Proposed Bill Would Likely Cause Consumers to Pay More
The Federal Trade Commission and U.S. Department of Justice issued a letter on Friday, March 29, 2002, urging the Rhode Island House of Representatives to reject a proposed bill that would prevent non-lawyers from competing with lawyers to perform real estate closings. The agencies expressed concern that the bill likely would cause Rhode Island consumers and businesses to pay more for real estate closings and could also prevent them from benefitting from competition from out-of-state and Internet lenders that could provide more convenient closing services.
"This bill would likely deprive Rhode Islanders of significant benefits of competition, such as lower prices, more convenient services, and the option to use inexpensive Internet-based loan services," said Timothy J. Muris, Chairman of the Federal Trade Commission.
"The proposed bill would subject Rhode Islanders to an artificial restriction on competition that likely would cause them to pay more to close their real estate transactions," said Charles A. James, Assistant Attorney General in charge of the Justice Department's Antitrust Division.
For many years, Rhode Islanders have had the choice to close a refinancing loan with a lawyer or a lay closing service. The bill would eliminate this competition by requiring consumers to use a lawyer to close almost all real estate deals. The bill covers both residential and commercial deals and purchases, refinancings, second mortgages, and other transactions.
The bill contains limited exceptions, and would allow closings by lay employees of firms owned entirely by Rhode Island attorneys, Rhode Island-chartered title companies, and title insurance firms. Lenders would be allowed to close their own home equity lines of credit but not other loans. Even with such exceptions, the bill would restrict the current choices available to Rhode Island consumers and is likely to increase closing costs and inconvenience.
According to the letter, one industry source estimated that Rhode Islanders could pay $200-$500 more, if buyers must pay for their own attorneys, as well as the lender's closing lawyer. In addition, the letter explains that wider competition in real estate closings can improve the quality of such services. Non-lawyers may be more willing to travel to the homes of consumers or to meet consumers after work or at other convenient hours. Limiting choice by barring lay competition likely would deprive consumers of these benefits.
The letter notes that consumers in much of the country can choose between lawyers and non-lawyer real estate closing services. Since 1996, both Virginia and New Jersey have considered and rejected bans on non-lawyer closing services. In both states, non-lawyer closing services were substantially less expensive than their lawyer counterparts.
The bill being considered is H. 7462, "An Act Relating To Criminal Offenses - Law Practice." It was introduced by Representative R. Menard and referred to the Rhode Island House Judiciary Committee.
Copies of the joint FTC/DOJ letter 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. V020013)
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