Staff of the Federal Trade Commission and the Department of Justice today submitted a joint comment to the Virginia State Bar urging against adoption of the Bar’s proposal to prevent non-lawyers and title company attorneys from handling closings of real estate transactions and refinancings. The comment, from the two federal agencies entrusted with enforcing this nation’s antitrust laws, describes how preventing competition from other providers of this type of service reduces consumer choice and could increase prices without apparent countervailing benefits.
In a letter submitted to the Bar’s Executive Director, William J. Baer, Director of the FTC’s Bureau of Competition and Anne K. Bingaman, Assistant Attorney General in charge of DOJ’s Antitrust Division, explained how "restraints on competition can force consumers to pay higher prices or accept goods and services of lower quality."
The comment by the agencies looks at how the Bar’s proposal would be anticompetitive. The agencies concluded that it would increase costs for consumers in two ways. "First, it would force consumers who would not otherwise hire an attorney for a real estate closing to do so. The restriction would adversely affect all consumers who might prefer the combination of price, quality, and service that a lay settlement service offers.... Second, ...by eliminating competition from lay settlement services, the proposal would likely cause the price of lawyers’ settlement services to increase."
The comment points out that the proposal would particularly affect consumers who are obtaining home equity loans or refinancing existing real estate loans. "Even consumers who choose a lawyer over a settlement company would likely pay higher prices," the comment states.
The agencies also analyzed experience elsewhere in the country. In the state of New Jersey, the courts found that where non-lawyers conduct closings and settlements, real estate closing fees were lower than in other parts of the state where lawyers conducted almost all settlements. "There is no reason to expect Virginia’s experience to be different," the FTC and DOJ staff concluded.
"During the past 15 years, the use of lay closing services has grown steadily in Virginia," the agencies found. While the basis of the proposal from the Virginia State Bar seems to be, according to the FTC and DOJ, "the risk that a lay person will make a mistake that a lawyer would not and thereby harm a consumer," the Bar "cites no actual instances of consumer injury. ... Hypotheses alone are an insufficient basis for restricting competition in a way that is likely to harm consumers, especially in the face of 15 years of favorable experience with lay services in Virginia."
The comment concludes by stating that "uninformed consumers could be protected by measures far less anticompetitive than an outright ban on non-lawyer closings. For example, the New Jersey Supreme Court requires written notice of the risk involved in proceeding with a real estate transaction without an attorney. Disclosure, and an appropriate opportunity for consumer waiver, would appear to address the possibility of a conflict of interest on the part of the settlement company. ... Alternatively, the State may wish to regulate lay settlement services more closely."
These comments are the views of the staff of the Federal Trade Commission, and do not necessarily represent the views of the Commission or any individual Commissioner.
Copies of the FTC and DOJ staff’s comment are available from the FTC’s Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-2222; TTY 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. FTC news releases and other materials also are available on the Internet at the FTC’s World Wide Web site at: http://www.ftc.gov.
(FTC File No. V960015)
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Michael O. Wise, Advocacy Coordinator