FirstPlus Financial Group, Inc. (FirstPlus) has agreed to settle Federal Trade Commission charges resulting from the advertising and marketing practices of FirstPlus's now bankrupt subsidiary, FirstPlus Financial, Inc. According to the FTC's complaint, ads for FirstPlus's "debt consolidation" loans, including "high-loan-to-value" (HLTV) loans, were false and misleading because the ads misrepresented, among other things, the amount of money that consumers would save, and failed to adequately disclose key information about the loans. The proposed settlement would prohibit FirstPlus from misrepresenting its loan products, and would require the company to use reasonable assumptions when creating savings comparisons, and to fully disclose all information necessary to evaluate those comparisons.
FirstPlus is a consumer finance company offering a range of credit products. HLTV loans are typically second mortgage loans that, in combination with the first mortgage, can exceed the value of the consumer's home. HLTV loans generally are made to creditworthy individuals who have little equity in their homes. Such loans often have a higher interest rate than other second mortgage loans.
"When ads are false and misleading, everybody loses," said Jodie Bernstein, Director of the FTC's Bureau of Consumer Protection. "Consumers lose money and confidence, and the offending industry loses credibility and customers. This case highlights the importance of accuracy in advertising and delivery on a promise."
According to the FTC's complaint, FirstPlus's advertisements contained phrases such as "SAVE Money," or "Call now and ask: What's my savings,'" and included examples illustrating the potential monthly savings of consolidating credit card balances and other loans into a FirstPlus home equity loan. The complaint alleges that the examples shown in FirstPlus ads did not accurately illustrate the potential monthly savings. In addition, the complaint alleges that FirstPlus represented that each recipient of FirstPlus's solicitations who applies for the loan advertised will receive such a loan, when, in fact, that is not the case.
Further, the complaint alleges that advertisements for FirstPlus's loans claimed that consumers would receive funds for the full loan amount stated in the advertisements. In fact, according to the complaint, in many instances, consumers did not receive the full loan amount, because FirstPlus deducted substantial origination fees and closing costs from the disbursed funds.
Additionally, the complaint charges that FirstPlus violated both Section 5 of the FTC Act and the Truth in Lending Act (TILA) and its implementing Regulation Z by omitting key credit terms in its loan advertisements. Specifically, FirstPlus stated a monthly payment amount required to repay the loan, but failed to disclose the annual percentage rate and/or the terms of repayment, as required by Regulation Z. Further, the credit disclosures required by Regulation Z, if provided, were not clear and conspicuous because they appeared in fine print and/or in an inconspicuous location, the FTC charged.
Under the terms of the proposed settlement, FirstPlus would be prohibited from making the kinds of misrepresentations alleged in the complaint and would be required to comply with the TILA and Regulation Z in the future. In particular, the proposed settlement would prohibit the use of any example of the cost savings or benefits from a FirstPlus loan, compared to other consumer credit transactions, whether actual or hypothetical, unless that example is based on reasonable assumptions regarding average annual percentage rates and repayment terms for comparable credit transactions.
The proposed settlement also contains recordkeeping and reporting requirements to assist the FTC in monitoring compliance with its terms. FirstPlus is a Nevada corporation with its principal place of business in Dallas, Texas.
The Commission vote to accept the proposed settlement for public comment was 5-0. An announcement regarding the proposed consent agreement will be published in the Federal Register shortly. The agreement will be subject to public comment for 30 days, September 18, after which the Commission will decide whether to make it final. Comments should be addressed to the FTC, Office of the Secretary, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580.
In a separate statement, Chairman Robert Pitofsky and Commissioner Mozelle W. Thompson said that while the facts in this case called for injunctive relief "in light of this particular respondent's weak financial situation," "...we also note that this case does not necessarily establish the full scope of relief that the Commission may seek in future cases." Pitofsky and Thompson said they expect that the Commission, in appropriate circumstances, would seek consumer redress or other monetary relief. According to their statement, the
Commission "will look closely at HLTV transactions and take appropriate action when consumers are victimized by those who omit or misrepresent material facts relating to such loans."
NOTE: A consent agreement is for settlement purposes only and does not constitute an admission of a law violation. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of $11,000.
Copies of the complaint, proposed consent agreement, an analysis of the agreement to aid in public comment, the separate statement by Chairman Pitofsky and Commissioner Thompson, and consumer brochures about home equity and other loans are available from the FTC's web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Rm. 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580; toll-free: 877-FTC-HELP (877-382-4357); TDD for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.
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(FTC File No.: 992 3121)