-profit operations that charge hefty fees for services that consumers can undertake by themselves by contacting their mortgage service provider directly or obtain for free through non-profit organizations like the Hope Now Alliance. The FTC recently announced a new consumer outreach initiative, with the help of government, non-profit organizations, and mortgage industry members, to reach borrowers directly with materials about how to spot and avoid scams. These entities will be voluntarily sending FTC consumer education information directly to consumers through a variety of methods, including during loan counseling sessions, in monthly statements, in correspondence to delinquent borrowers, and on their Web sites. This week, the Commission also provided mortgage companies and others with audio public service announcements (PSAs) from the FTC warning consumers about mortgage foreclosure scams and giving them tips on how to avoid them. The FTC has encouraged mortgage companies to play these PSAs when consumers call them for assistance as part of our efforts to reach out directly to borrowers.

The testimony noted that the FTC has new rulemaking authority under the Omnibus Appropriations Act of 2009 to prohibit unfair and deceptive practices with respect to mortgage loans. The Act, which directed the Commission to commence within 90 days a rulemaking with respect to mortgage loans, allows the FTC to use the relatively streamlined notice and comment rulemaking procedures in issuing these rules. As part of this rulemaking proceeding, the Commission intends to address unfair or deceptive acts and practices regarding mortgage loan modification and foreclosure rescue scams.

The Commission also recommended that, in order to enhance the FTC’s consumer protection efforts, Congress:

  • Authorize the agency to employ notice and comment rulemaking procedures to establish rules pursuant to the FTC Act that prohibit unfair or deceptive acts and practices relating to all financial services;
  • Authorize the agency to obtain civil penalties for unfair or deceptive acts and practices relating to all financial services and authorize the agency to bring suit in its own right in federal court to obtain civil penalties;
  • Ensure that the FTC is considered as Congress moves forward in determining how to modify federal oversight of consumer financial services; and
  • Provide additional resources to the FTC to increase its law enforcement activities relating to financial services and to expand its critical research on the efficacy of mortgage disclosures and other topics.
The Commission vote authorizing the testimony was 4-0.

The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them. To file a complaint in English or Spanish, visit the FTC’s online Complaint Assistant or call 1-877-FTC-HELP (1-877-382-4357). The FTC enters complaints into Consumer Sentinel, a secure, online database available to more than 1,500 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC’s Web site provides free information on a variety of consumer topics.

(FTC File No. P064814)

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