75092 Federal Register / Vol. 75, No. 230 / Wednesday, December 1, 2010 / Rules and Regulations 

1Omnibus Appropriations Act, 2009, Public Law 

111–8, 123 Stat. 524 (Omnibus Appropriations Act). 

2 Id. § 626(a). 

3 Id. Because Congress directed the Commission 

to use these APA rulemaking procedures, the FTC 

did not use the procedures set forth in Section 18 

of the FTC Act, 15 U.S.C. 57a. 

4Credit Card Accountability Responsibility and 

Disclosure Act of 2009, Public Law 111–24, 123 

Stat. 1734 (Credit CARD Act). 

5 Id. § 511(a)(1)(B). 

6 Id. 

7Unlike Section 18 of the FTC Act, 15 U.S.C. 57a, 

see Katharine Gibbs Sch. v. FTC, 612 F.2d 658 (2d 

Cir. 1979), the Omnibus Appropriations Act, as 

clarified by the Credit CARD Act, does not require 

that the Commission identify with specificity in the 

rule the unfair or deceptive acts or practices that the 

prohibitions will prevent. Omnibus Appropriations 

Act § 626(a); Credit CARD Act § 511(a)(1)(B). 

8Credit CARD Act § 511(a)(1)(C). 

9 15 U.S.C. 45(a)(2). 

10 15 U.S.C. 44. Bona fide nonprofit entities are 

exempt from the jurisdiction of the FTC Act. 

Sections 4 and 5 of the FTC Act confer on the 

Commission jurisdiction over persons, 

partnerships, or corporations organized to carry on 

business for their profit or that of their members. 

15 U.S.C. 44, 45(a)(2). The FTC does, however, have 

jurisdiction over for-profit entities that provide 

mortgage-related services as a result of a contractual 

relationship with a nonprofit organization. See 

Nat’l Fed’n of the Blind v. FTC, 420 F.3d 331, 334– 

35 (4th Cir. 2005). In addition, the Commission has 

jurisdiction over sham non-profits that in fact 

operate as for-profit entities. See infra note 176. 

11Omnibus Appropriations Act § 626(b); Credit 

CARD Act § 511(a)(1)(B). 

12 Dodd-Frank Wall Street Reform and Consumer 

Protection Act, Pub. L. 111–203, 124 Stat. 1376 

(2010) (Dodd-Frank Act). 

13 Id. § 1061. 

14 Dep’t of the Treasury, Bureau of Consumer 

Financial Protection; Designated Transfer Date, 75 

FR 57252, 57253 (Sept. 20, 2010); see also DoddFrank Act § 1062. 

15 Dodd-Frank Act § 1061. 

FEDERAL TRADE COMMISSION 

16 CFR Part 322 

RIN 3084–AB18 

Mortgage Assistance Relief Services 

AGENCY: Federal Trade Commission 

(FTC or Commission). 

ACTION: Final rule. 

SUMMARY: Pursuant to the 2009 

Omnibus Appropriations Act (Omnibus 

Appropriations Act), as clarified by the 

Credit Card Accountability 

Responsibility and Disclosure Act of 

2009 (Credit CARD Act), the 

Commission issues a Final Rule and 

Statement of Basis and Purpose (SBP) 

concerning the practices of for-profit 

companies that, in exchange for a fee, 

offer to work on behalf of consumers to 

help them obtain modifications to the 

terms of mortgage loans or to avoid 

foreclosure on those loans. The Final 

Rule, among other things, would: 

prohibit providers of such mortgage 

assistance relief services from making 

false or misleading claims; mandate that 

providers disclose certain information 

about these services; bar the collection 

of advance fees for these services; 

prohibit anyone from providing 

substantial assistance or support to 

another they know or consciously avoid 

knowing is engaged in a violation of the 

Rule; and impose recordkeeping and 

compliance requirements. 

DATES: This final rule is effective on 

December 29, 2010, except for § 322.5, 

which is effective on January 31, 2011. 

ADDRESSES: Requests for copies of this 

Rule and this Statement of Basis and 

Purpose (SBP) should be sent to: Public 

Reference Branch, Federal Trade 

Commission, 600 Pennsylvania Avenue, 

NW., Room 130, Washington, DC 20580. 

The complete record of this proceeding 

is also available at that address. 

Relevant portions of the proceeding, 

including the Final Rule and SBP, are 

available at (http://www.ftc.gov). 

FOR FURTHER INFORMATION CONTACT: 

Laura Sullivan or Evan Zullow, 

Attorneys, Division of Financial 

Practices, Federal Trade Commission, 

600 Pennsylvania Avenue, NW., 

Washington, DC 20580, (202) 326–3224. 

SUPPLEMENTARY INFORMATION: 

I. Background 

A. Statutory Authority 

On March 11, 2009, President Obama 

signed the Omnibus Appropriations Act 

of 2009.1 Section 626 of the Act directed 

the Commission to commence, within 

90 days of enactment, a rulemaking 

proceeding with respect to mortgage 

loans.2 Section 626 also directed the 

FTC to use notice and comment 

procedures under Section 553 of the 

Administrative Procedure Act (APA), 5 

U.S.C. 553, to promulgate these rules.3

On May 22, 2009, President Obama 

signed the Credit CARD Act.4 Section 

511 of this statute clarified the 

Commission’s rulemaking authority 

under the Omnibus Appropriations Act. 

First, Section 511 specified that the 

rulemaking ‘‘shall relate to unfair or 

deceptive acts or practices regarding 

mortgage loans, which may include 

unfair or deceptive acts or practices 

involving loan modification and 

foreclosure rescue services.’’5 The 

Omnibus Appropriations Act, as 

clarified by the Credit CARD Act, does 

not specify any particular types of 

provisions that the Commission should 

include, or refrain from including, in a 

rule addressing loan modification and 

foreclosure rescue services, but rather 

directs the Commission to issue rules 

that ‘‘relate to’’ unfairness or deception.6

Accordingly, the Commission interprets 

the Omnibus Appropriations Act to 

allow it to issue rules that prohibit or 

restrict conduct that may not be unfair 

or deceptive itself, but that are 

reasonably related to the goal of 

preventing unfairness or deception.7

Second, Section 511 of the Credit 

CARD Act clarified that the 

Commission’s rulemaking authority was 

limited to entities that are subject to 

enforcement by the Commission under 

the FTC Act.8 The rules the Commission 

promulgates to implement the Omnibus 

Appropriations Act, therefore, cannot 

cover the practices of banks, thrifts, 

Federal credit unions,9 or certain 

nonprofits.10

The Omnibus Appropriations Act, as 

clarified by the Credit CARD Act, also 

permits both the Commission and the 

states to enforce the rules the FTC 

issues.11 The Commission can use its 

powers under the FTC Act to investigate 

and enforce the rules, and the FTC can 

seek civil penalties under the FTC Act 

against those who violate them. In 

addition, states can enforce the rules by 

bringing civil actions in Federal district 

court or another court of competent 

jurisdiction to obtain civil penalties and 

other relief. Before bringing such an 

action, however, states must give 60 

days advance notice to the Commission 

or other ‘‘primary federal regulator’’ of 

the proposed defendant, and the 

regulator has the right to intervene in 

the action. 

On July 21, 2010, President Obama 

signed the Dodd-Frank Wall Street 

Reform and Consumer Protection Act.12

The Dodd-Frank Act made substantial 

changes in the federal regulatory 

framework for providers of financial 

services. Among the changes, the DoddFrank Act will transfer the 

Commission’s rulemaking authority 

under the Omnibus Appropriations Act 

to a new Bureau of Consumer Financial 

Protection (BCFP)13 on July 21, 2011, 

which is the ‘‘designated transfer date’’ 

that the Treasury Department has set.14

In addition, on the designated transfer 

date, the FTC’s authority to ‘‘prescribe 

rules’’ and ‘‘issue guidelines’’ under the 

Omnibus Appropriations Act will 

transfer to the BCFP.15 Both the 

Commission and the BCFP, however, 

will have authority to bring law 

enforcement actions to enforce the rules 

promulgated under the Omnibus 

Appropriations Act, including the Final 

Rule in this Proceeding. 

B. The Rulemaking and Public 

Comments Received 

On June 1, 2009, the Commission 

published in the Federal Register an 

Advance Notice of Proposed 


jlentini on DSKJ8SOYB1PROD with RULES6
Federal Register / Vol. 75, No. 230 / Wednesday, December 1, 2010 / Rules and Regulations 75093 

16See Mortgage Assistance Relief Services, 74 FR 

26130 (June 1, 2009) (MARS ANPR). In response to 

the ANPR, the Commission received a total of 46 

comments, which are available at http:// 

www.ftc.gov/os/comments/mars/index.shtm. 

Notably, a wide spectrum of these commenters, 

including a consortium of over 40 state attorneys 

general, consumer and community organizations, 

and financial service providers, strongly urged the 

Commission to propose a rule prohibiting or 

restricting the collection of fees for mortgage relief 

services until the promised services have been 

completed. Additionally, a majority of the 

comments expressed concern regarding pervasive 

deception and abuse in the marketing of MARS, 

including misrepresentations regarding the services 

MARS providers will perform and regarding their 

affiliation with the government, nonprofits, lenders, 

or loan servicers. 

This SBP cites to comments submitted in 

response to both the ANPR and the NPRM. To 

distinguish the comments submitted in response to 

the ANPR, the notation ‘‘(ANPR)’’ is included in any 

citations to them. 

17See Press Release, FTC, FTC Proposes Rule 

That Would Bar Mortgage Relief Companies From 

Charging Up-Front Fees (Feb. 4, 2010), available at 

http://www.ftc.gov/opa/2010/02/mars.shtm. 

18See Mortgage Assistance Relief Services, 75 FR 

10707 (Mar. 9, 2010) (MARS NPRM). 

19The comments submitted in response to the 

NPRM are available at http://www.ftc.gov/os/ 

comments/mars-nprm/index.shtm. A list of those 

who submitted comments appears following 

Section V of this SBP. 

20See, e.g., Deal; Greenfield. 

21See, e.g., Am. Bar Ass’n (ABA); ME BA at 

1–2; OR Bar at 1; WI Bar at 1; GA Bar at 1; FL Bar 

at 1. 

22See, e.g., NCLC at 10–13; CSBS at 4–5. 

23See NAAG at 3–4. 

24See, e.g., CUUS at 8–9. 

25See, e.g., MN AG at 3; OH AG at 1; MBA at 

2–3 (supporting ‘‘strict prohibition’’ of advance 

fees); NAAG at 2 (‘‘The advance fee ban is the 

linchpin of effective deterrence of fraudulent 

practices by providers of mortgage relief services.’’); 

NCLC at 3 (‘‘The single most important provision is 

section 322.5, which prohibits the collection of any 

fee before providing tangible results of real value to 

consumers.’’); AFSA at 5 (‘‘Banning upfront fees is 

the best way for the FTC to ensure that MARS 

providers do really provide consumers with a 

beneficial service.’’); see also CSBS at 3; CUUS at 

6; NYC DCA at 3. 

26See, e.g., Metropolis; RMI; Hirsch. 

27See, e.g., MARS NPRM, 75 FR at 10708–09; 

MBA, Delinquencies, Foreclosure Starts Increase in 

Latest MBA National Delinquency Survey (May 19, 

2010) (‘‘The delinquency rate for mortgage loans on 

one-to-four-unit residential properties increased to 

a seasonally adjusted rate of 10.06 percent of all 

loans outstanding as of the end of the first quarter 

of 2010, an increase of 59 basis points from the 

fourth quarter of 2009, and up 94 basis points from 

one year ago.’’), available at http://www.mbaa.org/ 

NewsandMedia/PressCenter/72906.htm; NCLC at 2; 

Press Release, Realtytrac, Year-end Report Shows 

Record 2.8 Million U.S. Properties With Foreclosure 

Filings in 2009 (Jan. 14, 2010), available at http:// 

www.realtytrac.com/contentmanagement/ 

pressrelease.aspx?itemid=8333; Credit Suisse Fixed 

Income Research 2 (2008) (forecasting a total of 9 

million foreclosures for the period 2009 through 

2012), available at 

http://www.chapa.org/pdf/ 

ForeclosureUpdateCreditSuisse.pdf. 

28See List of MARS Law Enforcement Actions, 

following Section V of the SBP, for a list of cases 

that the FTC has prosecuted (‘‘FTC Case List’’). 

Unless otherwise specified, all citations to FTC 

actions in this SBP refer to the complaints in these 

lawsuits. 

29See, e.g., HOPE NOW, About Us (‘‘HOPE NOW 

is an alliance between counselors, mortgage 

companies, investors, and other mortgage market 

participants. This alliance will maximize outreach 

efforts to homeowners in distress to help them stay 

in their homes and will create a unified, 

coordinated plan to reach and help as many 

homeowners as possible.’’), available at http:// 

www.hopenow.com/hopenow-aboutus.php. 

30For example, the program offers servicers that 

modify loans according to its guidelines an up-front 

fee of $1,000 for each modification, ‘‘pay for 

success’’ fees on still-performing loans of $1,000 per 

year, and one-time bonus incentive payments of 

$1,500 to lender/investors, and $500 to servicers, 

for a modification made while a borrower is still 

current on his or her mortgage payments. Dep’t of 

the Treasury, Making Home Affordable Summary of 

Guidelines 2 (March 4, 2010), available at 

Continued 

Rulemaking (ANPR) addressing the acts 

and practices of for-profit companies 

that offer to work on behalf of 

consumers to help them modify the 

terms of their loans or to avoid 

foreclosure. The ANPR described these 

services generically as ‘‘Mortgage 

Assistance Relief Services,’’ or 

‘‘MARS.’’ 16 On March 9, 2010, the 

Commission published17 a Notice of 

Proposed Rulemaking (NPRM) and 

proposed rule addressing Mortgage 

Assistance Relief Services (MARS).18

Among other things, the proposed rule 

included provisions that would: 

• Prohibit MARS providers from 

making false or misleading claims; 

• Mandate that providers disclose 

certain information about their services; 

• Bar the collection of advance fees 

for the provision of MARS, except in 

certain circumstances for attorneys who 

collect them in connection with 

preparing or filing documents in 

bankruptcy, court, or administrative 

proceedings; 

• Prohibit anyone from providing 

substantial assistance or support to 

another they know or consciously avoid 

knowing is engaged in a violation of the 

rule; and 

• Impose recordkeeping and 

compliance requirements. 

In response to the NPRM, the 

Commission received 75 comments 

from stakeholders, including for-profit 

MARS providers, state law enforcers, 

consumer and community groups, state 

bars and bar associations, and financial 

service providers.19 The largest number 

of comments—a total of 30—were 

submitted either by attorneys who 

provide MARS 20 or entities 

representing attorneys, including the 

American Bar Association and several 

state bar associations.21 These 

comments focused on the scope of the 

proposed rule’s exemption for attorneys, 

asserting that the Commission should 

expand the exemption. Other 

commenters, including some consumer 

groups and a coalition of state bank 

examiners, also advocated that the 

proposed exemption for attorneys be 

broadened, although to a lesser extent 

than the attorneys and their 

representatives advocated.22 By 

contrast, comments from NAAG 23 and 

others24 urged the Commission not to 

change the attorney exemption in the 

proposed rule. 

Apart from comments that focused on 

the coverage of attorneys, most 

comments supported the proposed rule 

and its specific provisions. Most 

significantly, these comments generally 

supported an advance fee ban,25

although a few non-attorney MARS 

providers opposed it.26

II. Mortgage Assistance Relief Services 

A. The Mortgage Crisis and Assistance 

for Consumers 

As discussed in the ANPR and NPRM, 

historically high levels of consumer 

debt, increased unemployment, and a 

stagnant housing market have 

contributed to high rates of mortgage 

loan delinquencies, which in many 

cases lead to foreclosures.27 As a result, 

many consumers struggling to make 

their mortgage payments have been 

searching for ways to avoid default and 

foreclosure. There are a number of 

options that may be available to them, 

including: (1) Short sales or deeds-inlieu of foreclosure transactions, in 

which the proceeds of a sale of the 

home or the receipt of the deed to the 

home, respectively, are treated by the 

mortgage lender as repayment of the 

outstanding mortgage balance; 

(2) forbearance or repayment plans that 

do not reduce the amount that 

consumers must pay but give them more 

time to bring their balance current; and 

(3) loan modifications that reduce 

consumers’ indebtedness or the amount 

of their monthly payments. Because 

loan modifications allow consumers to 

stay in their homes and reduce their 

debt, this possible solution often has 

great appeal to them. The Commission’s 

law enforcement experience suggests 

that loan modifications are the type of 

MARS most frequently marketed and 

sold.28

In response to the mortgage crisis, 

government and private sector programs 

have been initiated to assist distressed 

homeowners.29 In March 2009, the 

Obama Administration launched the 

Making Home Affordable (MHA) 

program and the MHA’s Home 

Affordable Modification Program 

(HAMP), through which the government 

provides mortgage owners and servicers 

with financial incentives to modify and 

refinance loans.30 Under the program, 


jlentini on DSKJ8SOYB1PROD with RULES6
75094 Federal Register / Vol. 75, No. 230 / Wednesday, December 1, 2010 / Rules and Regulations 

http://www.ustreas.gov/press/releases/reports/ 

guidelines_summary.pdf. 

31See, e.g., Dep’t of the Treasury, Making Home 

Affordable Program: Servicer Performance Report 

Through September 2010 (Oct. 25, 2010), available 

at http://www.financialstability.gov/docs/ 

Sept%20MHA%20Public%202010.pdf. Further, if 

trial modifications are added to permanent 

modifications, over 1.6 million modifications have 

been approved. Id., Testimony of Herbert M. 

Allison, Dep’t of the Treasury, ‘‘Foreclosure 

Prevention: Is the Home Affordable Modification 

Program Preserving Homeownership?,’’ before the 

H. Comm. on Oversight and Gov’t Reform, at 5 

(Mar. 25, 2010), available at http:// 

oversight.house.gov/images/stories/Hearings/ 

Committee_on_Oversight/2010/032510_HAMP/ 

TESTIMONY-Allison.pdf. 

32See Press Release, Making Home Affordable 

(‘‘MHA’’) Housing Program Enhancements Offer 

Additional Options for Struggling Homeowners 

(Mar. 26, 2010), available at http:// 

makinghomeaffordable.gov/pr_03262010.html. 

33See MHA, Home Affordable Foreclosure 

Alternatives (HAFA) Program, available at http:// 

makinghomeaffordable.gov/hafa.html. 

34Loan holders also have exhibited a growing 

willingness to modify loan terms for borrowers who 

do not qualify for loan modifications under 

government programs such as HAMP. These are 

known as ‘‘proprietary loan modifications.’’ See 

Press Release, HOPE NOW, HOPE NOW Reports 

More Than 476,000 Loan Modifications in the First 

Quarter of 2010 (May 10, 2010), available at 

http://www.hopenow.com/press_release/files/ 

1Q%20Data%20Release_05_10_10.pdf (reporting 

that the industry completed 312,329 proprietary 

loan modifications in the first quarter of 2010). 

35See, e.g., Freddie Mac, Foreclosure Prevention 

Workshops for Consumers, http:// 

www.freddiemac.com/avoidforeclosure/ 

workshops.html (describing local credit counseling 

events by local governments and nonprofits); FTC, 

Mortgage Payments Sending You Reeling? Here’s 

What to Do (2009), available at http://www.ftc.gov/ 

bcp/edu/pubs/consumer/homes/rea04.pdf 

(describing various credit counseling alternatives). 

36See, e.g., Press Release, MHA, Making Home 

Affordable Program on Pace to Offer Help to 

Millions of Homeowners (Aug. 4, 2009) available at 

http://www.makinghomeaffordable.gov/pr_

08042009.html; Dep’t of the Treasury, Making 

Home Affordable Program: Servicer Report Through 

June 2010 at 7 n.2 (June 2010) (‘‘Selected Outreach 

Measures’’ table), available at http://www.financial

stability.gov/docs/June%20MHA%20Public%20

Revised%20080610.pdf. 

37See Alan Zibel, Foreclosures Down 2 Percent 

From Last Year, Associated Press, May 13, 2010 

(noting that as of March 2010, ‘‘[n]early 7.4 million 

borrowers, or 12 percent of all households with a 

mortgage, had missed at least one month of 

payments or were in foreclosure’’), available at 

http://abcnews.go.com/Business/wire

Story?id=10632332; see also Press Release, 

Mortgage Bankers Ass’n, Delinquencies, Foreclosure 

Starts Fall in Latest MBA National Delinquency 

Survey (Feb. 19, 2010) (noting that roughly 15% of 

mortgage loans were delinquent or in foreclosure 

and that ‘‘[t]he percentages of loans 90 days or more 

past due and loans in foreclosure set new record 

highs’’), available at http://www.mbaa.org/Newsand

Media/PressCenter/71891.htm; Stephanie Armour, 

Home Foreclosure Rates Posts First Annual Decline 

in Five Years, USA Today (May 13, 2010) (noting 

that nearly one-fourth of borrowers owe more on 

their mortgages that the value of their homes). 

38See, e.g., Dep’t of the Treasury: MHA Servicer 

Report June 2010 at 1; NCRC, NCRC Home 

Affordable Modification Program Survey 2010, at 2 

(noting that, as of February 2010, only 12.5% of 

trial modifications had been converted into 

permanent modifications), available at 

http://www.ncrc.org/images/stories/mediaCenter_

reports/hamp_report_2010.pdf; Foreclosure 

Prevention: Is the Home Affordable Modification 

Program Preserving Homeownership: Hearing 

Before the H. Comm. on Oversight & Gov’t Reform, 

111th Cong. (2010) (statement of Gene Dodaro, 

Acting Comptroller General, Government 

Accountability Office) (prepared statement at 7), 

available at http://oversight.house.gov/images/

stories/Hearings/Committee_on_Oversight/2010/

032510_HAMP/TESTIMONY–Dodaro.pdf (noting 

that 32% of trial modifications lasting three months 

or more had been approved for conversion into 

permanent modifications). 

39See, e.g., CRL at 3 (noting that MARS have 

flourished as ‘‘consumers’ demand for relief 

outpaces the capacity of mortgage servicers and 

government programs alike’’); The Recently 

Announced Revisions to the Home Affordable 

Modification Program (HAMP): Hearing Before the 

Subcomm. on Hous. & Cmty. Opportunity of the H. 

Comm. on Fin. Servs., 111th Cong. 131 (2010) 

(statement of Alan White, Assistant Professor, 

Valparaiso Univ.), available at http://financial

services.house.gov/Media/file/hearings/111/

Printed%20Hearings/111-122.pdf. (‘‘Modification 

requests are languishing for as long as a year, 

servicers repeatedly ask borrowers to resubmit 

documentation that has been lost or become 

outdated, and housing counselors and mediators are 

unable to get timely information and responses 

from servicers.’’); NCLC (ANPR) at 2 (noting that 

servicers have failed to meet borrower demand for 

loan modifications); NAAG (ANPR) at 7 (noting that 

borrowers have had difficulty reaching servicers 

and obtaining their assistance). 

40See, e.g., Holding Banks Accountable: Are 

Treasury and Banks Doing Enough to Help Families 

Save Their Homes?: Hearing Before the S. 

Subcomm. on Fin. Servs. & Gen. Gov’t of the S. 

Comm. on Appropriations, 111th Cong. (2010) 

(statement of Timothy Geithner, Sec’y, Dep’t of the 

Treasury) (‘‘[W]e do not believe that servicers are 

doing enough to help homeowners.’’) 

41See MARS ANPR, 74 FR at 26134–35. 

42See, e.g., Safe Mortgage Licensing Act: HUD 

Responsibilities Under the Safe Act, Proposed Rule, 

74 FR 66548, 66554 (Dec. 15, 2009) (‘‘HUD has seen 

a substantial increase in the number of third-party 

actors (i.e., individuals other than lenders and loan 

servicers) offering their services as intermediaries 

putatively to work on behalf of borrowers to 

negotiate modifications of existing loan terms.’’); 

NAAG (ANPR) at 2 (‘‘[T]he [loan modification] 

consulting business model is dominating the 

marketplace. Consultants are by far the most 

common source of consumer complaints received 

by our offices in the area of mortgage assistance 

services.’’); OH AG (ANPR) at 2 (‘‘For those 

companies that actually do put some effort into 

helping the consumer, the most common business 

model is an offer to negotiate a loan modification 

or repayment plan with the consumer’s servicer.’’); 

CRC (ANPR) at 1 (‘‘In California, advertisements 

promising loan modification success are 

inescapable.’’); FinCEN, Loan Modification and 

Foreclosure Rescue Scams—Evolving Trends and 

lenders and servicers have approved 

roughly 500,000 permanent loan 

modifications.31 The Treasury 

Department has also recently expanded 

the MHA program to assist more 

borrowers, for example, by introducing 

additional incentives for servicers to 

write down the outstanding principal 

balance for borrowers who are ‘‘under 

water,’’ that is, who owe more on their 

mortgages than the value of their 

homes.32

On April 5, 2010, the Administration 

launched the Home Affordable 

Foreclosure Alternatives (HAFA) 

Program, which provides servicers with 

incentives to enter into short sales or 

deeds-in-lieu of foreclosure transactions 

with consumers who do not qualify for 

a loan modification under the MHA 

program.33 In addition, state and local 

governments, nonprofit organizations, 

housing counselors, and private sector 

entities34 have offered a variety of other 

programs and services to help 

homeowners in financial distress.35

Despite these public and private 

programs and services, consumers also 

continue to seek assistance from forprofit companies who act as 

intermediaries between consumers and 

their lenders or servicers in obtaining 

mortgage assistance relief services— 

including loan modifications. This may 

be happening for a number of reasons. 

First, MARS have been advertised and 

marketed widely in mass media and 

online, with the result that consumers 

may be more aware of the services 

offered by for-profit entities than they 

are of other available programs. Second, 

many consumers who are seeking loan 

modifications or other relief are not 

eligible for the MHA program or other 

government and private assistance 

programs. While the Treasury 

Department has estimated that the MHA 

program will help 3–4 million 

borrowers by February 2012,36 industry 

reports estimate that roughly twice that 

number of mortgage loans currently are 

in delinquency or foreclosure.37 Third, 

even among consumers who may be 

eligible to obtain a temporary loan 

modification under the MHA program, 

many do not qualify for a permanent 

loan modification.38 Fourth, even if 

consumers are eligible for government 

programs or assistance directly from 

their servicers or lenders, many housing 

counselors and servicers have struggled 

to respond in a timely manner to the 

extraordinary number of consumers 

who are seeking loan modifications.39

Finally, the Treasury Department also 

has observed that some servicers have 

not adequately met consumer demand 

for loan modifications under the HAMP 

program.40

Many consumers who have been 

unable to obtain mortgage assistance 

relief services through their own efforts 

have turned to for-profit MARS 

providers for help. Providers promoting 

their ability to negotiate with lenders 

and servicers to obtain loan 

modifications or some other type of 

mortgage relief have proliferated in the 

past few years.41 Responding to 

consumer demand, many providers 

have promised to obtain loan 

modifications,42 but others have begun 


jlentini on DSKJ8SOYB1PROD with RULES6
Federal Register / Vol. 75, No. 230 / Wednesday, December 1, 2010 / Rules and Regulations 75095 

Patterns in Bank Secrecy Act Reporting 10 (May 

2010), available at http://www.fincen.gov/news_

room/rp/files/MLFLoanMODForeclosure.pdf 

(FinCEN Report) (‘‘Reports of foreclosure rescue 

scams increased substantially in the last eight 

months of calendar year 2009.’’). 

43Although the dominant trend among MARS 

providers is to offer loan modifications, over the 

past few years some providers also have offered 

other purported types of loss mitigation and 

foreclosure avoidance. See, e.g., FTC v. Foreclosure 

Solutions, LLC, No. 1:08–cv–01075 (N.D. Ohio filed 

Apr. 28, 2008) (alleging that provider offered to stop 

foreclosure proceedings and secure workout plans 

with consumers’ lenders or servicers); FTC v. 

Mortgage Foreclosure Solutions, Inc., No. 8:08-cv388–T–23EAJ (M.D. Fla. filed Feb. 26, 2008) (same). 

Providers may adjust their marketing to offer newlyminted forms of mortgage relief—for example, the 

possibility of entering a short sale under the HAFA 

program. See, e.g., Illinois v. Home Foreclosure 

Solutions LLC, No. 08CH43259 (Ill. Cir. Ct. Cook 

County 2008) (alleging MARS provider offered to 

assist consumers to enter short sales). Another new 

variation of MARS is charging an advance fee to 

purportedly ‘‘eliminate’’ mortgage debts by 

challenging the legality of the original mortgages. 

See FinCEN, Foreclosure Rescue Fraud Report May 

2010, supra note 42 at 9. MARS providers also have 

offered ‘‘sale-leaseback’’ or ‘‘title reconveyance’’ 

transactions. In these transactions, MARS providers 

instruct consumers to transfer title to their homes 

to the providers and then the consumers rent the 

homes from them. The providers promise to 

reconvey title at some later date, yet often do not 

do so, thereby taking the equity in the homes. Saleleaseback and title reconveyance transactions 

appear to have become less prevalent, in part 

because many consumers do not have sufficient 

equity in their homes to make this strategy 

profitable. See, e.g., FinCEN, Foreclosure Rescue 

Fraud Report May 2010, supra note 42 at 4. 

44See FTC Case List. Some of these small and 

relatively new businesses are law firms. For 

example, NCLC surveyed members of the National 

Association of Consumer Advocates (NACA) and 

the National Association of Consumer Bankruptcy 

Attorneys (NACBA); 298 attorneys responded that 

they provided some form of MARS. NCLC at 5; see 

also IRELA at 1 (stating that many of the 2,000 

members of the Illinois Real Estate Lawyers 

Association are ‘‘engaged in the process of trying to 

assist their consumer clients in dealing with 

foreclosures, mortgage loan workouts, and related 

matters’’). 

45See, e.g., U.S. Gov’t Accountability Office, 

GAO–10–787, Federal Efforts to Combat 

Foreclosure Rescue Schemes are Under Way, but 

Improved Planning Elements Could Enhance 

Progress 12–16 (July 2010) (‘‘GAO Report’’) (noting 

that data on MARS providers is limited); NAAG 

(ANPR) at 3 (‘‘It is difficult to gather exact empirical 

data on companies providing loan modification and 

foreclosure rescue services due to the 

predominance of Internet-based companies and 

their ephemeral nature.’’); OH AG (ANPR) at 2 

(‘‘There is little reliable data about the foreclosure 

rescue industry.’’); CRL at 3 (‘‘With few barriers to 

entry and little to no oversight, scams are 

flourishing in the current environment.’’). 

46See NAAG (ANPR) at 4 (noting that state 

attorneys general have investigated more than 450 

MARS providers); FTC Case List, supra note 28; 

Press Release, FTC, Federal and State Agencies 

Crack Down on Mortgage Modification and 

Foreclosure Rescue Scams (Apr. 6, 2009), available 

at http://www.ftc.gov/opa/2009/04/hud.shtm 

(reporting that the Commission sent warning letters 

to 71 companies offering MARS). 

47See, e.g., infra notes 48–49; GAO Report, supra 

note 45, at 7 (noting that MARS typically charge a 

fee of thousands of dollars); Dargon at 2 (‘‘We charge 

$2,500 as a flat fee’’ in advance.); CRC (ANPR) at 

2 (‘‘The average fee that we are seeing borrowers 

charged is $3,000; we have seen fees as high as 

$9,500. In nearly every instance, these fees are 

charged up front, before any services have been 

rendered.’’); NCRC (ANPR) at 3 (noting that 

‘‘[t]ypically, loan modification companies request a 

significant fee upfront’’ and that a study performed 

by NCRC ‘‘documented a median fee of $2,900,’’ 

although ‘‘[f]ees ranged as high as $5,600’’); NCLR 

(ANPR) at 1 (observing fees as high as $8,000); 

NCLC (ANPR) at 5–6 (estimating typical advance 

fees to be between $2,000 and $4,000). 

48See, e.g., supra note 47; FTC v. Infinity Group 

Servs., No. SACV09–00977 DOC (MLGx) (C.D. Cal. 

filed Aug. 26, 2009); FTC v. Freedom Foreclosure 

Prevention Specialists, LLC, No. 2:09–cv–01167– 

FJM (D. Ariz. June 1, 2009); FTC v. Fed. Loan 

Modification Law Ctr., LLP, No. SACV09–401 CJC 

(MLGx) (C.D. Cal. filed Apr. 3, 2009). 

49See, e.g., FTC v. Truman Foreclosure 

Assistance, LLC, No. 09–23543 (S.D. Fla. filed Nov. 

23, 2009); FTC v. Washington Data Res., Inc., No. 

8:09-cv-02309–SDM–TBM (M.D. Fla. filed Nov. 12, 

2009); FTC v. First Universal Lending, LLC, No. 09– 

CV–82322, Mem. Supp. TRO at 5 (S.D. Fla. filed 

Nov. 24, 2009); see also, e.g., Dargon at 2; Rogers 

at 13. 

50See, e.g., LFSV at 2 (‘‘[W]e have seen MARS 

providers who are effectively evading the advance 

fee prohibition in California law by charging for 

their ‘services’ in ‘phases.’ ’’); NAAG at 3; LCCR at 

5; see also FTC v. Debt Advocacy Ctr., LLC, No. 

1:09CV2712 (N.D. Ohio filed Nov. 19, 2009). 

51See, e.g., NCLC (ANPR) at 3 (‘‘Some 

modification firms claim superior expertise even 

though there are no recognized qualifications other 

than the training programs offered by HUD to 

certified agencies. Instead, some for-profit entities 

tout their experience as mortgage industry 

insiders.’’); NAAG (ANPR) at 4; FTC v. Fed Housing 

Modification Dep’t, No. 09–CV–01759 (D.D.C. filed 

Sept. 15, 2009) (alleging defendants’ Web sites state 

that many of their ‘‘skilled negotiators’’ have 

‘‘worked for the lenders they are dealing with’’); FTC 

v. US Foreclosure Relief Corp., No. SACV09–768 

JVS (MGX), Mem. Supp. TRO. at 4–5 (C.D. Cal. filed 

July 7, 2009) (alleging that defendants ‘‘boasted of 

twenty years’ experience’’ and that they had 

‘‘extensive experience in the industry’’); FTC v. 

Truman Foreclosure Assistance, LLC, No. 09– 

23543, Mem. Supp. P.I. at 20 (S.D. Fla. filed Nov. 

23, 2009) (alleging that defendants’ Web sites 

represented that they have ‘‘extensive loss 

mitigation experience’’ and that ‘‘they are led by a 

seasoned and proven team of professionals’’); see 

also FTC v. LucasLawCenter ‘‘Inc.’’, No. 09–CV–770 

(C.D. Cal filed July 7, 2009). 

52See, e.g., NCLC (ANPR) at 11 (‘‘Mortgage 

brokers—often cited as one of the driving forces in 

the growth of bad subprime loans—are in demand 

to work for loan modification companies. One 

MARS advertised for consultants with mortgage and 

real estate experience to join its cadre of loan 

modification specialists.’’); GAO Report, supra note 

45, at 10 (‘‘Federal and state officials and 

representatives of nonprofit organizations told us 

that persons who have conducted foreclosure 

rescue schemes include former mortgage industry 

professionals who had been involved in the 

subprime market. * * *’’). 

53See generally Greenfield; Deal; Giles. See also 

NCLC at 4. 

54See, e.g., NAAG at 3–4 (‘‘We have noticed that 

national companies are recruiting for attorney 

‘‘partners’’ or ‘‘local counsel’’ in all of the states they 

work in to evade states’ mortgage rescue fraud 

statutes.’’); IL AG at 1; FTC v. Loss Mitigation Servs., 

Inc., No. SACV09–800 DOC (ANX), Mem. Supp. 

Pls. Ex Parte App. at 3 (Aug. 3, 2009) (alleging that 

defendants engaged in ‘‘misrepresentations 

prohibited by the TRO, behind a new facade: the 

‘Walker Law Group,’’’ which was ‘‘nothing more 

than a sham legal operation designed to evade state 

law restrictions on the collection of up-front fees for 

loan modification and foreclosure relief’’); FTC v. 

LucasLawCenter ‘‘Inc.’’, No. SACV–09–770 DOC 

(ANX) (C.D. Cal. filed July 7, 2009); FTC v. Data 

Med. Capital Inc., No. SA–CV–99–1266 AHS (Eex) 

(C.D. Cal., contempt application filed May 27, 

2009); FTC v. US Foreclosure Relief Corp., No. 

SACV09–768 JVS (MGX) (C.D. Cal. filed July 7, 

2009); FTC v. Fed. Loan Modification Law Ctr., LLP, 

No. SACV09–401 CJC (MLGx) (C.D. Cal. filed Apr. 

3, 2009); see also Cincinnati Bar Assoc. v. Mullaney, 

119 Ohio St. 3d 412 (2008) (disciplining attorneys 

involved in mortgage assistance relief services). 

55See supra note 54. The experiences detailed in 

one comment from an attorney illustrate the role 

Continued 

to market short sales and other forms of 

relief.43 The Commission’s law 

enforcement experience shows that 

MARS providers typically are small and 

relatively new businesses,44 and thus it 

is difficult to estimate their numbers.45

Based on the law enforcement actions 

brought by the FTC and the states, 

however, it appears that there are over 

500 such providers in the United 

States.46

Typically, MARS providers charge 

consumers hundreds or thousands of 

dollars 47 in advance fees, i.e., fees prior 

to providing their services. In its law 

enforcement actions, the FTC has 

observed that some providers collect 

their entire fee at the beginning of the 

transaction,48 while others collect two 

to three large installment payments from 

consumers.49 NAAG and other 

commenters also stated that many 

MARS providers have begun to offer 

their services piecemeal, collecting fees 

upon reaching various stages in the 

process, such as assembling the 

documentation required by the lender or 

servicer, mailing paperwork to the 

lender or servicer, and negotiating with 

a lender’s loss mitigation department.50

As discussed in the ANPR and NPRM, 

MARS providers often claim to possess 

specialized knowledge of the mortgage 

lending industry,51 sometimes touting 

their hiring of former mortgage brokers 

and real estate agents 52 to bolster their 

claims of purported expertise. In 

addition, some attorneys—including 

solo practitioners and small law firms 

that represent financially distressed 

individuals—increasingly have been 

offering MARS in connection with their 

legal practice.53

A number of non-attorney MARS 

providers are employing or affiliating 

with lawyers, with the providers 

representing that they are offering 

traditional legal services.54 Although 

these providers often tout the expertise 

of these attorneys in negotiating with 

lenders and servicers, in many instances 

the attorneys do little or no bona fide 

legal work.55 In some cases, MARS 


jlentini on DSKJ8SOYB1PROD with RULES6
75096 Federal Register / Vol. 75, No. 230 / Wednesday, December 1, 2010 / Rules and Regulations 

that attorneys play or have been asked to play in 

connection with MARS: 

I had numerous non-attorney modification 

companies ask me to serve as their lawyer and 

accept a flat fee on each file. I would get this money 

and do little or no work for it. In some cases I would 

take in the advance fee and then disburs[e] a share 

to the loan officer producing the deal and a share 

to the company actually doing the work. Or I would 

be collecting the advance fee and then holding all 

or part of it in my trust account until the 

modification was completed. I declined to get 

involved in such arrangements. 

Deal at 6. 

56See, e.g., MN AG at 2 (‘‘Recently, so-called 

forensic loan auditors have emerged as a new type 

of mortgage assistance relief ‘service.’’’); 1st ALC at 

3 (MARS provider stating it engages in forensic 

audits); Dargon at 2 (same); see also FTC v. Debt 

Advocacy Ctr., LLC, No. 1:09CV2712 (N.D. Ohio 

Am. Compl. filed May 14, 2010) (alleging 

defendants purporting to offer forensic audits 

misrepresented that ‘‘between 80–90% of all loans 

[they] have audited have some form of rights 

violations’’); FTC v. Data Med. Capital Inc., No. SA– 

CV–99–1266 AHS (Eex), Mem. Supp. App. 

Contempt at 18 (C.D. Cal. filed May 27, 2009); FTC 

v. Fed. Loan Modification Law Ctr., LLP, No. 

SACV09–401 CJC (MLGx) (C.D. Cal. filed Apr. 3, 

2009). 

Since publication of the NPRM, the Commission 

has released an alert to warn consumers about 

entities purporting to provide forensic audits. FTC, 

Forensic Mortgage Loan Audit Scams: A New Twist 

on Foreclosure Rescue Fraud (Mar. 2010), available 

at http://www.ftc.gov/bcp/edu/pubs/consumer/ 

alerts/alt177.shtm; see also, e.g., Cal. Dep’t of Real 

Estate, Consumer Alert 6 (Mar. 2009) (warning 

consumers of ‘‘forensic loan reviews’’), available at 

http://www.dre.ca.gov/pdf_docs/ 

FraudWarningsCaDRE03_2009.pdf. 

57See supra notes 51–56; see also IL AG (ANPR) 

at 2 (‘‘Attorneys are using the [state] exemption to 

market and sell the same mortgage consulting 

services provided by non-attorneys.’’). 58Press Release, Office of the Att’y Gen., Cal. 

Dep’t of Justice, Brown Alerts Homeowners that 

New Law Prohibits Up-front Fees for Foreclosure 

Relief Services (Oct. 15, 2009), available at http:// 

ag.ca.gov/newsalerts/release.php?id=1821. 

59See State Bar of Cal., Ethics Alert: Legal 

Services to Distressed Homeowners and Foreclosure 

Consultants on Loan Modifications (‘‘Cal. State Bar 

Ethics Alert’’) 2, Ethics Hotliner (Feb. 2, 2009), 

available at http://www.calbar.ca.gov/calbar/pdfs/ 

ethics/Ethics-Alert-Foreclosure.pdf ; see also 

Florida Bar, Ethics Alert: Providing Legal Services 

to Distressed Homeowners 1, available at http:// 

www.floridabar.org/TFB/TFBResources.nsf/ 

Attachments/ 

872C2A9D7B71F05785257569005795DE/$FILE/ 

loanModification20092.pdf?OpenElement (‘‘The 

Florida Bar’s Ethics Hotline recently has received 

numerous calls from lawyers who have been 

contacted by non-lawyers seeking to set up an 

arrangement in which the lawyers are involved in 

loan modifications, short sales, and other 

foreclosure-related rescue services on behalf of 

distressed homeowners. * * * The [Florida] 

Foreclosure Rescue Act * * * imposed restrictions 

on non-lawyer loan modifiers to protect distressed 

homeowners. The new statute appears to be the 

impetus for these inquiries.’’). 

60Cal Civ. Code § 2944.7; see also Press Release, 

Office of the Att’y Gen.l, Cal. Dep’t of Justice, Brown 

Alerts Homeowners that New Law Prohibits Upfront Fees for Foreclosure Relief Services (Oct. 15, 

2009), available at http://ag.ca.gov/newsalerts/ 

release.php?id=1821. 

61See FTC Case List, supra note 28. 

62NAAG (ANPR) at 4; IL AG (ANPR) at 1 (noting 

that Illinois has over 240 open investigations of 

MARS providers and filed 28 lawsuits against 

them); Press Release, FTC, Federal and State 

Agencies Target Mortgage Relief Scams (Nov. 24, 

2009) (announcing 118 actions by 26 federal and 

state agencies), available at http://www.ftc.gov/opa/ 

2009/11/stolenhope.shtm; Press Release, FTC, 

Federal and State Agencies Target Mortgage 

Foreclosure Rescue and Loan Modification Scams 

(July 15, 2009) (announcing operation involving 189 

actions by 25 federal and state agencies), available 

at http://www.ftc.gov/opa/2009/07/loanlies.shtm; 

Press Release, Financial Fraud Enforcement Task 

Force, Financial Fraud Enforcement Task Force 

Announces Results of Broadest Mortgage Fraud 

Sweep in History (June 17, 2010), available at 

http://www.stopfraud.gov/news/news-06172010– 

02.html. 

63See infra notes 92–96 and accompanying text. 

64See, e.g., LFSV at 1 (‘‘During the recent 

mortgage crisis, we have been dealing with a flood 

of borrowers whose mortgages are distressed and 

who have been subject to abuses by companies and 

individuals promising assistance with obtaining 

modification of those loans.’’) 

65See Consumer Fed’n of Am. et al., 2009 

Consumer Complaint Survey Report 3 (July 27, 

2010), available at http://www.consumerfed.org/ 

elements/www.consumerfed.org/File/ 

Consumer_Complaint_Survey_Report2009.pdf. 

66The FTC procured information from a media 

monitoring company on the occurrence of broadcast 

advertising for MARS. The company located 68 

radio ads and 71 television and cable ads 

containing the terms ‘‘save your home,’’ ‘‘mortgage 

modification,’’ or ‘‘loan modification.’’ These ads 

aired between the dates of September 1, 2008 and 

September 1, 2010. These ads were attributable to 

139 different companies. 

67See FTC v. Fed. Loan Modification Law Ctr., 

LLP, No. SACV09–401 CJC (MLGx), Mem. Supp. Ex 

Parte TRO at 6–7 (C.D. Cal. filed Apr. 6, 2009). 

68 Id. at 6–8. 

69See FTC v. Loss Mitigation Servs., Inc., No. 

SACV–09–800 DOC (ANX), Mem. Supp. TRO at 7 

(C.D. Cal filed Jul. 13, 2009). 

70See, e.g., FTC v. First Universal Lending, LLC, 

No. 09–CV–82322, Mem. Supp. TRO at 4–5 (S.D. 

Fla. filed Nov. 24, 2009); FTC v. 1st Guar. Mortgage 

Corp., No. 09–DV–61846 (S.D. Fla. filed Nov. 17, 

2009); FTC v. Freedom Foreclosure Prevention 

providers also offer ‘‘forensic audits,’’ 

during which attorneys purportedly 

conduct a legal analysis of mortgage 

loan documents to find law violations, 

thereby supposedly helping consumers 

acquire leverage over their lenders or 

servicers to obtain a better loan 

modification.56 Providers offering 

forensic audits also assert that, because 

of their relationships with attorneys, 

state laws that prohibit non-attorneys 

from collecting advance fees for loan 

modification services do not apply to 

them.57 For example, California law 

previously imposed a number of 

restrictions on ‘‘foreclosure consultants,’’ 

but allowed ‘‘licensed attorneys * * * 

[to] charge advance fees under certain 

limited circumstances.’’ 58 The State Bar 

of California subsequently observed that 

‘‘foreclosure consultants may be 

attempting to avoid the statutory 

prohibition on collecting a fee before 

any services have been rendered by 

having a lawyer work with them in 

foreclosure consultations.’’ 59 California 

has since passed a new law that 

removes this attorney exemption.60

B. Unfair or Deceptive Practices in the 

Marketing of MARS 

The FTC, state attorneys general, and 

other law enforcement agencies, have 

extensive experience with MARS 

providers. In the past three years, the 

Commission has filed 32 law 

enforcement actions against providers of 

loan modification and foreclosure 

rescue services.61 State attorneys 

general have investigated at least 450 

MARS providers and sued hundreds of 

them for alleged state law violations.62

Additionally, the Department of Justice 

and other agencies, working both 

individually and jointly, have pursued 

MARS providers for illegal conduct.63

As discussed in more detail below, the 

evidence in the record, including 

extensive law enforcement experience, 

demonstrates that the unfair or 

deceptive practices of MARS providers 

are widespread and are causing 

substantial consumer harm.64 Indeed, 

one recent survey of state and local 

consumer agencies found that the fastest 

growing category of consumer 

complaints concerned the failure of 

MARS providers to fulfill their promises 

to help save consumers’ homes from 

foreclosure.65

MARS providers commonly initiate 

contact with prospective customers 

through Internet, radio, television, or 

direct mail advertising.66 Although 

MARS providers did not submit 

information for the record relating to the 

extent and cost of their marketing 

efforts, they appear to use a variety of 

media to target large numbers of 

consumers who are struggling to pay 

their mortgages. For example, one 

MARS provider that was the subject of 

an FTC enforcement action spent $9 

million in one year to broadcast 

deceptive advertisements nationwide on 

major television and cable networks, as 

well as on radio stations and the 

Internet.67 Typical MARS 

advertisements instruct consumers to 

call a toll-free telephone number or to 

e-mail the provider. One provider’s 

advertisements allegedly yielded 1,500 

inbound calls per day.68 Another such 

provider disseminating direct mail 

advertisements reported receiving 

approximately 500 inbound calls per 

day.69

Customary representations in the ads 

and ensuing telemarketing and email 

pitches claim that the MARS provider 

(1) will obtain for the consumer a 

substantial reduction in a mortgage 

loan’s interest rate, principal amount, or 

monthly payments; (2) will achieve 

these results within a specific period of 

time; 70 (3) has special relationships 


jlentini on DSKJ8SOYB1PROD with RULES6
Federal Register / Vol. 75, No. 230 / Wednesday, December 1, 2010 / Rules and Regulations 75097 

Specialists, LLC, No. 2:09–cv–01167–FJM (D. Ariz. 

filed June 1, 2009); FTC v. Fed. Loan Modification 

Law Ctr., LLP, No. SACV09–401 CJC (MLGx) (C.D. 

Cal. filed Apr. 3, 2009). 

71See, e.g., FTC v. Debt Advocacy Ctr., LLC, No. 

1:09CV2712 (N.D. Ohio filed Nov. 19, 2009); FTC 

v. 1st Guar. Mortgage Corp., No. 09–DV–61846 (S.D. 

Fla filed Nov. 17, 2009); FTC v. LucasLawCenter 

‘‘Inc.,’’ No. SACV–09–770 DOC (ANX) (C.D. Cal. 

filed July 7, 2009); FTC v. US Foreclosure Relief 

Corp., No. SACVF09–768 JVS (MGX) (C.D. Cal. filed 

July 7, 2009). 

72See, e.g., FTC v. Dominant Leads, LLC, No. 

1:10–cv–00997 (D.D.C. filed June 16, 2010) (alleging 

that defendants’ Web sites featured official 

government seals and logos, and deceptively 

appeared to be affiliated with the government); FTC 

v. Washington Data Res., Inc., No. 8:08–cv–02309– 

SDM–TBM (M.D. Fla. filed Nov. 12, 2009) (alleging 

that defendants falsely represented that they were 

affiliated with the United States government); FTC 

v. Fed. Housing Modification Dep’t, No. 09–CV– 

01753 (D.D.C. filed Sept. 15, 2009); FTC v. Sean 

Cantkier, No. 1:09–cv–00894 (D.D.C. filed July 10, 

2009) (alleging defendants placed advertisements 

on Internet search engines that refer consumers to 

Web sites that deceptively appear to be affiliated 

with government loan modification programs); FTC 

v. Thomas Ryan, No. 1:09–00535 (HHK) (D.D.C. 

filed Mar. 25, 2009); FTC v. Fed. Loan Modification 

Law Ctr., LLP, No. SACV09–401 CJC (MLGx) (C.D. 

Cal. filed Apr. 3, 2009) (charging defendant with 

misrepresenting that it is part of or affiliated with 

the federal government); see also LOLLAF at 2 

(‘‘Other clients have been deceived into believing 

the MARS provider will assist them because it 

claimed to be a ‘non-profit,’ used a government 

symbol or claimed to be affiliated with the HOPE 

hotline.’’); OH AG (ANPR) at 4 (‘‘Our office has seen 

many companies that have names or advertisements 

that make it sound like they are government 

sponsored.’’); NCLC (ANPR) at 3 (‘‘One website, 

USHUD.com, even claims to be ‘America’s Only 

Free Foreclosure Resource’ even though HUDcertified agencies also offer free assistance 

regardless of income.’’). 

73See FTC v. New Hope Prop. LLC, No. 1:90–cv– 

01203–JBS–JS (D.N.J. filed Mar. 17, 2009); FTC v. 

New Hope Modifications, LLC, No.1:09–cv–01204– 

JBS–JS (D.N.J. filed Mar. 17, 2009). 

74See, e.g., FTC v. Kirkland Young, LLC, No. 09– 

23507 (S.D. Fla. filed Nov. 18, 2009) (alleging that 

defendants falsely represented an affiliation with 

borrowers’ lenders); FTC v. Loss Mitigation Servs., 

Inc., No. SACV–09–800 DOC (ANX) (C.D. Cal. filed 

July 13, 2009) (alleging that defendants deceptively 

claimed affiliation with consumers’ lenders); see 

also Am. Bankers Ass’n (ANPR) at 7 (‘‘They often 

misuse the intellectual property of lenders and 

servicers by claiming in mailings, on Web sites, and 

in other communications that they either are 

affiliated with the lenders and servicers or have 

special relationships with them that do not exist. 

They use the names, trademarks and logos of these 

lenders and servicers in their advertising to deceive 

consumers into believing they can obtain 

modification relief for them that these consumers 

could not otherwise obtain for themselves at no 

cost.’’); Chase (ANPR) at 3 (‘‘These MARS entities 

also may lead the borrower to believe that they are 

associated with the servicer or that they have 

special agreements with the servicer for processing 

loan modifications, when, in fact, they do not.’’). 

75See, e.g., FTC v. Truman Foreclosure 

Assistance, LLC, No. 09–23543 (S.D. Fla. filed Nov. 

23, 2009) (alleging defendants falsely claimed 

success rate of 97 to 100%); FTC v. Debt Advocacy 

Ctr., LLC, No. 1:09CV2712 (N.D. Ohio filed Nov. 19, 

2009) (alleging defendants falsely claimed a 90% 

success rate); FTC v. Loss Mitigation Servs., Inc., 

No. SACV09–800 DOC (ANX) (C.D. Cal. filed July 

13, 2009) (alleging ‘‘[d]efendants have told 

homeowners that their success rate is above ninety 

percent’’); FTC v. LucasLawCenter ‘‘Inc.,’’ No. 

SACV–09–770 DOC (ANX) (C.D. Cal. filed July 7, 

2009) (alleging ‘‘[d]efendants’ representatives tell 

consumers that Defendants have a success rate in 

the ninetieth percentile with their lender’’); FTC v. 

Freedom Foreclosure Prevention Specialists, LLC, 

No. 2:09–cv–01167–FJM (D. Ariz. filed June 1, 

2009) (alleging defendants claimed to have 97% 

success rate); FTC v. Data Med. Capital Inc., No. 

SA–CV–99–1266 AHS (Eex), Mem. Supp. App. 

Contempt at 8 (C.D. Cal. filed May 27, 2009) 

(alleging defendants represented 100% success rate 

to consumers). 

The Loan Modification Scam Prevention Network 

(LMSPN)—a coalition of Federal and state 

organizations led by the Lawyers’ Committee for 

Civil Rights—has created a nationwide complaint 

reporting system for loan modification fraud. The 

Network, formed in February 2010, has received 

complaints through a variety of channels, including 

a form posted on its Web site, the Homeowners’ 

Hope Hotline, and referrals from non-profit housing 

counselors. As of August 25, 2010, the LMSPN 

database contained a total of 6,473 complaints of 

loan modification fraud, dating as far back as April 

8, 2008. FTC staff reviewed a random sample of 100 

of these complaints and found that 63 reported that 

MARS providers had guaranteed consumers loan 

modifications. In projecting this finding to the 

entire LMSPN database, the FTC estimates that 

between 52% and 72% of the complaints report the 

same information. 

76 In a recent report summarizing the results of 

undercover calls made to MARS providers, the 

National Community Reinvestment Coalition 

(NCRC) found that in 54% of the calls the providers 

did not inform consumers about their fees. See 

NCRC, Foreclosure Rescue Scams: A Nightmare 

Complicating the American Dream, at 21 (Mar. 

2010) (‘‘NCRC Report’’), available at http:// 

www.ncrc.org/images/stories/pdf/research/ 

foreclosure%20rescue%20scams%20- 

%20%20nightmare%20complicating%20the

%20american%20dream.pdf. 

77See, e.g., FTC v. Truman Foreclosure 

Assistance, LLC, No. 09–23543 (S.D. Fla. filed Nov. 

23, 2009) (alleging that defendant falsely claimed to 

provide ‘‘100% money back guarantee’’); Debt 

Advocacy Ctr., LLC, No. 1:09CV2712 (N.D. Ohio 

filed Nov. 19, 2009) (alleging that defendants falsely 

represented they will refund borrower fee if 

unsuccessful); FTC v. Infinity Group Servs., No. 

SACV09–00977 DOC (MLGx) (C.D. Cal. filed Aug. 

26, 2009); FTC v. Loan Modification Shop, Inc., No. 

3:09–cv–00798 (JAP), Mem. Supp. TRO at 1 (D.N.J. 

amended complaint filed Aug. 4, 2009) (alleging 

defendants represented that advance fees were fully 

refundable); FTC v. Freedom Foreclosure 

Prevention Specialists, LLC, No. 2:09–cv–01167– 

FJM (D. Ariz. June 1, 2009) (alleging defendants 

promised ‘‘100% money-back guarantee’’ but then 

failed to provide refunds); see also NAAG at 2 

(‘‘[MARS providers] generally ignore their own 

refund policies. In the vast majority of complaints 

received by our offices, consumers were unable to 

get refunds even though the consultants performed 

little or no work and had promised consumers 

money-back guarantees. In some cases, the 

companies had closed or changed locations by the 

time the consumers discovered there was a 

problem, thereby preventing the consumers from 

even requesting a refund.’’); see also, e.g., FTC v. 

Home Assure, LLC, No. 8:09–CV–00547–T–23T– 

Sm, Mot. S.J., App.1 at 6 (M.D. Fla. filed Jan. 25, 

2010) (Expert Report of Dr. Kivetz survey reporting 

that 56% of consumers requested that defendant 

provide a refund; 65% of those who requested a 

refund did so because defendant failed to perform 

its services; but only 12% of consumers who 

requested refunds received them). 

78See, e.g., infra Section III.E.2.a.; LOLLAF at 1 

(‘‘We have worked with many homeowners who 

have paid money to a Mortgage Assistant Relief 

Services (MARS) provider, only to discover that 

they received absolutely no service in exchange for 

the fee.’’); CMC (ANPR) at 1 (‘‘CMC members and 

other mortgage servicers found that MARS 

providers consistently misrepresent their ability to 

obtain concessions from servicers * * *.’’); Chase 

(ANPR) at 3 (‘‘They collect their fees up-front and 

promise the borrower they can get a loan 

modification or other foreclosure relief, when, in 

fact, this is only a determination that the servicer 

can make after reviewing the borrower’s financial 

information and investor agreements.’’). 

79See, e.g., FTC v. Truman Foreclosure 

Assistance, LLC, No. 09–23543 (S.D. Fla. filed Nov. 

23, 2009) (alleging that defendant often failed to 

return borrowers’ phone calls and failed to contact 

and negotiate with lenders); FTC v. Apply2Save, 

Inc., No. 2:09–cv–00345–EJL–CWD (D. Idaho filed 

July 14, 2009) (complaint alleging that ‘‘[m]any 

consumers learned from their lenders that 

Defendants had not even contacted the lender or 

that Defendants had only minimal, non-substantive 

contact with the lender’’); FTC v. Loss Mitigation 

Servs., Inc., No. SACV09–800 DOC (ANX) (C.D. Cal. 

filed July 13, 2009) (alleging that ‘‘[d]efendants have 

misrepresented that negotiations were underway, 

although Defendants had not yet contacted the 

lender’’); FTC v. LucasLawCenter ‘‘Inc.’’, No. SACV– 

09–770 DOC (ANX), Mem. Supp. TRO at 19 (C.D. 

Cal. filed July 7, 2009) (alleging that consumers who 

contact their lenders ‘‘learn that [Defendant] never 

even contacted the lender, or merely verified the 

consumer’s loan information’’); FTC v. Freedom 

Foreclosure Prevention Specialists, LLC, No. 2:09– 

cv–01167–FJM (D. Ariz. June 1, 2009) (alleging that 

defendants failed to act on homeowners’ cases for 

more than four to six weeks without completing— 

or in some cases, even starting—negotiations and 

‘‘failed to return consumers’ repeated telephone 

calls, even when homeowners were on the brink of 

foreclosure’’). 

80See, e.g., FTC v. Truman Foreclosure 

Assistance, LLC, No. 09–23543 (S.D. Fla. filed Nov. 

Continued 

with lenders and servicers; 71 and (4) is 

closely affiliated with the government,72

nonprofit programs,73 or the consumer’s 

lender or servicer.74 Providers also 

commonly represent that there is a high 

likelihood, and in some instances a 

‘‘guarantee,’’ of success.75 Many MARS 

providers do not disclose to consumers 

in their promotions the cost of their 

services.76 In some cases, MARS 

providers entice consumers to make 

substantial up-front payments with false 

claims that they will be able to obtain 

a refund if consumers do not receive an 

acceptable result.77

Based on the FTC’s law enforcement 

experience, the public comments, and 

consumer complaints, it appears that 

the vast majority of consumers do not 

receive the results MARS providers 

promise.78 After collecting their upfront fees, MARS providers often fail to 

make initial contact with the 

consumer’s lender or servicer for 

months, if at all, or to have substantive 

discussions or negotiations with the 

lender or servicer.79 In many cases, 

MARS providers fail to perform even 

the most basic promised services or 

achieve any beneficial results. 

In some cases, providers also cause 

harm to consumers by instructing them 

to stop communicating with their 

lenders and servicers.80 Consumers who 


jlentini on DSKJ8SOYB1PROD with RULES6
75098 Federal Register / Vol. 75, No. 230 / Wednesday, December 1, 2010 / Rules and Regulations 

23, 2009); FTC v. Kirkland Young, LLC, No. 09– 

23507 (S.D. Fla filed Nov. 18, 2009); FTC v. 

Washington Data Res., Inc., No. 8:09–cv–02309– 

SDM–TBM (M.D. Fla. filed Nov. 12, 2009); FTC v. 

Loss Mitigation Servs., Inc., No. SACV09–800 DOC 

(ANX) (C.D. Cal. filed July 13, 2009); FTC v. US 

Foreclosure Relief Corp., No. SACV09–768 JVS 

(MGX) (C.D. Cal. filed July 7, 2009); see also NCRC 

Report, supra note 76, at 4 (noting that, on 25% of 

its undercover calls, MARS providers instructed the 

caller to cease communicating with his or her 

lender). 

81See, e.g., FTC v. Truman Foreclosure 

Assistance, LLC, No. 09–23543 (S.D. Fla. filed Nov. 

23, 2009) (alleging that ‘‘[w]hen consumers speak 

with their lenders directly, they often discover that 

Defendants had not yet contacted the lender or only 

had left messages or had non-substantive contacts 

with the lender’’); FTC v. Loss Mitigation Servs., 

Inc., No. SACV09–800 DOC (ANX), Mem. Supp. 

TRO at 18–19 (C.D. Cal. filed July 13, 2009) 

(detailing ‘‘devastating effects’’ of consumers 

learning too late of lack of effort by loan 

modification company); CRC (ANPR) at 7 (‘‘People 

who do have a chance of keeping the home are 

being steered away from legitimate, free homeowner 

counseling services or are failing to take any action 

before it is too late because they have been assured 

everything is being taken care of for them already.’’). 

82See NAAG at 4 (‘‘We are aware of a number of 

rescue consultants who incorrectly claim that 

consumers’ lenders will not work with them until 

they are behind on their mortgage payments. We are 

also aware of consultants who advise consumers 

not to make mortgage payments so that they will 

be able to afford mortgage loan modification fees.’’); 

CUNA at 2 (consumers ‘‘are often instructed to stop 

making mortgage payments’’); NCLC at 7 (family 

told ‘‘to stop paying their mortgage payments and 

promised a loan modification with lower 

payments.’’); Rodriguez at 1 (‘‘I have had clients face 

foreclosure because of these companies telling them 

to stop paying their mortgage and pay them!’’); FTC 

v. Fed. Loan Modification Law Ctr., LLP, No. 

SACV09–401 CJC (MLGx) (C.D. Cal., Am. Compl. 

filed June 24, 2009) (‘‘In numerous instances, 

Defendants have [allegedly] encouraged consumers 

to stop paying their mortgages, telling consumers 

that delinquency will demonstrate the consumer’s 

hardship to the lender and make it easier to obtain 

a loan modification.’’); FTC v. LucasLawCenter 

‘‘Inc.’’, No. SACV–09–770 DOC (ANX) (C.D. Cal. 

filed July 9, 2009) (alleging that ‘‘[i]n numerous 

instances, Defendants’ representative encourages 

consumers to stop paying their mortgages, telling 

consumers that delinquency will demonstrate the 

consumers’ hardship to the lender and make it 

easier to obtain a loan modification.’’); FTC v. 

Foreclosure Solutions, LLC, No. 1:08–cv–01075 

(N.D. Ohio filed Apr. 28, 2008) (‘‘Defendants 

[allegedly] instruct the consumer to open a savings 

account and deposit, every month until further 

notice from Defendants, the consumer’s monthly 

mortgage payment plus an additional [25%]. 

Defendants claim this money will be used to 

negotiate with the lender to reinstate the loan.’’); see 

also FTC v. First Universal Lending, LLC, No. 09– 

CV–82322 (S.D. Fla. filed Nov. 24, 2009); FTC v. 

Fed. Housing Modification Dep’t, No. 09–CV–01753 

(D.D.C. filed Sept. 15, 2009); FTC v. Loss Mitigation 

Servs., Inc., No. SACV09–800 DOC(ANx) (C.D. Cal. 

filed July 13, 2009); FTC v. US Foreclosure Relief 

Corp., No. SACV09–768 JVS (MLGx) (C.D. Cal., 

Amd. Compl. filed Mar. 8, 2009); FTC v. New Hope 

Property LLC, No. 1:09–cv–01203–JBS–JS (D.N.J. 

filed Mar. 17, 2009); NCRC Report, supra note 76, 

at 24 (‘‘[I]n over 50% of the tests service providers 

advised testers that they should not pay their 

mortgage.’’); NAAG (ANPR) at 10 (‘‘In some cases, 

the mortgage consultants will actually counsel the 

consumer not to make a mortgage payment, which 

of course frees up funds for the consultants’ fee.’’). 

83See infra notes 89–90. 

84See, e.g., Florida v. Kirkland Young, No. 09– 

90945 (Fla. Cir. Ct. Miami-Dade Cty., filed Dec. 17, 

2009), available at http://myfloridalegal.com/

webfiles.nsf/WF/MRAY-7YXQF7/$file/

Complaint.121709.pdf. Press Release, N.C. Dep’t of 

Justice, AG Cooper Targets California Schemes that 

Prey on NC Homeowners (July 15, 2009), available 

at http://www.ncdoj.com/News-and-Alerts/NewsReleases-and-Advisories/Press-Releases/AGCooper-targets-California-schemes-that-prey-on- 

.aspx; Press Release, Colo. Att’y Gen. Office, 

Attorney General Announces Actions Against Seven 

Loan-Modification Companies As Part of Multistate 

Sweep (July 15, 2009), available at http://

www.coloradoattorneygeneral.gov/press/news/

2009/07/15/attorney_general_announces_

actions_against_seven_loan_modification_

companies_p; Press Release, Ill. Att’y Gen., Illinois 

Attorney General Sues 14th Company for Mortgage 

Rescue Fraud (Aug. 28, 2009), available at http:// 

www.illinoisattorneygeneral.gov/pressroom/

2008_08/20080828.html. 

85See, e.g., Deal at 5–6 (‘‘Some non-attorney 

modification companies claimed to have attorneys 

on staff or available to review the work or to 

negotiate with lenders. A few lawyers ‘rented’ their 

names to non-attorney MARS providers while 

providing little service.’’); IL AG (ANPR) at 1 (noting 

that ‘‘33 percent of the [MARS] companies we have 

dealt with are owned by attorneys, while 38 percent 

have some link to the legal profession’’); CRC 

(ANPR) at 2 (‘‘An increasing number of attorneys are 

involving themselves in these unethical practices 

without providing any legal (or other) services. . . 

.’’); MN AG (ANPR) at 5 (‘‘This Office is aware of 

several loan modification and foreclosure rescue 

companies that have affiliated with licensed 

attorneys in other states in an effort to circumvent 

state law.’’); NAAG (ANPR) at 4 (‘‘Attorneys * * * 

have an increasing presence in this industry and 

have been found working in conjunction with or 

serving as referral sources for mortgage 

consultants.’’). 

86See, e.g., Legislative Solutions for Preventing 

Loan Modification and Foreclosure Rescue Fraud: 

Hearing Before the Subcomm. on Hous. & Cmty. 

Opportunity of the H. Comm. on Fin. Servs., 111th 

Cong. 58 (2009) (statement of Scott J. Drexel, Chief 

Trial Counsel, State Bar of California), available at 

http://financialservices.house.gov/media/file/

hearings/111/111-28.pdf at 2, 4 (Drexel Testimony) 

(noting that attorney misconduct in connection 

with MARS ‘‘is a problem of extremely significant— 

if not crisis—proportions in California,’’ and that 

the state bar has initiated over 175 associated 

investigations of attorneys); Polyana Da Costa, 

Record Number of Complaints Target Florida Loan 

Modification Lawyers, Law.com (Oct. 1, 2009) (‘‘The 

[Florida] state attorney general has received a 

record 756 complaints through August of this year 

about loan modifications involving attorneys.’’), 

available at http://www.law.com/jsp/law/

LawArticleFriendly.jsp?id=1202434223147. 

87See, e.g., FTC v. Fed. Housing Modification 

Dep’t, No. 09–CV–01753 (D.D.C. filed Sept. 16, 

2009) (alleging that defendants falsely claim to have 

attorneys or forensic accountants on staff); FTC v. 

Loan Modification Shop, Inc., No. 3:09–cv–00798 

(JAP), Mem. Supp. TRO at 14 (D.N.J. filed Aug. 4, 

2009) (alleging that defendants misrepresent ‘‘that it 

is an attorney-based company’’); see also FTC v. 

LucasLawCenter ‘‘Inc.’’, No. SACV–09–770 DOC 

(ANX), Mem. Supp. TRO at 19 (C.D. Cal. filed July 

7, 2009) (alleging that ‘‘[d]espite promises to the 

contrary, consumers have no contact with the 

purported attorneys who are supposed to be 

negotiating with their lenders’’). 

88See, e.g., FTC v. Truman Foreclosure 

Assistance, LLC, No. 09–23543 (S.D. Fla. filed Nov. 

23, 2009); FTC v. Washington Data Res., Inc., No. 

8:09–cv–02309–SDM–TBM (M.D. Fla. filed Nov. 12, 

2009); see also FTC v. US Foreclosure Relief Corp., 

No. SACV09–768 JVS (MGX), Prelim. Rep. Temp. 

Receiver at 2–3 (C.D. Cal. filed July 7, 2009) (stating 

that defendants’ ‘‘relationship with two different 

lawyers was nominal at best and served primarily 

as a cover to dignify the business and invoke the 

attorney exception to advance fee prohibitions’’). 

89See FTC Case List, supra note 28. 

90 16 CFR 310.1, et seq. (2003); see, e.g., FTC v. 

Kirkland Young, LLC, No. 09–23507 (S.D. Fla. filed 

Nov. 18, 2009); FTC v. Washington Data Res., Inc., 

No. 8:09–cv–02309–SDM–TBM (M.D. Fla. filed 

Nov. 12, 2009); FTC v. First Universal Lending, LLC, 

No. 09–CV–82322 (S.D. Fla. filed Nov. 24, 2009); 

FTC v. Fed. Housing Modification Dep’t, No. 09– 

CV–01753 (D.D.C. filed Sept. 15, 2009); FTC v. 

Hope Now Modifications, LLC, No. 1:09–cv–01204– 

JBX–JS (D.N.J. filed Sept. 14, 2009); FTC v. US 

Foreclosure Relief Corp., No. SACV09–768 JVS 

(MGX) (C.D. Cal. filed July 7, 2009). 

91See Press Release, FTC, Federal and State 

Agencies Target Mortgage Foreclosure Rescue and 

Loan Modification Scams (July 15, 2009), available 

at http://www.ftc.gov/opa/2009/07/loanlies.shtm; 

Press Release, FTC, Federal and State Agencies 

Crack Down on Mortgage Modification and 

Foreclosure Rescue Scams (Apr. 6, 2009), available 

at http://www.ftc.gov/opa/2009/04/hud.shtm. 

sever contact with lenders and servicers 

unwittingly diminish their ability to 

learn that their MARS provider is doing 

little or nothing on their behalf. These 

consumers may never learn of 

concessions their lenders or servicers 

would be willing to make—or, worst of 

all, may never discover that foreclosure 

is imminent.81 In some cases, MARS 

providers also advise consumers to 

discontinue making their mortgage 

payments even though doing so could 

result in the loss of their homes and 

damage to their credit ratings.82

The Commission’s law enforcement 

experience,83 state law enforcement,84

the comments received,85 and state bar 

actions 86 indicate that a growing 

number of attorneys themselves market 

and sell MARS. Many of them engage in 

unfair and deceptive acts and practices, 

such as making the specific claim that 

they offer legal services,87 when in fact, 

no attorneys are employed by the 

company, or if they are, they do little or 

no legal work for customers.88

C. Continued Law Enforcement and 

Other Responses 

The Commission has taken aggressive 

action to protect consumers from 

deceptive MARS providers. As noted 

above, the FTC has filed 32 lawsuits 89

in the last three years against MARS 

providers for engaging in deceptive 

practices in violation of the FTC Act 

and, in several instances, the 

Telemarketing Sales Rule (TSR).90 In 

addition, the FTC has coordinated its 

efforts with state law enforcement and 

other federal agencies, including the 

Department of Justice (DOJ), the 

Department of Housing and Urban 

Development (HUD), the Treasury 

Department, and the Office of the 

Special Inspector General for the 

Troubled Asset Relief Program (SIG– 

TARP).91 The Commission also is a 

member of the Financial Fraud 


jlentini on DSKJ8SOYB1PROD with RULES6
Federal Register / Vol. 75, No. 230 / Wednesday, December 1, 2010 / Rules and Regulations 75099 

92See Press Release, Financial Fraud 

Enforcement Task Force (FFETF), President Obama 

Establishes Interagency Financial Fraud 

Enforcement Task Force (Nov. 17, 2009), available 

at http://www.stopfraud.gov/news/news-11172009- 

01.html. The FFETF was established by President 

Obama in late 2009 and is chaired by the Attorney 

General. The Commission has played an active role 

on the Task Force through, among other things, its 

membership on the Task Force’s Mortgage Fraud 

Working Group. 

93See Press Release, FTC, FTC Settlement Orders 

Ban More Than A Dozen Marketers from Selling 

Mortgage Relief Services; Repeat Offender Ordered 

to Pay $11.4 Million for Contempt (June 17, 2010), 

available at http://www.ftc.gov/opa/2010/06/

loanmods.shtm. This sweep was organized by the 

FFETF, and member agencies filed hundreds of 

civil and criminal mortgage fraud cases, including 

numerous cases against MARS providers. 

94Press Release, FTC, Federal and State Agencies 

Target Mortgage Relief Scams (Nov. 24, 2009), 

available at http://www.ftc.gov/opa/2009/11/ 

stolenhope.shtm. 

95Press Release, FTC, Federal and State Agencies 

Target Mortgage Foreclosure Rescue and Loan 

Modification Scams (July 15, 2009), available at 

http://www.ftc.gov/opa/2009/07/loanlies.shtm. 

96Press Release, FTC, Federal and State Agencies 

Crack Down on Mortgage Modification and 

Foreclosure Rescue Scams (Apr. 6, 2009), available 

at http://www.ftc.gov/opa/2009/04/hud.shtm. In 

connection with these joint efforts, the Commission 

also sent warning letters to 71 companies marketing 

potentially deceptive mortgage loan modification 

and foreclosure assistance programs on the Internet. 

Id. 

Moreover, the Justice Department and other 

members of the FFETF have pursued many MARS 

providers for illegal conduct, including criminal 

activity. See Press Release, FFETF, Financial Fraud 

Enforcement Task Force Announces Results of 

Broadest Mortgage Fraud Sweep in History (June 17, 

2010), available at http://www.stopfraud.gov/news/ 

news-06172010-02.html. 

97See supra note 62. 

98At least 30 states and the District of Columbia 

have enacted such statutes or regulations. See, e.g., 

Ariz. Rev. Stat. § 44–1378 (2010 Ariz. ALS 143); 

Cal. Civ. Code § 2944.7; id. § 2945, et seq.; Colo. 

Rev. Stat. § 6–1–1101, et seq.; 2009 Conn. Gen. Stat. 

§ 36a–489; 6 Del. Code Ann. § 2400B, et seq.; D.C. 

Code § 42–2431, et seq.; Fla. Stat. § 501.1377; Haw. 

Rev. Stat. § 480E–1, et seq.; Idaho Code Ann. § 45– 

1601, et seq.; 765 Ill. Comp. Stat. Ann. 940/1, et seq.; 

24 Ind. Admin. Code § 5.5–1–1, et seq.; Iowa Code 

§ 741E.1, et seq.; Me. Rev. Stat. Ann. tit. 32, § 6171, 

et seq. & 6191, et seq.; Md. Code Ann., Real Property 

§ 7–301, et seq.; 940 Mass. Code Regs. § 25.01, 

et seq.; Mich. Comp. Law § 445.1822, et seq.; Minn. 

Stat. § 325N.01, et seq.; Mo. Rev. Stat. § 407.935, 

et seq.; Neb. Rev. Stat. § 76–2701, et seq.; Nev. Rev. 

Stat. § 645F.300, et seq.; N.H. Rev. Stat. Ann. § 479– 

B:1, et seq.; 2010 N.M. ALS 58; N.Y. Real Prop. Law 

§ 265–B; N.C. Gen. Stat. § 14–423, et seq.; 2008 Or. 

Laws Ch. 19; R.I. Gen. Laws § 5–79–1, et seq.; Tenn. 

Code Ann. § 47–18–5501, et seq.; Utah Admin. Code 

§ 61.2; Va. Code Ann. § 59.1–200.1; Wash. Rev. 

Code § 19.134.010, et seq.; Wis. Stat. § 846.45. 

These laws generally include a number of 

requirements and restrictions, including: 

(1) Banning covered entities from requiring or 

collecting advance fees before fully performing 

contracted or promised services to the consumer; 

(2) requiring written contracts containing certain 

provisions and disclosures; and (3) providing 

consumers with the right to cancel the contract in 

certain circumstances. 

Where, as here, Congress has not foreclosed state 

regulation, a state statute is preempted only if it 

conflicts with a federal statute. Ray v. Atl. Richfield 

Co., 435 U.S. 151, 158 (1978). State laws are 

preempted only to the extent there is a conflict— 

compliance with both federal and state regulations 

is impossible or the state law is an obstacle to 

effectuating the purposes and objectives of 

Congress. Id. Thus, state laws can impose 

additional requirements as long as they do not 

directly conflict with the Final Rule. See, e.g., TSR 

Final Rule, 75 FR at 48481. 

99See Safe Mortgage Licensing Act: HUD 

Responsibilities under the Safe Act; Proposed rule, 

74 FR 66548 (Dec. 15, 2009) (proposed HUD Rule). 

Pursuant to the Dodd-Frank Act, responsibility for 

HUD’s proposed rule will transfer to the BCFP as 

of the transfer date selected by the Treasury 

Department. Dodd-Frank Act § 1061; which has 

been designated as July 21, 2011. BCFP; Designated 

Transfer Date, 75 FR 57252. 

100 74 FR at 66554. 

101 74 FR at 66552. 

102 74 FR at 66548–49. 103 74 FR at 66548. The proposed rule also would 

authorize HUD to examine loan originators’ records, 

conduct enforcement proceedings, and collect civil 

penalties for violations of HUD and state licensing 

requirements. See 74 FR at 66550, 66555. 

A coalition of state bank regulators argued in its 

comment that the FTC’s proposed rule would 

provide important additional protections not 

included in the HUD proposal. See CSBS at 1 

(‘‘SAFE Act-compliant state licensing laws are 

primarily focused toward the origination of new 

mortgage loans and may not directly address the 

particular dangers associated with mortgage 

assistance relief services. The proposed FTC rule 

will establish a floor to protect consumers from 

abusive MARS practices nationwide. By banning 

up-front fees, implementing disclosure 

requirements, prohibiting certain 

misrepresentations, and instituting various recordkeeping requirements for MARS providers, the 

FTC’s proposal, if adopted, will go a long way in 

rooting out fraudulent practices among these 

individuals wherever they operate.’’). 

Enforcement Task Force (FFETF), a 

coalition of federal and state law 

enforcement agencies that has worked to 

combat illegal activity by MARS 

providers.92 In the past 15 months, the 

FTC has participated in three 

interagency nationwide sweeps: 

‘‘Operation Stolen Dreams’’ (June 17, 

2010), in which the Commission 

secured consent orders against 16 

marketers of MARS;93 ‘‘Operation Stolen 

Hope’’ (November 24, 2009), in which 

the Commission joined with 20 states 

collectively to file over one hundred 

lawsuits against MARS providers;94 and 

‘‘Operation Loan Lies’’ (July 15, 2009), in 

which the FTC coordinated with 25 

federal and state agencies to bring 189 

actions against MARS defendants.95

Prior to these nationwide sweeps, the 

Commission, jointly with the DOJ, the 

Treasury Department, HUD, and the 

Illinois Attorney General, had 

announced several law enforcement 

actions targeting MARS.96

In addition to their coordination with 

the Commission, the states have 

continued to engage in their own 

aggressive law enforcement. 

Collectively, the states have investigated 

at least 450 MARS providers and sued 

hundreds of them for alleged state law 

violations.97 Individual states also have 

continued to enact statutes and 

regulations to address practices related 

to MARS.98

In addition to federal and state law 

enforcement, on December 15, 2009, 

HUD published a proposed rule in the 

Federal Register that would require 

states to adopt uniform licensing 

requirements for MARS providers.99

The proposed HUD Rule targets the 

practices of ‘‘loan originators,’’ a term 

that encompasses third-party loan 

modification services.100 Under the 

proposed HUD Rule, loan originators 

must undergo a background check, 

complete 20 hours of pre-licensing 

education, and pass a written test to 

obtain a license.101 The proposed HUD 

Rule also requires the creation of a 

centralized database of loan originators 

licensed in each state, containing such 

information as their employment 

history, consumer complaints, and any 

enforcement and disciplinary actions 

brought against them. State regulators 

and the public will be able to access this 

database, thus allowing them to find 

and track mortgage loan originators 

throughout the country.102 The goal of 

the proposed HUD Rule is to reduce the 

incidence of fraud by encouraging states 

to establish minimum licensing and 

registration standards, thereby making 

originators, including MARS providers, 

more accountable.103

III. Discussion of the Rule 

As detailed in this SBP, the Final Rule 

prohibits and seeks to prevent unfair 

and deceptive acts and practices in 

connection with mortgage assistance 

relief services. It includes provisions 

that: 

1. Define several key terms, including 

‘‘mortgage assistance relief service’’ and 

‘‘mortgage assistance relief service 

provider’’; 

2. Prohibit providers from instructing 

consumers to cease communication 

with their lenders or servicers; 

3. Bar providers from misrepresenting 

any material aspect of their services, 

including but not limited to several 

specific misrepresentations; 

4. Mandate that providers disclose: 

(a) That they are for-profit businesses 

not affiliated with the consumers’ 

lenders or the government, (b) that 

consumers’ lenders or servicers may not 

agree to change their loans, (c) that 

consumers could lose their homes and 

damage their credit ratings if they stop 

making their mortgage payments (a 

disclosure triggered if providers instruct 

consumers to stop making payments), 

and (d) that consumers are not required 

to stay in the service or accept the 

results delivered, and the total cost of 

the service if they do accept the results. 


jlentini on DSKJ8SOYB1PROD with RULES6
75100 Federal Register / Vol. 75, No. 230 / Wednesday, December 1, 2010 / Rules and Regulations 

104See Omnibus Appropriations Act § 626(a); 

Credit CARD Act § 511. 

105 In articulating the scope of its rulemaking 

authority to remedy unfair and deceptive acts and 

practices under the FTC Act, the Commission has 

explained: 

In exercising this remedial authority, the 

Commission has not been limited to proscribing 

only the precise practices found to exist, but rather 

has been free to close all roads to the prohibited 

goal. * * * The Commission’s discretion to 

formulate an appropriate means of preventing the 

unfair or deceptive acts or practices found to exist 

also takes into account the nature of rulemaking, 

which involves predictions based upon pure 

legislative judgment and judgmental or predictive 

determinations such as those involved in fashioning 

remedies. In making such determinations, the 

Commission is entitled to rely on its judgment, 

based on experience as to the appropriate remedy 

to impose in the rule. 

FTC, Funeral Industry Practices; Final Trade 

Regulation Rule, 47 FR 42269, 42272 (Sept. 24, 

1982) (citing, inter alia, FTC v. Ruberoid, 343 U.S. 

470, 473 (1952)) (internal citations and quotations 

omitted); see also Am. Fin. Servs Ass’n v. FTC., 767 

F.2d 957, 988 (DC Cir. 1985) (noting that the 

Commission ‘‘has wide latitude for judgment’’ in 

crafting rules to curb unfair or deceptive practices). 

The Commission exercises similar discretion in 

crafting orders to resolve law violations. See FTC 

v. Nat’l Lead Co., 352 U.S. 419, 428 (1957) (‘‘[T]he 

Commission is clothed with wide discretion in 

determining the type of order that is necessary to 

bring an end to the unfair practices found to exist.’’); 

Ruberoid, 343 U.S. at 473 (‘‘If the Commission is to 

attain the objectives Congress envisioned, it cannot 

be required to confine its road block to the narrow 

lane the transgressor has traveled; it must be 

allowed effectively to close all roads to the 

prohibited goal, so that its order may not be bypassed with impunity.’’); Jacob Seigel Co. v. FTC, 

327 U.S. 608, 611–12 (1946) (‘‘The Commission has 

wide discretion in its choice of a remedy deemed 

adequate to cope with the unlawful practices in this 

area of trade and commerce.’’). 

106 In many states, mortgagors have the right to 

‘‘redeem,’’ i.e., regain possession of, a property for 

a period of time following foreclosure. See, e.g., 

RealtyTrac, Foreclosure Laws and Procedures By 

State (chart showing that, depending on the state 

and the borrower’s circumstances, redemption 

periods can last anywhere from 10 days to over one 

year), available at http://www.realtytrac.com/ 

foreclosure-laws/foreclosure-laws-comparison.asp. 

107Several commenters supported the adoption of 

this definition. See, e.g., NCLC at 3 (‘‘[T]he broad 

definition of MARS and MARS provider are also 

important aspects of the rule that will help ensure 

its effectiveness. By including all possible forms of 

mortgage relief assistance, including those 

represented by implication to assist or attempt to 

assist consumers, the FTC has reduced the 

possibility of scammers evading the rule with tricks 

or loopholes.’’); CUUS at 2 (‘‘[T]he definition of 

‘mortgage assistance relief services’ in [the 

proposed rule] is sufficiently broad to include the 

types of companies offering the services which are 

the subject of abuses.’’); CSBS at 2 (‘‘The state 

regulators believe that the proposed definition of 

‘mortgage assistance relief service’ is generally 

adequate in covering the scope of the NPR[M].’’). 

108The Rule, however, is not intended to cover 

those who provide general financial advice to 

consumers—such as accountants or financial 

planners—that consumers could potentially use to 

avoid foreclosure or obtain loan modifications from 

their lenders or servicers. Nevertheless, if an entity 

that provides financial advice or that reviews 

consumers’ mortgage loan paperwork (e.g., performs 

a ‘‘forensic audit’’), see infra note 110, promotes its 

services in such a manner that consumers take away 

the express or implied claim that the entity’s 

service will result in a loan modification or other 

mortgage relief, the entity is a ‘‘mortgage assistance 

relief service provider’’ under the Final Rule. In that 

instance, if consumers do not obtain the 

represented result, the entity will have made a 

misrepresentation in violation of Section 322.3(b) of 

the Final Rule. See infra § III.3.a. The Commission 

emphasizes that fine-print or pro forma disclaimers 

generally are not sufficient to qualify performance 

or success claims. See, e.g., Deception Policy 

Statement, infra note 200, at 180; infra note 220. 

109See, e.g., MN AG at 2 (‘‘Any rule adopted by 

the Commission should clearly regulate all forms of 

mortgage assistance relief servicers.’’). 

110This provision encompasses ‘‘forensic audits’’ 

and other services in which the provider purports 

to review, and identify potential errors in, loan 

documents or documents sent by a consumer’s 

lender or servicer in order to avert foreclosure or 

obtain concessions from the lender or servicer. See 

supra note 56; MARS NPRM, 75 FR at 10720 n.160. 

For example, if, for these purposes, a provider offers 

to examine and find mistakes in foreclosure 

documents which the lender or servicer signed by 

automatic means (sometimes referred to as ‘‘robosigning’’) without checking them for accuracy, this 

service would fall within § 322.2(i) of the Final 

Rule. 

5. Prohibit the collection of fees until 

providers have: (a) Secured a written 

and executed agreement between the 

consumer and the lender or servicer 

and, (b) before that agreement has been 

executed, (i) disclosed that the 

consumer can accept or reject the 

lender’s or servicer’s offer for mortgage 

relief and (ii) provided a separate 

written notice from the consumer’s 

lender or servicer summarizing the 

material differences between the 

consumer’s current mortgage loan and 

the relief offered; 

6. Enjoin persons from providing 

substantial assistance or support to 

another whom they know or 

consciously avoid knowing is engaged 

in a violation of the Rule; 

7. Require that providers maintain 

records and monitor Rule compliance; 

and 

8. Exempt attorneys providing MARS 

as part of the practice of law from most 

provisions of the Rule if they: (a) Are 

licensed in the state where the 

consumer or the dwelling is located, 

and (b) comply with relevant state 

licensing and bar requirements. Such 

attorneys are exempt from the Rule’s 

advance fee ban if they set aside MARS 

fees in a client trust account and 

withdraw funds only as the fees are 

earned. 

A. Section 322.1: Scope 

Section 322.1 states that the Final 

Rule implements the mandate of the 

Omnibus Appropriations Act, as 

clarified by the Credit CARD Act. These 

statutes state that the Commission ‘‘shall 

initiate a rulemaking proceeding,’’ and 

that ‘‘[s]uch rulemaking shall relate to 

unfair or deceptive acts or practices 

regarding mortgage loans, which may 

include unfair or deceptive acts or 

practices involving loan modification 

and foreclosure rescue services.’’ 104 As 

noted earlier, this language authorizes 

rules that not only prohibit or restrict 

practices that are themselves unfair or 

deceptive, but also rules that prohibit or 

restrict other practices if such rules are 

reasonably related to the goal of 

preventing unfairness or deception.105

As discussed above, the Commission’s 

rulemaking authority is limited by the 

Credit CARD Act to persons over whom 

the FTC has jurisdiction under the FTC 

Act. 

B. Section 322.2: Definitions 

1. Section 322.2(i): Mortgage Assistance 

Relief Service 

As discussed above, the Rule is 

intended to regulate for-profit providers 

of mortgage assistance relief services. 

Section 322.2(i) of the Rule adopts, 

without substantive modification, the 

proposed rule’s definition of ‘‘mortgage 

assistance relief service’’ (MARS) as 

including ‘‘any service, plan, or 

program, offered or provided to the 

consumer in exchange for consideration, 

that is represented, expressly or by 

implication, to assist or attempt to assist 

the consumer’’ in negotiating a 

modification of a dwelling loan that 

reduces the amount of interest, 

principal balance, monthly payments, or 

fees; stopping, preventing, or 

postponing a foreclosure or 

repossession; or obtaining one of several 

other types of relief to avoid 

delinquency or foreclosure. Sections 

322.2(i)(3)–(6) define these additional 

types of relief to include obtaining: (1) 

A forbearance or repayment plan; (2) an 

extension of time to cure default, 

reinstate a loan, or redeem a 

property; 106 (3) a waiver of an 

acceleration clause or balloon payment; 

and (4) a short sale, deed-in-lieu of 

foreclosure, or any other disposition of 

the property except a sale to a thirdparty that is not the loan holder.107 The 

Rule covers instances in which a third 

party itself works with lenders or 

servicers to obtain mortgage relief as 

well as instances in which a third party 

markets services to aid consumers who 

themselves work with lenders or 

servicers to obtain relief.108

Accordingly, § 322.2(i) is intended to 

apply to every service MARS providers 

offer,109 expressly or by implication, for 

the purpose of obtaining loan 

concessions, avoiding foreclosure, or 

saving their homes.110

Mortgage assistance relief services 

under the Rule are limited to services 


jlentini on DSKJ8SOYB1PROD with RULES6
Federal Register / Vol. 75, No. 230 / Wednesday, December 1, 2010 / Rules and Regulations 75101 

111 ‘‘Consumer’’ is broadly defined to include ‘‘any 

natural person who is obligated under any loan 

secured by a dwelling.’’ Section 322.2(d). For the 

purposes of clarity, the Final Rule’s definition of 

‘‘consumer’’ replaces ‘‘owes on’’ in the proposed 

definition with ‘‘is obligated under.’’ The 

Commission intends to cover consumers at every 

stage of the process and does not limit the Rule’s 

protections to those who are in default or 

foreclosure. See NAAG at 3 (‘‘We support broad 

application of the rule to cover all homeowners, 

regardless of whether they are in foreclosure or 

have defaulted on their loans.’’). Covering 

consumers who are not in default or foreclosure is 

necessary because many of them seek assistance 

from MARS providers before they are actually 

delinquent on their loans. See CMC (ANPR) at 8 

(‘‘Many of the abuses that servicers have 

encountered have occurred before the consumer has 

received a notice of default. MARS providers 

sometimes solicit customers who are not in default 

but who live in areas with high numbers of 

distressed borrowers. Any rule should apply to 

MARS providers at any stage of the process.’’); 

NCLC (ANPR) at 4 (‘‘Many homeowners have sought 

help from MARS [providers] before entering 

default, though sometimes the MARS then 

encourages a default. * * * The mortgage servicing 

industry and others have urged homeowners to seek 

help before they go into default.’’); NCRC (ANPR) 

at 2 (noting that there are ‘‘[c]ompanies claiming to 

offer assistance with loan modifications, to 

consumers who may or may not be in default’’); 

NAAG (ANPR) at 11 (‘‘The [state] requirement that 

consumers be in default before statutory protections 

begin made sense when mortgage consultants 

solicited business based on foreclosure filings, as 

those consumers would necessarily be in default. 

Mortgage consultants are now able to mine public 

information to target consumers who are not yet in 

default. Consultants may rely on an Internet 

presence to draw in consumers who may also not 

be in default. As consumers have grown more 

concerned about the state of the economy, these 

solicitations are proving increasingly attractive. 

Based on these reasons, a rule should provide as 

much coverage for consumers as possible.’’). 

112Section 322.2(e). The definition for ‘‘dwelling’’ 

is similar to the definition of that term in 

Regulation Z, 12 CFR. 226, which implements the 

Truth in Lending Act, 15 U.S.C. 1601 et seq.; 12 

CFR 226.2(a)(19). 

113Some commenters recommended including 

manufactured homes, a term defined by the 

National Manufactured Housing Construction and 

Safety Standards Act, 42 U.S.C. 5402(6), to refer to 

non-site built homes. See, e.g., NCLC at 3 (the term 

‘‘mobile home’’ often refers to a home built prior to 

1974, while the term ‘‘manufactured home’’ means 

a post-1974 home that complies with HUD 

standards); see also OPLC at 2; NCLC at 4. 

114This language is derived from Regulation Z. 

See 12 CFR 226.2(a)(12) (definition of ‘‘consumer 

credit’’). 

115There have been cases in which consumers 

were at risk of foreclosure on non-primary 

residences. One comment observed that those at 

risk of losing a property to foreclosure include 

senior citizens who live in nursing homes or 

assisted living facilities and military service 

members who rent their homes while deployed. 

NCLC at 4 (supporting covering services purported 

to assist consumers save second homes or rental 

properties from foreclosure). 

116The Final Rule also contains a definition of 

‘‘dwelling loan,’’ unmodified from the proposal, as 

‘‘any loan secured by a dwelling, and any associated 

deed of trust or mortgage.’’ Section 322.2(f). 

117As noted in § II, in a sale-leaseback or title 

reconveyance transaction, the MARS provider 

typically instructs the consumer to transfer title to 

his or her home to the provider and then to rent 

the home from the provider. The provider then 

promises to reconvey title to the home at some later 

date. In some cases, the provider also may charge 

upfront fees in connection with the transaction. See 

supra note 43. 

118MARS NPRM, 75 FR at 10728. 

119 Id. 

120See NAAG at 5 (‘‘We believe that the proposed 

rule will not interfere with state laws, but instead 

will complement existing state laws that address 

sale-leaseback transactions’’); CSBS at 2 (‘‘[S]tate 

regulators believe that it is important for the FTC 

to address abuses with respect to sale-leaseback 

transactions.’’); NCLC at 16 (‘‘We support the FTC’s 

plan to regulate only the marketing of these scams 

while leaving further regulation to the states.’’). 

121Supra note 120. 122CSBS at 2 (‘‘The state regulators believe that 

it is important for the FTC to address abuses with 

respect to sale-leaseback transactions. However, 

given the current prevalence of loan modification 

scams, regulations addressing those practices must 

receive priority. If the development of saleleaseback regulations will delay the promulgation 

of final regulations to address loan modification 

scams, we believe that the sale-lease back 

regulations should be addressed in a separate 

effort.’’). 

123See supra note 98. For example, some laws 

mandate that before executing a title transfer, the 

foreclosure rescue operator must verify that the 

consumer can reasonably afford to repurchase the 

home. See, e.g., Minn. Stat. § 325N.17(a)(1). In 

addition, the foreclosure rescue operator may be 

required to obtain written consent from the 

homeowner, conduct a face-to-face closing, abide by 

federal and state laws governing sales of residential 

properties, allow consumers a period of time to 

cancel the transaction before title conveyance can 

be recorded, and either return title to the consumer 

or provide compensation that represents the 

property’s fair market value. See, e.g., id. 

§ 325N.17(a)(2)–(4), (b). 

124See supra note 43; see also, e.g., CJI, Att. 1, 

2 (private plaintiffs in Maryland challenging 

foreclosure rescue and equity stripping scam); 

NAAG (ANPR) at 5–6; CJI, Att. 1 at 2; NCLC at 16 

(‘‘Sale-leaseback and other title-transfer transactions 

can be the most harmful of foreclosure rescue scams 

because they not only deprive a homeowner of 

scarce money but outright steal the homeowner’s 

deed.’’). 

125Other transactions proposed to consumers 

similarly would be covered by the Rule if marketed 

as a means to stop or avoid foreclosure. See, e.g.,. 

NV DML at 2–3 (describing two transactions being 

marketed to some consumers as a means to secure 

concessions on their mortgage loans). The 

definition of MARS encompasses any service that 

purports to help consumers stop, prevent, or 

postpone any foreclosure sale, or otherwise save the 

property, regardless of the form that relief may take. 

Section 322(i)(2). 

that are offered to consumers 111 who 

are obligated under loans secured by a 

‘‘dwelling’’ or residence. A ‘‘dwelling’’ is 

defined in Section 322.2(e) of the Rule 

to be a residential structure containing 

four or fewer units, regardless of 

whether it is attached to real property. 

The term dwelling includes ‘‘an 

individual condominium unit, 

cooperative unit, mobile home, 

manufactured home, or trailer.’’ 112 In 

response to comments on the NPRM, the 

Rule adds the term ‘‘manufactured 

home’’ to the definition of ‘‘dwelling’’ to 

ensure that the Rule’s protections 

extend to consumers whose homes are 

constructed at a site (e.g., factory floor) 

other than the final location of the 

structure.113 Finally, the definition of 

‘‘dwelling’’ applies only to residences 

that are ‘‘primarily for personal, family, 

or household purposes.’’ 114 The 

definition of ‘‘dwelling’’ includes second 

homes and rental properties of 

consumers, because the Commission’s 

law enforcement experience indicates 

that consumers who own such 

properties may seek help to avoid 

foreclosure on these properties.115

However, ‘‘dwelling’’ does not cover 

MARS offered in connection with 

commercial properties.116

a. Sale-Leaseback and Title 

Reconveyance Transactions 

In the NPRM, the Commission 

advised that the proposed definition of 

MARS would cover offers of saleleaseback and title reconveyance 

transactions,117 but only if they were 

marketed ‘‘to save the consumer’s home 

from foreclosure or repossession.’’ 118

The Commission specifically solicited 

comment on this aspect of the proposed 

rule, including whether and how a final 

rule should address these 

transactions.119

In response to the FTC’s request for 

comments, state law enforcers and 

consumer groups endorsed the proposed 

rule’s coverage of sale-leaseback or title 

reconveyance transactions when they 

are marketed as ways to avoid 

foreclosure.120 These organizations 

asserted that this limited coverage is 

sufficient in light of existing state laws 

governing how such sales must be 

structured.121 One group of state 

regulators, however, advocated that the 

Commission address the underlying 

sale-leaseback transaction in a 

subsequent rulemaking if addressing it 

now would delay the issuance of the 

Final Rule.122

Many states have enacted laws that 

comprehensively regulate sale-leaseback 

and title reconveyance transactions, 

imposing, for example, specific 

valuation requirements on the property 

transfers and obligations to determine 

that the consumer can reasonably afford 

to repurchase the property.123 On the 

other hand, the record shows that saleleaseback and title reconveyance 

transactions have been commonly 

touted as a means to avert foreclosure 

and its consequences.124 Although the 

Final Rule does not regulate the terms 

of sale-leaseback and title reconveyance 

transactions, if such transactions are 

represented, expressly or impliedly, as a 

way for a consumer to avoid foreclosure, 

they present the same risks to 

consumers as other forms of MARS.125

The FTC thus has determined that the 

Final Rule will cover offers of saleVerDate Mar<15>2010 20:59 Nov 30, 2010 Jkt 223001 PO 00000 Frm 00011 Fmt 4701 Sfmt 4700 E:\FR\FM\01DER6.SGM 01DER6

jlentini on DSKJ8SOYB1PROD with RULES6
75102 Federal Register / Vol. 75, No. 230 / Wednesday, December 1, 2010 / Rules and Regulations 

126As a general matter, the Final Rule is not 

intended to apply to the marketing of services to 

assist consumers in selling their properties to third 

parties. The Final Rule, however, does specifically 

cover the marketing of services involving the sale 

of properties to third parties if those services are 

designed or intended to assist consumers in 

averting foreclosure, e.g., through a short sale or 

deed-in-lieu of foreclosure. One commenter urged 

the Commission to exempt licensed real estate 

professionals from the Final Rule. NAR at 1–2. The 

commenter argued the Rule would restrict real 

estate agents in helping consumers with the process 

of selling their homes through short sales. Id. The 

Commission concludes that an exemption for real 

estate agents is not necessary. Real estate agents 

customarily assist consumers in selling or buying 

homes and perform functions such as listing homes 

for sale, showing homes, and finding desirable 

homes for consumers. The Commission is aware 

that real estate agents may perform these functions 

when properties are bought or sold through a short 

sale transaction, but does not consider these 

services to be MARS. 

127Mortgage brokers can offer a wide choice of 

loan products from different lenders, without 

consumers having to deal with each lender 

separately. Thus, mortgage brokers commonly act as 

intermediaries between consumers and lenders in 

bona fide loan origination or refinancing 

transactions. Mortgage brokers typically are paid by 

the lender, or in some cases by the borrower, from 

the closing costs of the loan transaction. See, e.g., 

Nat’l Ass’n of Mortg. Brokers FAQs, available at 

http://www.namb.org/namb/ 

FAQs1.asp?SnID=498395277; see also NAAG at 12 

(noting that brokers ‘‘are traditionally paid * * * at 

the closing of a consumer’s loan, after all services 

have been provided’’); NCLC (ANPR) at 29 

(‘‘[B]rokers * * * are normally paid only when a 

sale or mortgage transaction is completed.’’). 

128MARS NPRM, 75 FR at 10713. 

129One commenter provided examples of 

advertisements showing MARS providers 

aggressively recruiting mortgage brokers to sell 

MARS. See NCLC (ANPR) at 10. 130See, e.g. supra note 52; Peter S. Goodman, 

Subprime Brokers Back as Dubious Loan Fixers, 

N.Y. Times, July 19, 2009, at A1 (accounting of how 

many mortgage brokers in southern California began 

selling MARS when loan origination work 

evaporated). 

131See NYC DCA at 8; NAAG (ANPR) at 11–12. 132CSBS at 2 (‘‘The proposed FTC rules should 

apply to mortgage brokers to the extent that 

mortgage brokers engage in non-loan origination 

MARS activities, e.g. negotiating loan 

modifications, short sales, etc.’’); NYC DCA at 8 

(‘‘Mortgage brokers offering for-profit mortgage 

assistance services are likely to be engaged in the 

same problematic practices as other MARS 

providers and must be subject to the rule.’’); LLAF 

at 2. Comments to the ANPR made similar 

arguments. See, e.g., NAAG (ANPR) at 11–12 (‘‘We 

have already seen complaints in which mortgage 

brokers charge consumers for mortgage consulting 

services and then failed to provide services or 

provided fewer services than originally promised. 

The trend of mortgage brokers providing services is 

likely to continue, especially if the market for 

mortgage loan origination remains soft.’’); NCLC 

(ANPR) at 13–14. 

133See CUUS at 2–3 (recommending that Rule 

specify that ‘‘a refinance of the existing mortgage’’ 

is an example of an included service). 

134See CSBS at 2 (‘‘The proposed FTC rules do 

not need to address loan origination activities, even 

if the loan is being originated to avoid 

foreclosure.’’). 

135See CUUS at 2 (adding the word ‘‘product’’ to 

the definition of MARS ‘‘would prevent MARS 

providers from claiming they are not covered by the 

rule because they offer a product, not a service.’’). 

136See CSBS at 2 (‘‘The state regulators do not 

believe that there is any reason to broaden the 

definition of MARS to include the word ‘product’ 

as inquired by the Commission.’’). 

137Providers should be aware that merely 

including a product, such as a book, in conjunction 

with the sale of services will not remove the 

transaction from coverage by the Rule. 

138As discussed above, see supra note 15, the 

Commission’s authority to amend the MARS Rule 

will transfer to the BCFP on July 21, 2011. 

leaseback and title reconveyance 

transactions marketed as a way to save 

a consumer’s home from foreclosure or 

repossession.126

b. Mortgage Refinancing Services 

The proposed rule covered mortgage 

brokers who offer loan origination or 

refinancing services, but only if those 

services are represented, expressly or 

impliedly, to help consumers avoid 

delinquency or foreclosure. The Final 

Rule is unchanged on this point. Thus, 

the Final Rule does not cover mortgage 

brokers who offer services that are 

advertised or marketed for other 

purposes. To obtain a new loan or 

refinance an existing loan, consumers 

can work either with the lender directly 

or with a mortgage broker. 127

As discussed in the NPRM, in some 

cases consumers at risk of foreclosure 

could benefit from assistance in 

refinancing; thus, the Commission does 

not wish the Rule to reduce the 

availability of legitimate services of this 

kind.128 At the same time, the 

Commission is concerned that services 

purported to help consumers avoid 

foreclosure through refinancing could 

be marketed unfairly or deceptively. 

Indeed, with the deterioration of the 

housing market, many mortgage brokers 

have focused on marketing and 

providing MARS to consumers,129 and 

the record shows that some former 

brokers who now provide MARS have 

engaged in the same types of unfair and 

deceptive practices as other MARS 

providers.130

In the NPRM, the Commission 

specifically requested comment on how 

the Rule should treat mortgage brokers 

who offer refinancing services. A 

number of commenters, noting the 

incidence of unfair and deceptive 

practices by mortgage brokers selling 

MARS,131 recommended that the Final 

Rule cover mortgage brokers.132 In 

addition, one comment from a consumer 

group argued that the Rule should 

expressly cover refinancing as a form of 

MARS.133 A consortium of state bank 

regulating agencies, on the other hand, 

recommended that the Rule exclude 

mortgage brokers entirely or, at a 

minimum, exclude their loan 

origination activities.134

The Commission concludes that 

mortgage brokers generally are not 

covered by the Rule. However, if a 

mortgage broker offers loan refinancing 

or originations as a means for 

consumers to save their homes from 

foreclosure—that is, the broker is 

providing MARS—then the Rule covers 

this conduct. Thus, the Final Rule 

protects consumers from unfair and 

deceptive practices by mortgage brokers 

operating as MARS providers without 

unduly restricting legitimate mortgage 

brokerage activities. 

c. Mortgage Assistance Relief ‘‘Product’’ 

One commenter recommended that 

the Commission add the word ‘‘product’’ 

to the proposed definition ‘‘mortgage 

assistance relief service.’’ The 

commenter recommended this addition 

to ensure that providers cannot evade 

the Rule by claiming to sell a product 

(e.g., software, books, CDs, or other 

tangible materials to help consumers 

avoid foreclosure) rather than a 

service.135 Another comment from a 

group of state bank regulators disagreed, 

stating, without elaboration, that the 

regulators saw no reason to include the 

word ‘‘product’’ in the definition of 

MARS.136

The Commission declines to include 

products in the definition of MARS in 

the Final Rule. The record demonstrates 

that providers of services to help 

consumers modify their mortgages and 

avoid foreclosure often engage in unfair 

and deceptive practices; in contrast, 

neither the Commission’s law 

enforcement experience nor the 

rulemaking record show that those who 

sell products for mortgage assistance 

relief are engaged in the same types of 

conduct. The Commission will continue 

to monitor to ensure that MARS 

providers do not gravitate to the sale of 

products to evade the Rule.137 Should 

MARS providers selling products 

engage in unfair or deceptive practices, 

the Commission has the authority to 

take law enforcement action under 

Section 5 of the FTC Act. Moreover, 

should unfair or deceptive practices in 

the sale of mortgage assistance relief 

products become widespread, the 

Commission may consider amending 

the Rule to include such practices.138

2. Section 322.2(a): ‘‘Clear and 

Prominent’’ 

The proposed rule required that 

mandated disclosures be made ‘‘clearly 

and prominently,’’ specifying how this 

requirement applied in different 

mediums. The two commenters that 

addressed how disclosures must be 

made supported the proposed criteria 

for making clear and prominent 


jlentini on DSKJ8SOYB1PROD with RULES6
Federal Register / Vol. 75, No. 230 / Wednesday, December 1, 2010 / Rules and Regulations 75103 

139See CSBS at 2 (endorsing requirements as 

‘‘generally well-rounded and adequate’’); NCLC at 

16 (‘‘The Commission has done an admirable job 

writing disclosure rules that will reduce the ability 

of MARS providers to obscure or overshadow 

mandatory disclosure statements.’’). 

140As defined in the Final Rule, ‘‘commercial 

communication’’ is intended to include any written 

or oral statement, illustration, or other depiction 

used to induce the purchase of a service, plan, or 

program. See § 322.2(c) (adopting the proposed 

definition without substantive modification). As 

detailed in Section III.D. of this SBP, the Final Rule 

also adds to the proposed provision two 

subprovisions defining ‘‘general commercial 

communication’’ and ‘‘consumer-specific 

commercial communication.’’ See §§ 322.2(c)(1) & 

322.2(c)(2). Section 322.2(c)(1) defines a ‘‘general 

commercial communication’’ to be ‘‘a commercial 

communication that occurs prior to the consumer 

agreeing to permit the provider to seek offers of 

mortgage assistance relief on behalf of the 

consumer, or otherwise agreeing to use the 

mortgage assistance relief service, and that is not 

directed at a specific consumer.’’ Section 322.2(c)(2) 

defines a ‘‘consumer-specific commercial 

communication’’ as ‘‘a commercial communication 

that occurs prior to the consumer agreeing to permit 

the provider to seek offers of mortgage assistance 

relief on behalf of the consumer, or otherwise 

agreeing to use the mortgage assistance relief 

service, and that is directed at a specific consumer.’’ 

These definitions were added to clarify the 

disclosure requirements in § 322.4 of the Final Rule. 

141Where possible, in formulating the 

requirements of the Rule, the Commission has 

drawn from comparable FTC rules requiring clear 

and prominent disclosures. See Free Annual File 

Disclosures, 16 CFR 610.4 (2010) (Free Credit 

Report Rule); Disclosure Requirements and 

Prohibitions Concerning Franchising, 16 CFR 436.6 

(2007) (Franchise Rule); Disclosure Requirements 

and Prohibitions Concerning Business 

Opportunities, 16 CFR 437.1 (Business Opportunity 

Rule); Regulations Under Section 4 of the Fair 

Packaging and Labeling Act, 16 CFR 500.4 (Fair 

Packaging and Labeling Act Regulations); Trade 

Regulation Pursuant to the Telephone Disclosure 

and Dispute Resolution Act of 1992, 16 CFR 308.2 

(900 Number Rule); Rule Concerning Cooling-Off 

Period for Sales Made at Home or at Certain Other 

Locations, 16 CFR 429.1 (Door-to-Door Sales Rule). 

The disclosure requirements also are consistent 

with those in many FTC orders. See, e.g., Sears 

Holding Mgmt. Co., Docket No. C–4264, File No. 

082–3099 (FTC Sept. 9, 2009), available at http:// 

www.ftc.gov/os/caselist/0823099/ 

090604searsdo.pdf. 

142See Free Credit Report Rule, 16 CFR 

610.4(3)(vi) (prohibiting any representation that 

contradicts, is inconsistent with, or undermines the 

required disclosures, and any techniques that 

significantly detract from the message 

communicated by the disclosures); 900 Number 

Rule, 16 CFR 308.3(a)(5); Franchise Rule, 16 CFR 

436.9(a); Business Opportunity Rule, 16 CFR 

437.1(a)(21). 

143See Free Credit Report Rule, 16 CFR 

610.4(3)(ii) (same language as that principally used 

in the advertisement); see also NYC DCA at 7–8 

(‘‘The FTC should require MARS providers to offer 

all mandated disclosures * * * in the languages 

used in their advertising.’’); LFSV at 2 (‘‘The FTC 

should require that companies that negotiate a 

contract primarily in a language other than English 

provide a contract in the language in which the 

contract was primarily negotiated.’’). 

144See Free Credit Report Rule, 16 CFR 610.4 

(2010). The Commission did not promulgate the 

Free Credit Report Rule until after it issued the 

MARS NPRM. In that proceeding, unlike this one, 

the Commission received numerous comments on 

how the rule should address the prominence of the 

required disclosures, including formatting and 

placement. Free Annual File Disclosures; Final Rule 

75 FR 9733 (2010). Several commenters, for 

example, offered suggestions on how to make visual 

disclosures prominent, including placing them 

within a border in a box, and in a contrasting color. 

Id. at 9734. 

145Free Credit Report Rule,16 CFR 610.4(a)(3)(iii); 

see also, In re Tender Corp., Docket No. C–4261 

(FTC July 17, 2009), available at http://www.ftc.gov/ 

os/caselist/0823188/090717tenderdo.pdf (stating 

that disclosures must appear ‘‘in print that contrasts 

with the background against which it appears’’); In 

re Budget Rent-A-Car-System, Inc., Docket No. C– 

4212 (FTC Jan. 4, 2008), available at http:// 

www.ftc.gov/os/caselist/0623042/080104do.pdf 

(same); see also FTC, Dot Com Disclosures: 

Information about Online Advertising 12 (2000), 

available at http://www.ftc.gov/bcp/edu/pubs/ 

business/ecommerce/bus41.pdf (Dot Com 

Disclosures) (‘‘A disclosure in a color that contrasts 

with the background emphasizes the text of the 

disclosure and makes it more noticeable. 

Information in a color that blends in with the 

background of the advertisement is likely to be 

missed.’’). 

146Sections 322.4(a) and (b) of the Rule set forth 

additional requirements for the heading that must 

precede written disclosures. This heading must be 

in bold face font that is at least two-point type larger 

than the font size of the text of the required 

disclosures. 

147See also, e.g., Free Credit Report Rule, 16 CFR 

610.4(a)(3)(ii); 900 Number Rule, 16 CFR 

308.3(a)(1). If the advertisement has substantial 

material in more than one language, the MARS Rule 

requires that the disclosure be delivered in each 

such language. Section 322.2(a)(1). 

148See, e.g., Swisher Int’l, Inc., Docket No. C– 

3964 (FTC Aug. 25, 2000), available at http:// 

www.ftc.gov/os/2000/08/swisherdo.htm (requiring 

warnings for cigars to appear ‘‘parallel * * * to the 

base of the * * * advertisement’’); Fair Packaging 

and Labeling Act Regulations, 16 CFR 500.4(b) 

(requiring that identification for packaged goods 

appear ‘‘in lines generally parallel to the base on 

which the packaging or commodity rests as it is 

designed to be displayed’’). 

149See Free Credit Report Rule, 16 CFR 

610.4(b)(3); see also 900 Number Rule, 16 CFR 308. 

disclosures.139 No commenters opposed 

these requirements. The Final Rule 

substantially adopts the proposed rule’s 

definition of ‘‘clear and prominent’’ with 

only the few changes discussed below. 

The Rule sets forth general requirements 

to ensure that required disclosures in 

commercial communications 140 are 

sufficiently clear and prominent for 

consumers to notice and comprehend 

them.141 In all cases, the syntax and 

wording of disclosures must be easy for 

consumers to understand and must not 

be accompanied by statements that 

contradict or obscure their meaning.142

The disclosures must be made in each 

language that is ‘‘substantially used’’ in 

the advertising.143 In addition, as 

described below, the Rule includes 

clarity and prominence requirements 

specific to the particular media in 

which disclosures appear. The extensive 

record of unfairness and deception in 

the MARS industry makes it appropriate 

for the Commission to articulate with 

specificity how MARS providers must 

make required disclosures to prevent 

consumer harm. 

a. Written Disclosures 

The proposed rule set forth various 

requirements for disclosures that must 

appear in consumer communications 

disseminated in print or written form, 

including on a computer screen. The 

proposed rule provided that such 

disclosures: 

shall be in a font easily read by a 

reasonable consumer, of a color or shade that 

readily contrasts with the background of the 

commercial communication, in the same 

language as each that is substantially used in 

the commercial communication, parallel to 

the base of the commercial communication, 

and, except as otherwise provided in this 

rule, each letter of the disclosure shall be, at 

a minimum, the larger of 12-point type or 

one-half the size of the largest letter or 

numeral used in the name of the advertised 

website or telephone number to which 

consumers are referred to receive information 

relating to any mortgage assistance relief 

service. 

Section 322.2(a)(1) of the Final Rule 

largely retains these requirements but 

modifies them slightly to improve the 

clarity and effectiveness of the 

disclosures and to conform the relevant 

provisions of the Final Rule to the Free 

Credit Report Rule the Commission 

recently issued.144 The Final Rule 

therefore now specifies that a written 

disclosure must be easily readable; in a 

high degree of contrast from the 

immediate background on which it 

appears;145 distinct from other text, 

such as inside a border; and in a distinct 

type style, such as bold.146 Unchanged, 

however, are the requirements that the 

disclosure must be communicated in the 

same languages that are substantially 

used in the commercial 

communication;147 and appear parallel 

to the base of the communication148 and 

that, unless otherwise specified, each 

letter of the disclosure text shall be, at 

a minimum, the larger of 12-point type 

or one-half the size of the largest 

character used in the name of the 

advertised website or telephone number 

to which consumers are referred for 

information on any MARS.149

b. Audio Disclosures 

Section 322.2(a)(2) addresses the use 

of disclosures in audio communications 

such as broadcast radio or streaming 

radio. The proposed rule required these 

disclosures to be ‘‘delivered in a slow 

and deliberate manner and in a volume 

and cadence sufficient for an ordinary 

consumer to hear and comprehend 

them.’’ As with the requirements for 

written disclosures, the Commission has 

decided to modify these requirements 

slightly to improve the clarity of the 


jlentini on DSKJ8SOYB1PROD with RULES6
75104 Federal Register / Vol. 75, No. 230 / Wednesday, December 1, 2010 / Rules and Regulations 

150See supra notes 141–49. 

151See Free Credit Report Rule, 16 CFR 

610.4(a)(1)(3)(iv); see also In re Sears Holding, 

Docket No. C–4264 (stating that audio disclosures 

must be made ‘‘in a volume and cadence sufficient 

for an ordinary consumer to hear and comprehend 

them’’); In re Darden Rests., Inc., Docket No. C–4189 

(FTC May 11, 2009), available at http:// 

www.ftc.gov/os/caselist/0623112/ 

070510do0623112c4189.pdf (same); In re Kmart 

Corp., Docket No. C–4197 (FTC Aug. 15, 2007), 

available at http://www.ftc.gov/os/caselist/0623088/ 

0623088do.pdf (same); In re Palm, Inc., Docket No. 

C–4044 (FTC Apr. 19, 2002), available at http:// 

www.ftc.gov/os/caselist/0023332/index.shtm 

(same); Dot Com Disclosures, supra note 145, at 14 

(same). 

152 Disclosures generally are more effective if they 

are made in both the visual and audio part of a 

consumer communication. See generally Maria 

Grubbs Hoy & J. Craig Andrews, Adherence of 

Prime-Time Televised Advertising Disclosures to 

the ‘‘Clear and Conspicuous’’ Standard: 1990 Versus 

2002, 23 J. Mktg. Pub. Pol. 170 (2004) (stating that 

‘‘dual modality’’ disclosures—oral and visual 

together—are more effective at communicating 

information to consumers); see also In re Kraft, Inc., 

114 F.T.C. 40 (1991) (finding that a visual 

disclosure alone was unlikely to be effective as a 

corrective measure in light of ‘‘the distracting visual 

and audio elements and the brief appearance of a 

complex superscript in the middle of the 

commercial’’), aff’d, 970 F.2d 311 (7th Cir. 1992). 

153See Federal Election Commission Rules: 

Contributions and Expenditure Limitations and 

Prohibitions, 11 CFR 110.11(c)(3)(iii)(B)–(C) 

(statement concerning funding source for political 

ads ‘‘must appear in letters equal to or greater than 

four (4) percent of the vertical picture height’’ and 

‘‘be visible for a period of at least (4) four seconds’’). 

154The Commission declines to require in the 

Final Rule that information be disclosed on a 

separate landing page, because this requirement 

may not be feasible or effective in some contexts, 

cf. Free Credit Report Rule; Final Rule, 75 FR 9726, 

9737 (Mar. 6, 2010), and there is no evidence in the 

record addressing its effectiveness in this context. 

155See Dot Com Disclosures, supra note 145, at 

11 (explaining that disclosures are more likely to be 

effective if they are provided when the consumer 

is considering the purchase). 

156See Free Credit Report Rule, 16 CFR 

610.4(a)(3)(v). Section 308.3(a)(6) of the 900 Rule 

also imposes a nearly-identical requirement. 16 CFR 

308.3(a)(6). 

157Section 322.2(j). 

158See § 322.2(i) (proposed rule). This limiting 

language was intended to ensure that MARS 

providers could not evade the Rule by styling 

themselves as ‘‘agents’’ of the lender or servicer. 

159See MARS NPRM, 75 FR at 10728. 

160See, e.g., CMC (ANPR) at 5 (‘‘Servicers are 

increasingly turning to third-party service-providers 

to assist them in processing loan modifications and 

in other loss-mitigation activities.’’); Am. Bankers 

Ass’n (ANPR) at 4–6; AFSA (ANPR) at 3, 5; MBA 

(ANPR) at 4. 

161See, e.g., AFSA at 3 (stating that mortgage 

servicers engage in the same forms of 

communication that would be covered under the 

Rule ‘‘to make the consumer aware of the 

availability of possible loss mitigation options and 

to encourage the consumer to contact the mortgage 

servicer directly, which is a critical component of 

any loss mitigation policy by a mortgage servicer to 

assist consumers’’); MBA (ANPR) at 4 (stating that 

mortgage servicers collect payments, conduct 

borrower contact and outreach, and execute loan 

modification or other loss mitigation agreements). 

162See, e.g., David Lawder, Few US Mortgage 

Modifications Made Permanent, Reuters Dec. 10, 

2009, available at http://www.reuters.com/article/ 

idUSN1021463420091210 (referring to a company 

that ‘‘has been hired by some of the largest U.S. 

banks to assist in modification efforts’’). 

163See AFSA at 2–3 (The Rule is ‘‘not intended 

to regulate mortgage holders and servicers, but to 

stop for-profit MARS providers from harming 

consumers. The FTC is currently drafting proposed 

rules for mortgage acts and practices. That rule, 

rather than this MARS rule, is the appropriate place 

to consider additional regulations for mortgage 

holders and servicers.’’); CUUS at 3 (‘‘Consumers 

Union agrees that lenders and servicers should be 

exempted from the definition of ‘mortgage 

assistance relief services.’’’ Consumers Union is not 

aware of any lenders or servicers actively marketing 

MARS services for a fee to their customers.’’); CUNA 

at 2 (‘‘We strongly urge the FTC to retain this 

exemption in the Final Rule. Credit unions have not 

been the source of any problems for home loan 

requirements for audio disclosures and 

to be consistent with the Free Credit 

Report Rule.150 Thus, the Final Rule 

requires MARS providers to deliver the 

required disclosures ‘‘in a slow and 

deliberate manner and in a reasonably 

understandable volume and pitch.’’151

c. Video Disclosures 

Section 322.2(a)(3) of the Final Rule 

adopts the proposed rule’s video 

disclosure requirements without 

modification. Video communications 

include those that appear on television 

or are streamed over the Internet. As a 

threshold matter, these disclosures must 

be delivered in accordance with the 

requirements for written and audio 

disclosures in §§ 322.2(a)(1) and (2). In 

addition, the disclosures must be made 

simultaneously in both audio and 

video,152 the latter of which must be 

displayed for at least the duration of the 

audio disclosure and comprise at least 

four percent of the vertical picture 

height of the screen.153

d. Interactive Media 

Section 322.2(a)(4) of the Final Rule 

addresses how disclosures must be 

made in interactive media formats, such 

as software, the Internet, or mobile 

media. As in proposed § 322.2(a)(4), the 

disclosures must conform with the 

requirements for written, audio, and 

video disclosures set forth in other parts 

of the ‘‘clear and prominent’’ definition. 

In addition, the disclosures must be 

provided in a way that the consumer 

cannot avoid the information, i.e., it 

must be visible without the need to 

scroll down a Web page. The Final Rule 

makes two minor modifications to the 

proposed rule. First, it modifies the 

requirement that the disclosure be made 

on a separate landing page from the 

page on which the consumer takes any 

action to incur a financial obligation. 

The disclosure instead must be made on 

or immediately prior to the page on 

which the consumer takes any action to 

incur a financial obligation.154 Second, 

the Final Rule mandates that the 

disclosure appear in text at least the 

same size as the largest character of the 

advertisement, replacing the proposed 

rule’s requirement that it be twice the 

size of any hyperlink to the company’s 

website or display of the URL. Both of 

these modifications are intended to 

ensure that consumers see mandated 

disclosures before they decide whether 

to purchase a mortgage assistance relief 

service.155

e. Program-Length Media 

Section 322.2(a)(6) of the Final Rule, 

which adopts the proposed rule without 

modification, requires that disclosures 

in program-length television, radio, and 

Internet-based advertisements for MARS 

be presented at the beginning, near the 

middle, and at the end of the 

advertisement.156 Requiring that 

disclosures be delivered at different 

stages of the broadcast makes it more 

likely that consumers who join the 

broadcast in progress will receive them. 

3. Section 322.2(j): ‘‘Mortgage Assistance 

Relief Service Provider’’ 

a. Exemption for Loan Holders and 

Servicers 

Under § 322.2(j) of the Final Rule, 

‘‘any person that provides, offers to 

provide, or arranges for others to 

provide, any mortgage assistance relief 

service’’ is a ‘‘mortgage assistance relief 

service provider,’’ 157 and thus subject to 

the Rule. The proposed rule generally 

exempted from its provisions loan 

holders and servicers, and agents of 

such entities unless the agents ‘‘claim, 

demand, charge, collect, or receive any 

money or other valuable consideration 

from the consumer for the agent’s 

benefit.’’ 158

In the NPRM, the Commission 

specifically sought comment on the 

proposed exemption for loan holders 

and servicers.159 Lenders and servicers 

(who actually have the authority to 

change loan terms) may offer MARS that 

the Rule would cover in the absence of 

an exemption.160 For example, a lender 

or servicer may notify a consumer of her 

eligibility for a loan modification under 

the MHA program and assist her in 

submitting the necessary paperwork.161

In addition, lenders and servicers may 

outsource these functions to other 

parties who operate on their behalf. 

Such outsourcing is a common method 

of providing these services given the 

large number of consumers currently 

requesting assistance.162

Several comments from the financial 

services industry and consumer groups 

expressly supported the proposed 

exemption for lenders and servicers,163


jlentini on DSKJ8SOYB1PROD with RULES6
Federal Register / Vol. 75, No. 230 / Wednesday, December 1, 2010 / Rules and Regulations 75105 

borrowers and do not need additional rules to 

ensure they act in their members’ best interests.’’); 

CSBS at 2–3 (‘‘We support the Commission’s 

inclination to generally exempt loan holders and 

servicers, as well as their agents, and nonprofit 

entities excluded from the FTC’s jurisdiction from 

the definition of mortgage assistance relief service 

provider.’’); MBA at 3–4 (‘‘We are pleased that the 

proposed rule specifically excludes mortgage 

servicers.’’). 

164CUUS at 3 (‘‘The Rule should specify that the 

only lender or servicer qualifying for this 

exemption is the one currently holding the 

mortgage loan of the homeowner retaining the 

services of a MARS entity.’’). But see MBA at 4 (the 

rule should exempt contractors of lenders and 

servicers); AFSA at 3–4 (servicers’ agents and 

contractors that request or collect fees for their own 

benefit should not be excluded from the 

exemption). One commenter also requested that the 

Rule specify that ‘‘certain up-front fees are 

permissible by a licensed mortgage company, 

servicer or depository institution when necessary to 

execute a refinance, modification, or other loss 

mitigation agreement.’’ MBA at 4. As discussed, the 

rule does not apply to loan holders or servicers, and 

thus does not govern these activities. 

165One of the three commenters argued that 

lenders and servicers do not properly inform 

consumers of their foreclosure risks, lose paperwork 

associated with loan modification requests, fail to 

process these requests correctly, and mislead 

consumers about their eligibility for permanent loan 

modifications. See OPLC at 2. Another said it was 

aware of servicers who instructed homeowners to 

stop making payments and, in some cases, required 

homeowners to pay a fee to be considered for a loan 

modification. LOLLAF at 2–3. In opposing the 

exemption, a third commenter, a MARS provider, 

claimed that some lenders are ‘‘staffing up to create 

their own MARS entities’’ but did not elaborate 

further. See 1st ALC, Att. at 7. However, these 

practices fall outside of the scope of this 

rulemaking, which is focused on the conduct of 

intermediaries who consumers retain to work with 

their lenders. 

166CUUS at 3 (‘‘Consumers Union is not aware of 

any lenders or servicers actively marketing MARS 

services for a fee to their customers.’’); NAAG 

(ANPR) at 13 (‘‘We are unaware of any banks, thrifts 

or federal credit unions engaged in for-profit loan 

modification or foreclosure rescue services, aside 

from negotiating loan modifications for consumers 

whose loans they are servicing.’’); Am. Bankers 

Ass’n (ABA) (ANPR) at 6; AFSA (ANPR) at 3; HPC 

(ANPR) at 2; OH AG (ANPR) 

at 5. 

167Section 322.2(j)(1)–(2). 

168 ‘‘Dwelling loan holder’’ is defined in § 322.2(g) 

as ‘‘any individual or entity who holds the dwelling 

loan that is the subject of the offer to provide 

mortgage assistance relief services.’’ Section 322.2(l) 

defines ‘‘servicer’’ as ‘‘the individual or entity 

responsible for (1) receiving any scheduled periodic 

payments from a consumer pursuant to the terms 

of the dwelling loan that is the subject of the offer 

to provide mortgage assistance relief services, 

including amounts for escrow accounts under 

section 10 of the Real Estate Settlement Procedures 

Act (12 U.S.C. 2609), and (2) making the payments 

of principal and interest and such other payments 

with respect to the amounts received from the 

consumer as may be required pursuant to the terms 

of the mortgage servicing loan documents or 

servicing contract.’’ This definition draws upon the 

definition of servicer in the Real Estate Settlement 

Procedures Act. See 12 U.S.C. 2605(i). As noted 

above, the Final Rule adds the phrase ‘‘that is the 

subject of an offer to provide mortgage assistance 

relief services’’ to the proposed definitions of 

‘‘dwelling loan holder’’ and ‘‘servicer.’’ 

169See CUUS at 3 (‘‘[C]onsumers Union is 

concerned that the lender or servicer exemptions 

may be used by MARS entities who otherwise 

provide or service loans and are technically lenders 

or servicers, but are not the lenders or servicers for 

the mortgage loan that is the subject of MARS 

services.’’) 

170Section 322.2(j). 

171See MBA at 4 (contractors under the 

supervision and control of the servicer do not ‘‘pose 

the risk of a foreclosure scam or phantom help’’). 

172See AFSA at 3–4 (describing use of employee 

incentive programs and attorneys who work on a 

contingency). 

173To improve the organization and clarity of the 

Rule text, however, the Commission has deleted 

proposed § 322.2(j)(3), and altered the definition of 

‘‘person’’ in § 322.2(k) of the Final Rule—the 

foundational term of ‘‘mortgage assistance relief 

service provider’’— to exclude ‘‘any person [that] is 

specifically excluded from the Federal Trade 

Commission’s jurisdiction pursuant to 15 U.S.C. 44 

and 45(a)(2).’’ 

174Section 5(a)(2) of the FTC Act states: ‘‘The 

Commission is hereby empowered and directed to 

prevent persons, partnerships, or corporations 

* * * from using unfair or deceptive acts or 

practices in or affecting commerce.’’ 15 U.S.C. 

45(a)(2). Section 4 of the Act defines ‘‘corporation’’ 

to include: ‘‘any company, trust, so-called 

Massachusetts trust, or association, incorporated or 

unincorporated, which is organized to carry on 

business for its own profit or that of its members.’’ 

15 U.S.C. 44 (emphasis added). 

175These nonprofit services are described in more 

detail in Section II.C. of the ANPR. MARS ANPR, 

74 FR at 26135. 

176See, e.g., AMA v. FTC, 638 F.2d 443 (2d Cir. 

1980); FTC v. Ameridebt, Inc., 343 F. Supp. 2d 451 

(D. Md. 2004). 

177An entity that is registered as a tax exempt 

nonprofit under the Internal Revenue Code is not 

necessarily considered a nonprofit for the purposes 

of the exemption in the FTC Act. See, e.g., FTC v. 

Continued 

but some recommended modifications 

to its scope.164 Three commenters said 

that the Rule should cover lenders and 

servicers.165

The Commission has determined that 

the record supports an exemption for 

lenders and servicers. These lenders and 

servicers might provide useful MARS to 

consumers, and nothing in the record 

shows that such entities have engaged 

in the core conduct addressed by the 

Final Rule, i.e., deceiving consumers 

into paying large advance fees for 

services and not delivering promised 

results.166

Thus, the Commission adopts the 

exemption in the proposed rule for 

lenders and servicers, but with three 

modifications.167 First, the Commission 

has modified the definitions of 

‘‘servicer’’ and ‘‘dwelling loan holder’’ in 

§§ 322.2(l) and 322.2(g), respectively, to 

limit the exemption to loan holders and 

servicers of loans ‘‘that [are] the subject 

of the offer to provide mortgage 

assistance relief services.’’ 168 This 

modification clarifies that there is no 

blanket exemption for lenders and 

servicers based solely on their status,169

but rather that the Final Rule exempts 

such entities only if they offer MARS in 

connection with loans they actually 

hold or service. 

The second change to the exemption 

clarifies that it encompasses both agents 

and contractors of lenders and servicers. 

Specifically, §§ 322.2(j)(1) and (2) have 

been changed to include not only loan 

holders and servicers as well as their 

agents, but also ‘‘contractor[s] of such 

individual[s] or entit[ies].’’ 170 Adding 

the term ‘‘contractor’’ makes clear that 

the exemption would apply to third 

parties with whom lenders and servicers 

technically do not have an agency 

relationship as a matter of law, but who 

nevertheless perform MARS on their 

behalf.171

Third, the Commission has 

determined to remove the language in 

the proposed rule that would exclude 

from the exemption third parties who 

‘‘claim, demand, charge, collect, or 

receive any money or other valuable 

consideration from the consumer for the 

agent’s benefit.’’ Such language would 

have resulted in the Rule covering 

agents and contractors that lenders and 

servicers may pay on a contingency or 

commission basis.172 The Rule is not 

intended to restrict how lenders and 

servicers choose to compensate third 

parties that perform MARS functions on 

their behalf. Further, the Commission 

concludes that such a restriction on the 

exemption is not necessary to prevent 

third parties from improperly claiming 

an exemption in order to collect 

advance fees for MARS from consumers. 

The exemption applies only to those 

activities conducted within the scope of 

their agency or contractor relationship 

with exempted lenders and servicers. 

Thus, if they collect fees for MARS not 

performed on behalf of the lender or 

servicer, they would be subject to the 

Rule’s requirements. 

b. Treatment of Nonprofit Providers of 

Mortgage Relief Services 

Section 322.2(k) of the Final Rule 

retains without substantive modification 

the exemption for nonprofit entities that 

was included in the proposed rule.173

Nonprofits are excluded from the FTC’s 

jurisdiction under the FTC Act and, 

therefore, they are exempt from rules 

issued pursuant to the Omnibus 

Appropriations Act.174 This exemption 

includes bona fide nonprofit 

organizations with housing counselors 

offering MARS and nonprofit legal 

organizations representing financially 

stressed consumers.175 The FTC, 

however, does have jurisdiction over 

purported nonprofits that in fact operate 

for the profit of their members,176 and 

§ 322.2(k) does not exempt these 

entities.177


jlentini on DSKJ8SOYB1PROD with RULES6
75106 Federal Register / Vol. 75, No. 230 / Wednesday, December 1, 2010 / Rules and Regulations 

Ameridebt, Inc., 343 F. Supp. 2d 451, 460–61 (D. 

Md. 2004). 

178See, e.g., CUUS at 3 (‘‘strongly support[ ] the 

Rule’s prohibition on any representation that would 

encourage consumers not to speak with their 

servicer or lender’’); LOLLAF at 3 (‘‘endorse[ ] the 

proposed rule’s ban on MARS providers advising 

consumers not to contact their mortgage lenders 

and servicers’’); CSBS at 3 (supports prohibiting 

MARS providers from instructing consumers not to 

contact their lenders or servicers but agrees with 

limited exemption for attorneys); AFSA at 4 

(‘‘strongly support[ ] proposed § 322.3(a). MARS 

providers should be banned from advising 

consumers not to contact or communicate with 

their lenders or servicers * * * [T]elling a borrower 

not to contact a lender or servicer is the worst 

advice someone can give a borrower at risk or in 

default.’’). 

179AFSA at 4 (‘‘If lenders and servicers are unable 

to contact borrowers, they are unable to offer 

workouts or loan modifications.’’); LOLLAF at 3 

(‘‘[O]ngoing communication with mortgage servicers 

is key to any homeowner negotiating a workout to 

save their home from foreclosure.’’). 

180CUUS at 3 (‘‘[T]he foreclosure clock continues 

to run, and rather than seeking help from a 

legitimate non-profit housing counseling agency, 

the homeowner is diverted away from legitimate 

sources of help by the MARS provider’s assurances 

that they will deliver results.’’); see also CRC 

(ANPR) at 7 (‘‘People who do not have a chance of 

keeping the home are being steered away from 

legitimate, free homeowner counseling services or 

are failing to take any action before it is too late 

because they have been assured everything is being 

taken care of for them already. All too often, it is 

not.’’). 

181LOLLAF at 3 (‘‘[C]ommunication with a 

servicer may allow a homeowner to determine 

whether or not the MARS provider is providing any 

service on his or her behalf, as that provider 

promised.’’); CUUS at 3 (‘‘Consumers report often 

being instructed by MARS providers to cease all 

communication with their lenders and/or loan 

servicers, even though the provider subsequently 

does nothing of value on the homeowner’s behalf.’’). 

182AFSA at 4 (‘‘[L]enders and servicers would be 

unable to warn a borrower of a potential 

foreclosure.’’); LOLLAF at 3 (‘‘[U]rging a homeowner 

not to communicate with his/her servicers only 

increases the likelihood that a homeowner will end 

up in foreclosure, as well as burdened with 

additional late charges and other fees.’’). 

183See, e.g., ABA at 5; Bronson at 5. 

184The Final Rule does not prohibit MARS 

providers from discussing with consumers the 

advantages and disadvantages of communicating 

with their lenders and servicers, so long as 

providers do not make any deceptive claims in 

doing so. Rather, the Final Rule bars MARS 

providers from instructing consumers not to engage 

in these communications. 

185 MARS NPRM, 75 FR at 10715–16. 

186To establish that an act or practice is unfair, 

the Commission must demonstrate actual or likely 

consumer injury. 15 U.S.C. 45(n). 

187 15 U.S.C. 45(n) (codifying the Commission’s 

unfairness analysis); see also In re Int’l Harvester 

Co., 104 F.T.C. 949, 1079, 1074 n.3 (1984), 

reprinting Letter from the FTC to Hon. Wendell 

Ford and Hon. John Danforth, Comm. on 

Commerce, Sci. and Transp., United States Senate, 

Commission Statement of Policy on the Scope of 

Consumer Unfairness Jurisdiction (Dec. 17, 1980) 

(‘‘Unfairness Policy Statement’’). 

188The FTC has observed these losses repeatedly 

in its law enforcement work. See, e.g., FTC v. Loss 

Mitigation Servs., Inc., No. SACV09–800 DOC 

(ANX), Mem. Supp. Ex Parte TRO at 18–19 (C.D. 

Cal. filed July 13, 2009) (‘‘In numerous instances, 

Defendants have warned consumers that any 

contact with their lenders will hinder Defendants’ 

modification negotiations, and have threatened to 

drop consumers and deny them refunds if they 

independently talk to their lenders. Relying on this 

advice, many consumers avoid their lenders during 

critical periods, including after receiving notices of 

default or foreclosure, or other important 

communications. * * * At that point the 

cumulative effects of Defendant’s 

misrepresentations are devastating * * * [including 

that] many consumers have lost their homes.’’) 

(citations omitted); FTC v. Kirkland Young, LLC, 

No. 09–23507, Mem. Supp. P.I. at 19 (S.D. Fla. filed 

Nov. 24, 2009) (‘‘[By] attempting to sever 

communications between consumers and their 

lenders, Defendants harm consumers. * * * The 

cost to consumers is both in time and money, which 

are obviously important to consumers who are 

behind on their mortgages and facing the threat of 

foreclosure on their family’s home.’’); FTC v. US 

C. Section 322.3: Prohibited 

Representations 

Section 322.3 of the Final Rule 

prohibits MARS providers from making 

certain representations or 

misrepresentations in connection with 

mortgage assistance relief services. 

1. Section 322.3(a): Prohibited 

Statement 

Section 322.3(a) of the Final Rule 

bans MARS providers from instructing 

consumers not to communicate with 

their lender or servicer. The 

Commission has concluded that giving 

such instruction is an unfair practice. In 

addition, the Commission has 

concluded that barring such instruction 

is reasonably related to the prevention 

of deception. The provision in the Final 

Rule is slightly modified from the 

proposed rule, as detailed below. 

a. Public Comments on the Proposed 

Provision 

Several commenters supported the 

ban on instructing consumers not to 

speak with their lender or servicer, 

including two consumer groups, a 

consortium of state banking regulators, 

and two trade groups for the financial 

services industry.178 The comments 

generally warned that financiallydistressed consumers who receive this 

advice from purported MARS experts 

and follow it are prevented from 

receiving valuable information from 

their lender or servicer. More 

specifically, consumers who cease such 

communications prior to purchasing 

MARS do not learn about workout or 

modification offers available from their 

lender or servicer,179 as well as other 

information that may be material in 

evaluating the veracity of the claims 

made by the MARS provider about its 

services.180 Consumers who stop 

communicating with their lenders or 

servicers after purchasing MARS may 

not learn that the MARS provider is not 

taking the actions necessary to deliver 

the results it promised.181 Finally, in 

some cases, both before and after 

purchasing MARS, consumers who do 

not communicate with their lenders or 

servicers may not know that foreclosure 

and loss of their home is imminent.182

A few commenters objected to this 

prohibition as it applied to attorneys, 

voicing concern that it would prevent 

attorneys from properly advising their 

clients as to their mortgages.183 As 

described in § III.G. of this SBP, the 

Final Rule exempts from § 322.3(a) 

attorneys who provide MARS when 

they meet certain conditions. 

b. Final Section 322.3(a) 

Section 322.3(a) of the Final Rule 

adopts the proposed rule’s prohibition 

on the instruction,184 with one 

clarification. The proposed rule 

prohibited MARS providers from giving 

consumers such instruction ‘‘in 

connection with the advertising, 

marketing, promotion, offering for sale, 

or sale’’ of mortgage assistance relief 

services. The Final Rule clarifies that 

MARS providers also are prohibited 

from giving consumers such instruction 

in connection with performing services 

under their contracts. This change is 

consistent with the discussion of the 

scope of the prohibition in the 

NPRM,185 and with the comments 

indicating that consumers who follow 

this instruction are likely to be harmed 

even after purchasing MARS. 

c. Legal Basis 

(1) Unfairness 

The Commission concludes that it is 

an unfair practice for MARS providers 

to instruct consumers not to 

communicate with their lenders or 

servicers, because that instruction: 

(1) Causes or is likely to cause 

substantial injury to consumers,186 (2) 

that is not outweighed by countervailing 

benefits to consumers or competition, 

and (3) is not reasonably avoidable by 

consumers.187

First, consumers who follow this 

instruction suffer or are likely to suffer 

substantial injury. As the commenters 

noted, consumers who stop 

communicating with their lender or 

servicer are deprived of critical 

information about (1) possible work-out 

options, (2) the veracity of the 

provider’s claims, (3) whether the 

provider is actually performing, and (4) 

in some cases, that foreclosure and the 

loss of their homes is imminent. 

Consumers who lack this information 

may end up paying hundreds or 

thousands of dollars for MARS services 

that do not provide the promised relief, 

and may even lose their homes.188


jlentini on DSKJ8SOYB1PROD with RULES6
Federal Register / Vol. 75, No. 230 / Wednesday, December 1, 2010 / Rules and Regulations 75107 

Foreclosure Relief Corp., No. SACV09–768 JVS 

(MGX), Mem. Supp. TRO at 12 (C.D. Cal. filed July 

7, 2009) (‘‘At the company’s behest, consumers also 

stopped answering inquiries from their lenders, and 

therefore did not realize that their modifications 

were not in process and that their homes might be 

at risk. * * * Defendants’ inaction caused some 

lenders to begin foreclosure proceedings against 

consumers. Other consumers lost their homes.’’); 

FTC v. Truman Foreclosure Assistance, LLC, No. 

09–23543, Mem. Supp. P.I. at 20 (S.D. Fla. filed 

Nov. 23, 2009) (‘‘When consumers speak with their 

lenders directly, they often discover that 

Defendants had not yet contacted the lender or only 

had left messages or had non-substantive contacts 

with the lender.’’). 

189Cf Section III.G.3. (discussing the possible 

benefits to consumers when attorneys who 

represent them in legal matters give an instruction 

to stop communicating with adverse parties such as 

their lenders or servicers). 

190 Increased revenues or profits to a seller 

engaged in an act or practice are not necessarily a 

benefit to competition for purposes of unfairness 

analysis because ‘‘[t]he benefit [from the conduct] 

must be to * * * competition—not simply to the 

actor.’’ J. Howard Beales, III, The FTC’s Use of 

Unfairness Authority: Its Rise, Fall, and 

Resurrection, 2003 WL 21501809, at *14 n.51 

(2003); see In re Orkin Exterminating Co., 108 

F.T.C. 263, 364–65 (1986) (discussing benefits to 

process of competition), aff’d 849 F.2d 1354 (11th 

Cir. 1988); FTC v. J.K. Publications, Inc., 99 

F.Supp.2d 1176 (C.D. Cal. 2000); FTC v. Windward 

Mktg, No. 1:96–CV–615–FMH, 1997 U.S. Dist. 

LEXIS 17114, *29–30 (N.D. Ga. Sept. 30, 1997). 

191See supra notes 51–53. 

192The Commission concludes that prohibiting 

MARS providers from instructing consumers to stop 

communicating with their lender or servicer does 

not violate the First Amendment. The Rule restricts 

speech that is ‘‘commercial’’ in nature because it 

arises in the context of a commercial transaction 

and is ‘‘expression related solely to the economic 

interests of the speaker and its audience.’’ Cent. 

Hudson Gas & Elec. Corp. v. Pub. Serv. Comm’n, 

447 U.S. 557, 561 (1980). The intermediate scrutiny 

standard applies to restrictions on nonmisleading 

commercial speech. Milavetz, Gallop & Milavetz, 

P.A. v. United States, 130 S. Ct 1324, 1339 

(2010), slip op. at 19; Conn. State Bar Ass’n v. 

United States, 620 F.3d 81, 95 (2d Cir. 2010). 

To pass constitutional muster, commercial speech 

restrictions subject to intermediate scrutiny must 

satisfy the test the Court set forth in Central 

Hudson. Cent. Hudson Gas & Elec. Corp., 447 U.S. 

at 566. The Final Rule’s prohibition on instructing 

consumers not to communicate with their lenders 

and servicers satisfies this test. First, the 

prohibition serves a substantial governmental 

interest in ensuring that financially distressed 

consumers who face foreclosure have access to 

information that may prevent injury and may be 

critical to their ability to make decisions free of 

deception and confusion. See, e.g., Friedman v. 

Rogers, 440 U.S. 1, 16 (1979) (upholding ban on use 

of trade names by optometrists because ‘‘[r]ather 

than stifling commercial speech, [the ban] ensures 

that information regarding optometrical services 

will be communicated more fully and accurately to 

consumers’’). Second, prohibiting the instruction 

directly advances this goal by removing 

impediments to the availability of this information 

to consumers. Third, there is a reasonable fit 

between the problem—MARS providers impeding 

consumers’ access to critical information—and the 

solution, which would remove the impediment. 

Moreover, alternatives that are less restrictive of 

speech, such as a disclosure remedy, would not be 

effective means of achieving the goal. See, e.g., 

Pearson v. Shalala, 164 F.3d 650, 659 (DC Cir. 

1999) (noting that the banning of a claim may be 

permissible where a disclosure would not eliminate 

the harm the claim causes). For example, if MARS 

providers were permitted to instruct consumers not 

to communicate with their lender or servicer, but 

were required to disclose that these entities may 

have information that would be valuable to 

consumers, the inconsistent and contradictory 

nature of these statements would not prevent 

deception and would, at best, confuse consumers. 

See, e.g., Deception Policy Statement, infra note 

200, at 180; Thompson Med. Co., 104 F.T.C. at 842– 

43; In re Figgie Int’l, Inc., 107 F.T.C. 313, 401 

(1986), aff’d sub nom, Figgie Int’l Inc. v. FTC, 817 

F.2d 102 (4th Cir. 1987) (unpublished table 

decision). 

193CUUS at 3 (‘‘MARS providers should be 

prohibited from advising current or prospective 

clients who are not yet in default to stop making 

payments on their mortgage loans.’’); NAAG at 4 

(‘‘[W]e would suggest making clear that consultants 

may not advise consumers not to pay their 

mortgages.’’). 

194See, e.g., NAAG at 4 (‘‘We are aware of a 

number of rescue consultants who incorrectly claim 

that consumers’ lenders will not work with them 

until they are behind on their mortgage payments. 

We also are aware of consultants who advise 

consumers not to make mortgage payments so that 

they will be able to afford mortgage loan 

modification fees.’’); CUUS at 3 (‘‘Consumers often 

report being instructed by for-profit MARS entities 

to stop making mortgage payments in order to 

qualify for loan modification services or other forms 

of foreclosure relief.’’). 

195CUUS at 3 (Consumers are ‘‘often unaware that 

[following MARS providers’ advice to stop paying 

their mortgage] may ruin their credit scores and 

lead to fewer options to avoid foreclosure.’’); CUNA 

at 2 (following this instruction ‘‘only serves to 

increase the overall mortgage debt in addition to the 

fees and other penalties that result when payments 

to the servicer or lender are not made in a timely 

manner’’). 

196For example, the record suggests that some 

lenders, in the current financial crisis, may be more 

responsive to borrowers who are delinquent, 

especially if the borrower would not qualify for a 

loan modification under various government 

programs. See, e.g., Suzanne Capner, Lenders Await 

Call Back After Mobile Giveaway, Fin. Times, Jun. 

28, 2010 (some lenders are sending mobile phones 

programmed to call their loss mitigation 

departments to delinquent borrowers and offering 

them lower monthly payments when borrowers 

Continued 

Second, the injury is not outweighed 

by any countervailing benefits to 

consumers or competition. There is 

nothing in the record suggesting that 

there are any circumstances in which a 

non-attorney MARS provider’s 

instruction not to communicate with a 

consumer’s lender or servicer would 

benefit the consumer.189 Similarly, 

nothing in the record, including the 

comments of MARS providers, 

identifies any benefits to competition 

from such an instruction. A ‘‘benefit’’ 

this practice might bring is to increase 

MARS providers’ revenues by 

increasing the number of consumers 

who decide to contract with them. Such 

‘‘benefits’’ are not cognizable in an 

unfairness analysis.190 Consequently, 

the Commission concludes that there 

are no benefits to consumers or 

competition from this act or practice, 

and, even if there were, they clearly are 

outweighed by the substantial injury to 

consumers discussed above. 

Finally, consumers cannot reasonably 

avoid the injury this act or practice 

causes. Many consumers are unaware of 

the negative consequences of failing to 

communicate with their lender or 

servicer. Moreover, the claims many 

MARS providers make that they have 

specialized expertise 191 make it less 

likely that consumers will disregard or 

discount their advice. As a result, 

consumers cannot reasonably avoid the 

harm from such instructions. 

The Commission therefore concludes 

that MARS providers instructing 

consumers not to communicate with 

their lenders or servicers is an unfair act 

or practice. The Final Rule’s prohibition 

on this instruction is intended to 

preserve and foster consumer access to 

information from lenders and servicers 

that may shed light on issues critical to 

consumers’ decision making and their 

well-being. 

(2) Prevention of Deception 

The Final Rule’s prohibition on 

instructing consumers not to 

communicate with their lenders and 

servicers will remove a barrier to 

consumers obtaining information that 

will enable them to evaluate the truth 

and accuracy of the provider’s claims 

and to gauge the provider’s performance 

against those claims. This provision 

thus will help consumers avoid being 

deceived. Accordingly, the Commission 

has concluded that this prohibition is 

reasonably related to the goal of 

preventing deception.192

d. Recommendations by Commenters 

Not Adopted 

Several commenters, including a 

consortium of state attorneys general 

and a consumer group, recommended 

that the Commission adopt an 

additional prohibition, not included in 

proposed § 322.3(a), that would ban 

providers from instructing consumers to 

stop making their mortgage 

payments.193 The commenters asserted 

that MARS providers commonly 

mislead consumers concerning the 

consequences of not paying on their 

mortgages, for example, by telling them 

that lenders will not work with them 

unless they stop paying.194

The Commission declines to adopt 

this prohibition. The benefits and costs 

to consumers of failing to pay their 

mortgage depend on their individual 

circumstances. In most instances, it is 

not in the best interest of a consumer to 

stop paying,195 yet there are some, albeit 

limited, circumstances in which it 

might be beneficial for some consumers 

to do so.196 The Commission declines to 


jlentini on DSKJ8SOYB1PROD with RULES6
75108 Federal Register / Vol. 75, No. 230 / Wednesday, December 1, 2010 / Rules and Regulations 

call), available at http://www.ft.com/cms/s/0/ 

d6df8bec-82fe-11df-8b15-00144feabdc0.html; David 

Streitfeld & Louise Story, Bank of America to 

Reduce Mortgage Balances, N.Y. Times, Mar. 24, 

2010, available at http://www.nytimes.com/2010/ 

03/25/business/25housing.html (Bank of America 

offers mortgage balance reductions up to 30% to 

borrowers at least 60 days delinquent on their 

loans). How effective a consumer may be in 

leveraging delinquency is highly dependent on the 

particular lender, the type of loan, and the 

consumer’s financial situation. 

197See § 322.4(c). 

198CUUS at 4 (‘‘Consumers Union supports the 

non-exclusive enumeration of other 

misrepresentations that give rise to a violation 

under the proposed rule.’’); CSBS at 3 (‘‘We endorse 

the Commission’s effort to prohibit 

misrepresentations of any material aspect of any 

MARS.’’); LOLLAF at 3 (‘‘The prohibited 

misrepresentations enumerated in the proposed 

rule accurately target the deceptive conduct that it 

is intended to prevent and may help dispel the 

misconceptions that consumers hold regarding 

MARS providers.’’); MBA at 2. 

199Sections 322.3(b)(8)–(12). 

200Federal Trade Commission Policy Statement 

on Deception, appended to In re Cliffdale Assocs., 

Inc., 103 F.T.C. 110, 174–83 (1984) (‘‘Deception 

Policy Statement’’). 

201 Id. at 182–83. 

202 Id. at 182–83. 

203See supra notes 70 & 75. 

204See supra notes 72–74. 

205See Deception Policy Statement, supra note 

200, at 182. 

206See, e.g., FTC v. Fed. Loan Modification Law 

Ctr., LLP, No. SACV09–401 CJC (MLGx), Mem. 

Supp. TRO at 15 (C.D. Cal., Amd. Compl. filed June 

24, 2009) (defendant allegedly instructing 

consumers to stop making mortgage payments 

because such payments were unnecessary or would 

adversely affect consumer’s ability to obtain a loan 

modification). 

adopt the recommended prohibition 

because it could prevent MARS 

providers from disseminating truthful, 

non-misleading information that could 

be useful to some consumers. 

Nevertheless, the Commission 

recognizes that most consumers would 

be harmed if they complied with a 

MARS provider’s instruction to stop 

paying on their mortgages. Therefore, as 

discussed more fully in § III.D. of this 

SBP, the Final Rule requires that if 

providers instruct consumers not to pay 

on their mortgages, they must disclose 

clearly and prominently that not paying 

may cause consumers to lose their home 

and damage their credit rating.197

2. Section 322.3(b): Prohibited 

Misrepresentations 

a. Proposed Provision 

Section 322.3(b) of the proposed rule 

prohibited express or implied 

misrepresentations of any material 

aspect of any mortgage assistance relief 

service. To provide clarity and guidance 

to the industry, proposed §§ 322.3(b)(1)– 

(7) set forth a non-exhaustive list of 

specific misrepresentations that would 

violate the Rule, including 

misrepresentations about the following: 

(1) The likelihood of negotiating, 

obtaining, or arranging a specific form of 

mortgage relief; 

(2) The amount of time needed to 

obtain the promised mortgage relief; 

(3) The affiliation of the provider with 

the government, public programs, or 

consumers’ lenders or servicers; 

(4) Consumers’ payment obligations 

under their mortgage loans; 

(5) The terms or conditions of 

consumers’ mortgage loans; 

(6) The provider’s refund and 

cancellation policies; and 

(7) That the provider has performed 

the promised services or has the right to 

demand payment. 

The Commission received only a few 

comments specifically addressing this 

proposed provision. The comments 

were generally supportive and did not 

recommended substantive modification 

to the proposed exemplar 

misrepresentations 198—although some 

commenters recommended adding 

additional examples, as detailed below. 

b. Final Section 322.3(b) 

Section 322.3(b) of the Final Rule, like 

the proposed rule, prohibits 

misrepresenting any material aspect of 

any MARS, to prevent deception. The 

Final Rule also adopts proposed 

§§ 322.3(b)(1)–(7) without substantive 

modification, but adds five examples of 

prohibited misrepresentations: (a) 

Misrepresentations about whether 

consumers will receive legal services; 

(b) misrepresentations of the benefits 

and costs of using alternatives to forprofit MARS to obtain relief, such as 

working with the consumer’s lender or 

servicer directly or consulting with a 

nonprofit housing counselor; (c) 

misrepresentations regarding the 

amount or percentage of debts that 

consumers may save by purchasing 

MARS; (d) misrepresentations regarding 

the total costs consumers must pay to 

purchase MARS; and (e) 

misrepresentations regarding the terms, 

conditions, or limitations of any offer of 

MARS the provider obtains from the 

consumer’s lender or servicer, including 

the amount of time the consumer has to 

accept or reject the offer.199

A claim is ‘‘deceptive’’ under Section 

5 of the FTC Act if there is ‘‘a 

representation or omission of fact that is 

likely to mislead consumers acting 

reasonably under the circumstances, 

and that representation or omission is 

material.’’ 200 A representation is 

material if it is likely to influence 

consumers’ decisions or conduct.201 The 

types of misrepresentations specified in 

§§ 322.3(b)(1)–(12) of the Final Rule are 

presumed to be material to consumers 

because they pertain to the cost, central 

characteristics, efficacy, or other 

important attributes of MARS.202

The exemplar misrepresentations 

specified in the Final Rule track the 

types of false or misleading claims that 

the Commission and the states have 

challenged in law enforcement actions 

against MARS providers, as described in 

§ II.C. of this SBP, and also address 

additional deceptive practices identified 

in the comments. 

Sections 322.3(b)(1) and (2) prohibit 

MARS providers from misrepresenting 

‘‘[t]he likelihood of negotiating, 

obtaining, or arranging any represented 

service or result’’ and ‘‘the amount of 

time it will take’’ to do so. As discussed 

in § II of this SBP, MARS providers 

commonly persuade consumers to 

purchase their services with false or 

misleading promises that they can 

achieve specific successful results in a 

short time frame.203 This type of 

information is central to consumers’ 

decisions to purchase MARS. 

Section 322.3(b)(3) prohibits 

misrepresentations that any MARS is 

‘‘affiliated with, endorsed or approved 

by, or otherwise associated with’’ the 

government, nonprofit housing 

programs, or consumers’ lenders or 

servicers. To confer greater legitimacy 

on their services, MARS providers 

frequently falsely claim that their 

services are associated with such trusted 

third-party entities or programs.204

When these claims are made expressly, 

as they frequently are, they are 

presumed to be material to consumers’ 

purchasing decisions.205 Even when 

affiliation, endorsement, or approval are 

implied, such claims are clearly 

material because some consumers are 

more likely to purchase MARS they 

believe are endorsed or approved by the 

government, non-profit programs, or 

their lender or servicer. 

Sections 322.3(b)(4) and (5) bar 

misrepresentations concerning 

consumers’ payment and other 

obligations under their mortgage loans 

and the amount owed on them. MARS 

providers, for example, often falsely 

state or imply that once consumers 

retain a MARS provider, their 

obligations to pay their mortgages are 

suspended and their lenders will not 

foreclose.206 In fact, consumers who 

stop making payments may incur 

additional fees and charges and lose 

their homes, regardless of whether they 

have retained a MARS provider. The 

purported benefit of immunity from 

foreclosure is material to consumers’ 

decisions to purchase MARS and 

whether to continue making payments 

on their mortgages. Section 322.3(b)(4) 


jlentini on DSKJ8SOYB1PROD with RULES6
Federal Register / Vol. 75, No. 230 / Wednesday, December 1, 2010 / Rules and Regulations 75109 

207See supra note 77. 208The TSR Rule similarly prohibits 

misrepresentations about telemarketers’ refund and 

cancellation policies. See 6 CFR 310.3(a)(2)(iv). In 

numerous individual cases, the Commission has 

challenged as deceptive misrepresentations 

concerning the refund and cancellation polices of 

MARS providers. See FTC Case List, supra note 28. 

209Thus, for example, if a MARS provider 

represents that the fee it collects once the consumer 

has accepted the result the provider has delivered 

may later be refundable under certain conditions 

(e.g., the consumer decides his or her monthly 

payments are unaffordable), then any failure by the 

provider to observe this policy would constitute a 

violation of § 322.3(b)(6). 

210Section 322.3(b)(7) of the Final Rule makes 

one non-substantive modification to the proposed 

provision. Proposed § 322.3(b)(7) prohibited 

misrepresenting ‘‘[t]hat the mortgage assistance 

relief service provider has completed the 

represented services, as specified in § 322.5, or 

otherwise has a right to claim, demand, charge, 

collect or receive payment or other consideration.’’ 

For clarity, the Final Rule removes the phrase, ‘‘as 

specified in § 322.5,’’ and the word ‘‘otherwise.’’ 

211See supra notes 85–86; OPLC at 2–3 (‘‘Often 

mortgage assistance relief services (MARS) 

providers will imply that they will represent the 

homeowners in legal proceedings, or otherwise 

suggest or state that they have attorneys on staff that 

will resolve the homeowners’ legal proceedings. 

The list of prohibited representations should 

include a prohibition on such implications or 

statements. * * *’’); Francis at 1 (noting concern 

that some MARS providers use an attorney’s name 

in their marketing and mislead consumers ‘‘as to 

whether or not an attorney-client relationship will 

exist’’). One comment recommended that the Rule 

require MARS providers who advertise legal 

services to disclose whether an attorney will 

represent consumers in foreclosure proceedings and 

to provide the name of such attorney, and require 

that any MARS provider that uses the name of a law 

firm or attorney disclose whether it employs 

attorneys licensed to practice law in the consumer’s 

state and whether they would represent the 

consumer in foreclosure proceedings. Francis at 1. 

The Commission believes that requiring these 

disclosures is unnecessary in light of the 

prohibition on express or implied 

misrepresentations that a consumer will receive 

legal representation. The Commission believes that 

a general statement that a MARS provider offers 

legal services, in the absence of a qualifying 

disclosure, is likely to convey an implied claim that 

the attorney is properly licensed and will represent 

consumers in a foreclosure action. 

212See supra notes 84–88 and accompanying text. 

213See, e.g., FTC v. Loss Mitigation Servs., Inc., 

No. SACV09–800 DOC (ANX) (C.D. Cal. filed July 

13, 2009) (alleging that defendants represented on 

their Web site that ‘‘Representing Yourself Can Be 

Hazardous!’’ and that ‘‘you will be offered less of a 

modification or short sale than you could really 

get’’); FTC v. Truman Foreclosure Assistance, LLC, 

No. 09–23543, Mem. Supp. P.I. at 20 (S.D. Fla. filed 

Nov. 23, 2009) (alleging that defendants’ Web sites 

stated ‘‘Don’t go through this alone. You need 

professional help at a time like this.’’). 

214 It is a deceptive practice for advertisers to 

make false or misleading comparisons between 

their product and that of competing products. See, 

e.g., Novartis Corp. v. FTC, 223 F.3d 783 (DC Cir. 

2000) (advertising by drug company was deceptive 

because it falsely claimed that its pain pills were 

superior to other analgesics for treating back pain); 

Kraft, Inc. v. FTC, 970 F.2d 311, 322 (7th Cir. 1992) 

(advertising was deceptive because it falsely 

implied Kraft’s cheese slices had more calcium than 

imitation cheese slices). 

215See, e.g., FTC v. Data Med. Capital, Inc., No. 

SA–CV–99–1266 AHS (Eex), Mem. Supp. Contempt 

at 12 (C.D. Cal. filed May 27, 2009) (alleging that 

defendant claimed it could reduce consumers’ 

interest rates to 2 to 5 percent). 

will prohibit any such 

misrepresentations regarding the 

obligation of consumers to make 

payments on their current mortgages 

and the consequences of failing to pay. 

Additionally, § 322.3(b)(5) prohibits 

providers from misrepresenting the 

terms or conditions of consumers’ 

current loans—for example, by falsely 

representing that the terms are 

unfavorable in some regard in order to 

persuade consumers to purchase MARS 

that purportedly will result in 

consumers obtaining more favorable 

terms. Information regarding the terms 

and conditions of consumers’ loans is 

material to them because it is likely to 

influence their decision whether to 

purchase MARS. 

Section 322.3(b)(6) prohibits 

misrepresentations of MARS providers’ 

refund, exchange, or cancellation 

policies, including the ‘‘likelihood of 

obtaining a full or partial refund.’’ 

MARS providers commonly tout their 

liberal refund and cancellation policies, 

often to give consumers a sense of 

security that the upfront fee they are 

asked to pay will be refunded if the 

provider is unsuccessful. In fact, many 

providers do not provide refunds or 

have restrictive cancellation policies.207

Refund and cancellation policies are 

important considerations for consumers 

in deciding whether to purchase 

MARS.208 As detailed in § III.E. of this 

SBP, the Final Rule effectively allows 

consumers to withdraw from MARS at 

any time, and prohibits MARS providers 

from collecting advance fees. Section 

322.3(b)(6) will help ensure that MARS 

providers do not misrepresent to 

consumers that they are, in fact, 

obligated to continue to use the 

provider’s services. This provision will 

also help ensure that providers do not 

misrepresent whether they will refund 

fees they collect—in compliance with 

§ 322.5 of the Final Rule—after the 

consumer has accepted the mortgage 

relief delivered.209

Section 322.3(b)(7) prohibits 

misrepresentations that a MARS 

provider has achieved a represented 

result or has a right to claim, charge, or 

demand money from the consumer. This 

provision will protect consumers from 

MARS providers who make false claims 

as to whether they are entitled to receive 

fees. As detailed in § III.E. of this SBP, 

the Final Rule prohibits providers from 

collecting any fees until the consumer 

has accepted the results delivered by the 

provider. Section 322.3(b)(7) will help 

to prevent MARS providers from 

circumventing the advance fee ban in 

the Final Rule by misrepresenting that 

consumers owe fees before they have 

accepted the results delivered by the 

provider. Additionally, the claim as to 

results obtained is material to 

consumers’ decisions whether or not to 

pay the providers.210

Section 322.3(b)(8) prohibits 

providers from misrepresenting that 

consumers will ‘‘receive legal 

representation.’’ The record 

demonstrates that MARS providers 

commonly mislead consumers into 

believing that they offer legal services 

and that they employ attorneys who will 

represent consumers in legal 

proceedings.211 Further, MARS 

providers often falsely claim to be law 

firms or affiliated with attorneys.212

Whether licensed legal professionals 

will be working on consumers’ behalf is 

material because some consumers may 

believe that attorneys are adept at 

negotiating with lenders or services and, 

thus, that having their assistance will 

increase the likelihood of obtaining 

mortgage relief. 

Section 322.3(b)(9) prohibits 

misrepresentations concerning ‘‘[t]he 

availability, performance, cost, or 

characteristics of any alternative to forprofit mortgage assistance relief services 

through which the consumer can obtain 

mortgage assistance relief, including 

negotiating directly with the dwelling 

loan holder or servicer, or using any 

nonprofit housing counselor agency or 

program.’’ As discussed in § II.A. of this 

SBP, consumers sometimes can obtain 

mortgage relief at no cost from nonprofit 

housing counselor programs or by 

working directly with their lenders or 

servicers. For-profit MARS providers, 

therefore, have an incentive to make 

false or misleading claims about the 

effectiveness and value of these forms of 

competing assistance. The FTC has 

charged in its law enforcement actions 

that some MARS providers, in fact, 

make such claims.213 Information about 

potential alternatives to for-profit MARS 

is likely to influence consumers’ 

decisions regarding whether to purchase 

MARS from a for-profit provider, and if 

so, at what price.214

Section 322.3(b)(10) prohibits MARS 

providers from misrepresenting the 

‘‘amount of money or the percentage of 

the debt amount that a consumer may 

save by using the mortgage assistance 

relief service.’’ Commonly MARS 

providers have claimed that they can 

obtain specific interest rate reductions 

and other concessions from lenders, 

when, in reality, the results are true 

only for few, if any, consumers.215 This 

provision will prohibit providers from 

promising more savings than they can 


jlentini on DSKJ8SOYB1PROD with RULES6
75110 Federal Register / Vol. 75, No. 230 / Wednesday, December 1, 2010 / Rules and Regulations 

216Additionally, to the extent that providers 

obtain trial loan modifications for consumers, 

§ 322.3(b)(12) prohibits providers from 

misrepresenting that these loan modifications are 

permanent. 

217See FTC Case List, supra note 28. 

218 It is an unfair and deceptive practice, in 

violation of Section 5 of the FTC Act, to make an 

express or implied objective claim without a 

reasonable basis supporting it. See, e.g., FTC v. 

Pantron I Corp., 33 F.2d 1088, 1096 (9th Cir. 1994); 

Removatron Int’l Corp., 111 F.T.C. 206, 296–99 

(1988), aff’d, 884 F.2d 1489 (1st Cir. 1989); In re 

Thompson Med. Co., 104 F.T.C. 648, 813 (1984), 

aff’d, 791 F.2d 189 (DC Cir. 1986); see also generally 

1984 Policy Statement Regarding Advertising 

Substantiation, appended to Thompson Med. Co., 

104 F.T.C. at 813 (Advertising Substantiation Policy 

Statement); Amended Franchise Rule, 16 CFR 

436.5(s), 436.9(c); Amended Franchise Rule 

Statement of Basis and Purpose, 72 FR 15444, 

15449 (Mar. 30, 2007). 

219As discussed in the SBP addressing 

amendments to the TSR regarding debt relief 

services, claims concerning the benefits, 

performance, or efficacy of debt relief services must 

be supported by competent and reliable evidence. 

See TSR; Final Rule, 75 FR 48458, 48500 n.574 and 

accompanying text (Aug. 10, 2010). 

In addition, in order to comply with § 322.3(b), 

the prohibition against misrepresentations, a 

provider must not make false or misleading 

statements regarding the level of support it has for 

a claim. 

220 It is deceptive to make unqualified 

performance claims that are only true for some 

consumers, because reasonable consumers are 

likely to interpret such claims to apply to the 

typical consumer. See FTC v. Five-Star Auto Club, 

Inc., 97 F. Supp. 2d 502, 528–29 (S.D.N.Y. 2000) 

(holding that in the face of express earnings claims 

for multi-level marketing scheme, it was reasonable 

for consumers to have assumed the promised 

rewards were achieved by the typical participant); 

Chrysler Corp. v. FTC, 561 F.2d 357, 363 (DC Cir. 

1977); In re Ford Motor Co., 87 F.T.C. 756, 778, aff’d 

in part and remanded in part, 87 F.T.C. 792 (1976); 

In re J. B. Williams Co., 68 F.T.C. 481, 539 (1965), 

aff’d as modified, 381 F.2d 884 (6th Cir. 1967); FTC 

v. Feil, 285 F.2d 879, 885–87 & n.19 (9th Cir. 1960); 

cf. Guides Concerning the Use of Endorsements and 

Testimonials in Advertising, 16 CFR 255.2 (‘‘An 

advertisement containing an endorsement relating 

the experience of one or more consumers on a 

central or key attribute of the product or service 

also will likely be interpreted as representing that 

the endorser’s experience is representative of what 

consumers will generally achieve with the 

advertised product or service. * * *’’); In re 

Cliffdale Assocs., 103 F.T.C. 110, 171–73 (1984); 

Porter & Dietsch, Inc. v. FTC, 605 F.2d 294, 302– 

03 (7th Cir. 1979). 

Although providers may use samples of their 

historical data to substantiate savings claims, these 

samples must be representative of the entire 

relevant population of past customers. Providers 

using samples must, among other things, employ 

appropriate sampling techniques, proper statistical 

analysis, and safeguards for reducing bias and 

random error. Providers may not cherry-pick 

specific categories of consumers or exclude others 

in order to inflate the savings. See, e.g., In re Kroger 

Co., 98 F.T.C. 639, 741–46 (1979) (initial decision), 

aff’d, 98 F.T.C. at 721 (1981) (claims based on 

sampling were deceptive because certain categories 

were systematically excluded and because the 

advertiser failed to ensure that individuals who 

selected the sample were unbiased); FTC v. Litton 

Indus., Inc., 97 F.T.C. 1, 70–72 (1981) (claims 

touting superiority of microwave oven were 

deceptive because the advertiser based them on a 

biased survey of ‘‘Litton-authorized’’ service 

agencies), enforced as modified, 676 F.2d 364 (9th 

Cir. 1982); Bristol Myers v. FTC, 185 F.2d 58 (1950) 

(holding advertisements to be deceptive where they 

claimed that dentists used one brand of toothpaste 

‘‘2 to 1 over any other [brand]’’ when, in fact, the 

vast majority of dentists surveyed offered no 

response). Additionally, the relationship between 

past experience and anticipated future results must 

be an ‘‘apples-to-apples’’ comparison. If there have 

been material changes to the MARS that could 

affect the applicability of historical experience to 

future results, any claims made must account for 

the likely effect of those changes. See Amended 

Franchise Rule, 16 CFR 437.5(s)(3)(ii). 

221An unqualified efficacy claim conveys to 

consumers that the result or benefit will be 

deliver, including any promised 

reduction in the interest rate on a 

mortgage loan—a consideration of 

central importance to consumers. 

Section 322.3(b)(11) prohibits MARS 

providers from misrepresenting the 

‘‘total cost to purchase the mortgage 

assistance relief service.’’ This provision 

is designed to prevent providers from 

making deceptive claims about the 

amount of their fees—a pivotal fact for 

consumers considering whether to 

purchase MARS. 

Finally, § 322.3(b)(12) prohibits 

MARS providers from misrepresenting 

‘‘[t]he terms, conditions, or limitations 

of any offer of mortgage assistance relief 

the provider obtains from the 

consumer’s dwelling loan holder or 

servicer, including the time period in 

which the consumer must decide to 

accept the offer.’’ As discussed in § III.E. 

of this SBP, the Final Rule allows 

consumers to reject the results obtained 

by MARS providers, in which case they 

do not have to pay the provider’s fee. 

When a MARS provider obtains an offer 

for a loan modification or other 

mortgage relief and presents it to the 

consumer, the terms, conditions, and 

limitations of the offer are material to 

the consumer’s decision whether to 

accept it and pay the provider’s fee. 

Additionally, it is material for 

consumers to know how much time 

they have to accept or reject the offer for 

mortgage relief, so that they make a 

timely decision. This provision will 

ensure that providers do not deceive 

consumers regarding the results they 

have obtained and do not make 

misrepresentations that pressure them 

into accepting unfavorable terms.216 It is 

thus reasonably related to preventing 

providers from undermining the ability 

of consumers to accept or reject the 

offer. 

c. Section 322.3(c): Substantiation 

Commission law enforcement actions 

reveal that MARS providers often make 

representations about the benefits, 

performance, or efficacy of their 

services.217 MARS providers must have 

substantiation for such claims at the 

time they are made. The Final Rule 

therefore specifies that it is a violation 

of the Rule to: 

Mak[e] a representation, expressly or by 

implication, about the benefits, performance, 

or efficacy of any mortgage assistance relief 

service unless, at the time such 

representation is made, the provider 

possesses and relies upon competent and 

reliable evidence that substantiates that the 

representation is true. For the purposes of 

this paragraph, ‘‘competent and reliable 

evidence’’ means tests, analyses, research, 

studies, or other evidence based on the 

expertise of professionals in the relevant 

area, that have been conducted and evaluated 

in an objective manner by individuals 

qualified to do so, using procedures generally 

accepted in the profession to yield accurate 

and reliable results. 

Section 322.3(c) also clarifies the 

types of evidence that MARS providers 

must possess and rely upon to comply 

with § 322.3(c) when representing the 

‘‘benefits, performance, or efficacy’’ of 

any MARS. This provision encompasses 

a wide variety of claims, including but 

not limited to: the provider’s ability to 

save consumers a specific amount of 

money (e.g., a reduction in interest rate 

or monthly payments), the likelihood 

that the provider will secure a loan 

modification or other results for 

consumers, and the amount of time it 

will take for the provider to secure a 

loan modification or other result. 

Advertisers and marketers that make 

objective claims about their products 

must have a ‘‘reasonable basis’’ to 

substantiate them.218 In the particular 

context of MARS, when making claims 

regarding the performance, benefits, or 

efficacy of these services, providers 

must possess a reasonable basis in the 

form of ‘‘competent and reliable 

evidence’’ to support the claim.219 Thus, 

when a MARS provider represents that 

it will save consumers money or reduce 

their debt amount or interest rate, this 

claim must be supported by competent 

and reliable, methodologically sound 

evidence showing that consumers who 

purchase the service generally will 

obtain the advertised results, i.e., that 

the typical consumer who purchases 

MARS from that provider will achieve 

that result.220

Providers cannot circumvent the 

substantiation requirements by making 

general, non-specific claims. Thus, for 

example, if a MARS provider makes 

only a general savings claim (e.g., ‘‘we 

will help you reduce your mortgage 

payments’’), without specifying a 

percentage or amount of savings, these 

claims are likely to convey that 

consumers can expect to achieve a 

result that will be beneficial to them and 

that the benefits will be substantial.221


jlentini on DSKJ8SOYB1PROD with RULES6
Federal Register / Vol. 75, No. 230 / Wednesday, December 1, 2010 / Rules and Regulations 75111 

meaningful and not de minimis. See P. Lorillard Co. 

v. FTC, 186 F.2d 52, 57 (4th Cir. 1950) (challenging 

advertising that claimed that a brand of cigarettes 

was lowest in nicotine, tar, and resins in part 

because the difference from other brands was 

insignificant); In re Sun Co., 115 F.T.C. 560 (1992) 

(consent order) (alleging that advertising for high 

octane gasoline represented that it would provide 

superior power ‘‘that would be significant to 

consumers’’); Guides for the Use of Environmental 

Marketing Claims, 16 CFR 260.6(c) (1998) 

(‘‘Marketers should avoid implications of significant 

environmental benefits if the benefit is in fact 

negligible.’’); FTC Enforcement Policy Statement on 

Food Advertising, 59 FR 28388, 28395 & n.96 (June 

1, 1994), available at http://www.ftc.gov/bcp/ 

policystmt/ad-food.shtm (‘‘The Commission shares 

FDA’s view that health claims should not be 

asserted for foods that do not significantly 

contribute to the claimed benefit. A claim about the 

benefit of a product carries with it the implication 

that the benefit is significant.’’). 

222The Commission concludes that the 

disclosures adopted in the Final Rule are consistent 

with the First Amendment. It is well established 

that the government may ‘‘require that a commercial 

message appear in such a form, or to include such 

additional information, warnings, and disclaimers, 

as are necessary to prevent deception.’’ Va. Bd of 

Pharmacy v. Va. Citizens Consumer Council, 425 

U.S. 748, 771–72 n.24 (1976); see also Milavetz v. 

United States, 130 S. Ct. 1324, 1340–41 (2010) 

(upholding the constitutionality of a Bankruptcy 

Code provision that required debt relief agencies to 

make certain disclosures in their advertisement); 

Zauderer v. Office of Disciplinary Counsel, 471 U.S. 

626, 651 (1985) (‘‘[W]arning[s] or disclaimer[s] 

might be appropriately required * * * in order to 

dissipate the possibility of consumer confusion or 

deception.’’). 

223See supra note 140. 

224 In the NPRM, the Commission sought 

comment and empirical data bearing on the costs 

and benefits of the disclosure requirements set forth 

in the proposed rule. No comments provided such 

data. 

225Proposed §§ 322.4(a), 322.3(b)(2). 

226The latter disclosure would not be required 

when a MARS provider offers only to stop, prevent, 

or postpone a foreclosure sale or repossession, as 

described in § 322.2(i)(1). 

227See CUUS at 4 (stating that ‘‘Consumers Union 

supports the Rule’s disclosure requirements listed 

in Sec. 322.4,’’ but proposing expanded distribution 

and additional disclosures); CSBS at 3 (stating that 

‘‘state regulators believe that the disclosures 

required under § 322.4 are generally appropriate,’’ 

but proposing expanded distribution and additional 

disclosures); MA AG at 3 (stating that ‘‘I support the 

types of disclosures required in the proposed rule,’’ 

but proposing expanded distribution); LOLLAF at 3 

(stating that ‘‘[t]he required disclosures enumerated 

in the proposal will assist consumers who consider 

using a MARS provider,’’ but proposing additional 

disclosures); NAAG at 4 (stating that ‘‘we do 

generally support enhanced disclosure 

requirements,’’ but proposing additional 

disclosures); NYC DCA at 5–8 (suggesting expanded 

distribution and additional disclosures); see also 

NCLC at 3; OPLC at 3. One commenter suggested 

that MARS providers be required to provide 

consumer disclosures in the form of an FTC-drafted 

‘‘bill of rights,’’ which would include information on 

consumers’ legal rights, the risks associated with 

purchasing MARS, and information on free 

services. NYC DCA at 7. The Commission 

recognizes the value of consumer education about 

MARS but declines to adopt this recommendation. 

The Final Rule requires disclosure of the key 

information in a manner that the Commission 

believes will assist consumers in avoiding 

deception and will help ensure that consumers will 

notice and comprehend it. 

228As discussed in Section II.B, MARS providers 

often disseminate advertisements that instruct 

Continued 

Under the Final Rule, the provider must 

have competent and reliable evidence 

showing that consumers obtain such 

results. 

D. Section 322.4: Disclosures Required 

in Commercial Communications 

Proposed § 322.4 would require that 

MARS providers disclose certain 

material information to prevent 

deception and thereby assist consumers 

in making informed decisions about 

purchasing MARS.222 The Final Rule 

adopts all of these proposed disclosures. 

In addition, it requires one new 

disclosure: To inform consumers of the 

potential adverse consequences of not 

making mortgage payments. Further, the 

Final Rule expands the proposed 

disclosure regarding the total cost of the 

service to include: (1) Consumers’ rights 

to withdraw from the service and to 

accept or reject any offer of mortgage 

relief the provider obtains from the 

lender or servicer; (2) the fact that 

consumers do not have to pay the 

provider if they reject the offer; and (3) 

the cost of the services if they accept the 

offer. The Final Rule also modifies the 

structure of the proposal to clarify that 

the disclosures in this provision almost 

all fall into three main categories: (1) 

Disclosures that providers must make in 

all ‘‘general commercial 

communications’’ (a term now defined 

in § 322.2(c)(1)), such as television or 

radio advertisements; (2) disclosures 

that providers must make in all 

‘‘consumer-specific commercial 

communications’’ (a term now defined 

in § 322.2(c)(2)), such as telemarketing 

calls; and (3) disclosures that the 

provider must make in all 

communications.223 The Final Rule 

broadens the conditions under which 

the disclosures must be provided, such 

that all required disclosures (except for 

one) must be provided in all general 

commercial communications and in all 

consumer-specific commercial 

communications. The disclosures 

regarding total cost and the consumer’s 

right to withdraw from the service and 

reject mortgage relief offers need only be 

made in consumer-specific commercial 

communications. 

1. Proposed Disclosures 

The proposed rule 224 required MARS 

providers to disclose, in every 

commercial communication and every 

communication directed at a specific 

consumer prior to the consumer 

entering an agreement to purchase 

MARS, that the provider ‘‘is a for-profit 

business not associated with the 

government. This offer has not been 

approved by the government or your 

lender.’’ 225 The proposed rule also 

included two disclosures that were 

required only in communications 

directed at a specific consumer prior to 

the consumer entering into an 

agreement to purchase MARS: (1) The 

full amount the consumer must pay for 

the service; and (2) that ‘‘[e]ven if you 

buy our service, your lender may not 

agree to change your loan.’’ 226

Commenters who addressed these 

disclosures generally supported them, 

but some urged that all of the 

disclosures be required in every 

communication or advocated for 

requiring additional disclosures.227

2. Disclosures Required by the Final 

Rule 

The Commission has determined to 

adopt the proposed rule with four basic 

changes. First, the Final Rule adds 

headings to § 322.4(a)–(c), which clarify 

that the disclosures fall into three 

categories: ‘‘Disclosures in All General 

Commercial Communications’’; 

‘‘Disclosures in All Consumer-Specific 

Commercial Communications’’; and 

‘‘Disclosures in All General Commercial 

Communications, Consumer-Specific 

Commercial Communications, and 

Other Communications.’’ Second, the 

Final Rule has added a new triggered 

disclosure in § 322.4(c): ‘‘If you stop 

paying your mortgage, you could lose 

your home and damage your credit 

rating.’’ MARS providers must make this 

disclosure if they advise consumers, 

expressly or by implication, to 

discontinue making their mortgage 

payments. Third, § 322.4(b)(1) of the 

Final Rule expands the proposed total 

cost disclosure to include the following 

information: 

‘‘You may stop doing business with us at 

any time. You may accept or reject the offer 

of mortgage assistance we obtain from your 

lender [or servicer]. If you reject the offer, 

you do not have to pay us. If you accept the 

offer, you will have to pay us (insert amount 

or method for calculating the amount) for our 

services.’’ For the purposes of this paragraph, 

the amount ‘‘you will have to pay’’ shall 

consist of the total amount the consumer 

must pay to purchase, receive, and use all of 

the mortgage assistance relief services that 

are the subject of the sales offer, including, 

but not limited to, all fees and charges. 

Fourth, as suggested by the 

comments, the Final Rule provides that, 

with one exception—the disclosure of 

total cost and the right to cancel the 

service at any time—all of the required 

disclosures must be made in every 

communication with consumers prior to 

the consumers entering into an 

agreement to purchase MARS.228 As 


jlentini on DSKJ8SOYB1PROD with RULES6
75112 Federal Register / Vol. 75, No. 230 / Wednesday, December 1, 2010 / Rules and Regulations 

consumers to call a telephone number or contact an 

email address, and once consumers do so, the 

providers begin to interact with them on an 

individual level. During these individual 

interactions, MARS providers commonly contradict 

or obfuscate disclaimers made in general 

advertising. See, e.g., FTC v. Fed. Loan Modification 

Law Ctr., LLP, No. SACV09–401 CJC (MLGx) (C.D. 

Cal. filed Apr. 3, 2009) (alleging that false success 

rate claims and other deceptive claims often were 

made during telemarketing calls with consumers); 

FTC v. Loss Mitigation Servs., Inc., No. SACV09– 

800 DOC (ANX) (C.D. Cal. filed July 13, 2009) 

(same). As discussed below, the Commission 

therefore concludes that it is not sufficient to make 

the disclosures only in general advertisements. 

229The Final Rule also includes a small number 

of minor, non-substantive modifications to ensure 

that these requirements are clear and easy to 

understand. 

230See supra notes 72–74. 

231See, e.g., FTC v. Fed. Housing Modification 

Dep’t, Inc., No. 09–CV–01753 (D.D.C. filed Sept. 16, 

2009) (alleging use of direct mail material with seal 

depicting U.S. Capitol with words ‘‘NATIONS 

HOUSING MODIFICATION CENTER’’ 

superimposed); FTC v. Ryan, No. 1:09–00535 (HHK) 

(D.D.C., Amend. Compl. filed Mar. 25, 2009) 

(alleging use of government-like seal that read 

‘‘United States—Department of Housing’’ on 

defendant’s Web sites with URLs ‘‘http:// 

bailout.hud-gov.us’’ and ‘‘http://bailout.dohgov.us’’ 

and that featured prominent button linking to 

official U.S. government Web site). 

232Supra note 105. 

233 In order to clarify the application of this 

provision, however, the Final Rule includes two 

non-substantive modifications. First, the Final Rule 

clarifies that this disclosure applies to any MARS 

provider who represents, ‘‘expressly or by 

implication, that consumers will receive’’ MARS. 

This replaces the language of the proposed rule that 

stated that this disclosure applied to any MARS 

provider that ‘‘advertises any represented [mortgage 

relief].’’ Second, the Final Rule replaces the word 

‘‘buy’’ in the proposal with the phrase ‘‘accept this 

offer and use.’’ 

234This disclosure is required in all cases except 

when the only MARS offered is the service or result 

described in § 322.2(i)(1)—i.e., to stop, prevent or 

postpone any mortgage or deed of trust foreclosure 

sale, any repossession of the consumer’s property, 

or otherwise save the consumer’s dwelling from 

foreclosure or repossession. 

235Supra note 75. 

236Supra note 105. In the absence of a 

qualification, an efficacy claim may convey a 

greater likelihood of success than often is the case. 

237Commenters supported this requirement. See 

NAAG at 4 (Rule should prohibit MARS providers 

‘‘from representing that a consumer ‘should stop 

making mortgage payments’.’’); CUUS at 5 (‘‘[I]t 

would also be beneficial for MARS providers to 

disclose to consumers the consequences of not 

paying their mortgages (such as loss of their home 

and damage to their credit rating).’’); CSBS at 3 

(‘‘[D]isclosures should include the fact that 

consumers are not exempt from making their home 

payments simply because they have decided to 

pursue MARS.’’). 

238See supra note 82; CUNA at 2 (Consumers ‘‘are 

often instructed to stop making mortgage 

payments.’’). 

239 Id. 

240 It can be an unfair or deceptive practice to 

advise consumers to take a certain action without 

disclosing the attendant material adverse risks or 

consequences. See, e.g., In re North Am. Philips 

Corp., 111 F.T.C. 139, 175–84 (1988); In re Int’l 

Harvester Co., 104 F.T.C. 949, 1066–67 (unfair 

practice to conceal ‘‘fuel-geysering’’ hazard when 

using tractors). In Int’l Harvester, the Commission 

noted that it ‘‘frequently has decided that the 

omission of product safety information is an unfair 

and deceptive practice.’’ Id. at 1045 (quoting 

Firestone Tire & Rubber Co., 81 F.T.C. 398, 456 

(1972)). 

explained below, the Commission 

believes the disclosures in the Final 

Rule are appropriate, because each of 

them either is necessary to prevent 

deception or is reasonably related to 

preventing deception.229

a. Disclosures Required Both in General 

Commercial Communications and 

Consumer-Specific Commercial 

Communications 

Sections 322.4(a)(1) and 322.4(b)(2) of 

the Final Rule adopt, without 

substantive modification, the approach 

in the proposed rule and require MARS 

providers to disclose clearly and 

prominently, in each general 

commercial communication and 

consumer-specific commercial 

communication, that the MARS 

provider ‘‘is not associated with the 

government, and * * * [the] service is 

not approved by the government or your 

lender.’’ As described above, there are 

many government, nonprofit, lender and 

servicer programs providing a wide 

array of services that MARS providers 

have mimicked. The Commission and 

state law enforcement officials have 

brought numerous law enforcement 

actions against for-profit MARS 

providers who have misrepresented 

their affiliation with a government 

agency, lender, or servicer.230 These 

providers have used a variety of 

misleading techniques, including 

adopting trade names, URLs, or symbols 

that resemble those associated with 

government programs.231 Given that the 

government, for-profit entities, and 

nonprofit entities assist financially 

distressed consumers with their 

mortgages and in light of the frequency 

of deceptive affiliation claims, the 

Commission concludes that requiring 

MARS providers to disclose their 

nonaffiliation with government or other 

programs is reasonably related to the 

goal of preventing deception.232

Sections 322.4(a)(2) and 322.4(b)(3) of 

the Final Rule, which adopt the 

proposal without substantive 

modification,233 require MARS 

providers to disclose clearly and 

prominently in all their general and 

consumer-specific commercial 

communications that ‘‘[e]ven if you 

accept this offer and use our service, 

your lender may not agree to change 

your loan.’’ 234 In light of the widespread 

deceptive success and ‘‘guarantee’’ 

claims in this industry,235 this 

disclosure will ensure that consumers 

do not use MARS under the 

misimpression that they will, or are very 

likely to, receive a successful result. 

Thus, requiring such a disclosure is 

reasonably related to the goal of 

preventing deception.236

Section 322.4(c) of the Final Rule, 

which was not included in the proposed 

rule, also requires that if MARS 

providers advise consumers, expressly 

or by implication, to stop making 

mortgage payments, they must warn 

consumers: ‘‘If you stop paying your 

mortgage, you could lose your home and 

damage your credit rating.’’ 237 This 

disclosure must be provided clearly and 

prominently in all communications in 

which the triggering statement is made. 

Moreover, unlike the other disclosures 

in § 322.4, this disclosure is not limited 

to commercial communications 

occurring prior to the consumer 

agreeing to enroll in the service. Thus, 

even if the consumer has already agreed 

to use MARS, the provider must make 

this disclosure if, and when, it advises 

consumers to stop making timely 

payments. Additionally, this disclosure 

must also be made in close proximity to 

the specific triggering claim, to ensure 

that the net impression consumers take 

away reflects both the information in 

the triggering claim and the information 

in the triggered disclosure. The record 

demonstrates that MARS providers 

frequently encourage consumers, often 

through deception, to stop paying their 

mortgages and instead pay providers.238

Consumers who rely on these deceptive 

statements frequently suffer grave 

financial harm.239 The Commission 

determines, therefore, that requiring 

MARS providers who encourage 

consumers not to pay their mortgages to 

disclose the risks of following this 

advice is necessary to prevent 

deception.240

b. Disclosure Required Only in 

Consumer-Specific Commercial 

Communications 

Section 322.4(b)(1) retains, but also 

expands, the requirement in the 

proposed rule that MARS providers 

disclose, clearly and prominently, in all 

communications directed at specific 

consumers, the total amount the 

consumer will have to pay to purchase, 

receive, and use the service. 

Specifically, in addition to this cost 

information, the Final Rule requires that 

providers inform consumers that they 

(a) may withdraw from the service at 

any time, and (b) have the right to reject 

any offer of mortgage relief that the 

provider obtains from the servicer or 

lender and, (c) if they do so, they owe 

nothing to the provider. As detailed in 

§ III.E. of this SBP, the Final Rule 


jlentini on DSKJ8SOYB1PROD with RULES6
Federal Register / Vol. 75, No. 230 / Wednesday, December 1, 2010 / Rules and Regulations 75113 

241Providers may not evade this disclosure 

requirement, in whole or in part, by labeling their 

fees or charges as ‘‘penalties’’ or other terms. This 

provision requires that providers disclose all of the 

costs the consumer will have to pay the provider 

in connection with the mortgage assistance relief 

service. 

242Further, regardless of whether the provider 

discloses its fee as a flat amount or percentage of 

savings, it may not later charge the consumer a 

larger amount or percentage than initially disclosed. 

Doing so would clearly violate § 322.3(b)(11) of the 

Final Rule. 

243See NCRC Report, supra note 76, at 21. 

244Consumer research shows that the ability of 

consumers to process information and make 

rational choices may be impaired if the quantity of 

the information they receive is too great. See 

generally, Yu-Chen Chen et al., The Effects of 

Information Overload on Consumers’ Subjective 

State Towards Buying Decision in the Internet 

Shopping Environment, 8(1) Electronic Comm. Res. 

& Applications 48 (2009); Byung-Kwan Lee & WeiNa Lee, The Effect of Information Overload on 

Consumer Choice Quality in an On-Line 

Environment, 21(3) Psychol. & Marketing 159, 177 

(2004). 

245LOLLAF at 4; CUUS at 5–6 (adding that 

historical performance data would only be 

meaningful if a MARS provider had been in 

business long enough to have amassed a sufficient 

record). In contrast, a consortium of state regulators 

urged the Commission to prohibit MARS providers 

from disclosing such information because 

performance figures can be easily manipulated and 

could mislead consumers. CSBS at 3. 

246For similar reasons, the Commission declined 

to require providers to disclose their drop out rates 

in amending the TSR to address debt relief services. 

See TSR; Final Rule, 75 FR 48458, 48497 & nn. 531– 

32 (Aug. 10, 2010). 

247See supra §§ III.C.2.b. and III.D.2. 

248LOLLAF at 3–4 (require disclosure that MARS 

services are available for free from HUD-certified 

counseling agencies); CSBS at 3 (require disclosure 

that MARS services can be obtained from non-profit 

and government organizations for little or no cost); 

LFSV at 3; NAAG at 4–5. 

249See § 322.3(b)(9). 

250NYC DCA at 6. 

prohibits providers from collecting fees 

until the consumer has accepted the 

result obtained by the provider. The 

Commission determines that, to 

effectuate the advance fee ban, it also is 

necessary for the provider to inform 

consumers that they may withdraw from 

the service, and may accept or reject the 

result delivered by the provider. Thus, 

this disclosure is reasonably related to 

preventing unfair and deceptive acts 

and practices by MARS providers. 

As in the proposed rule, § 322.4(b)(1) 

of the Final Rule also requires providers 

to disclose the total cost of their 

services.241 To the extent that a provider 

bases its fee on a fixed percentage of the 

amount of money the consumer saves as 

a result of the service (instead of 

charging a flat fee), it must disclose this 

percentage.242 This disclosure is limited 

to communications directed at a specific 

consumer because MARS providers 

often charge consumers different 

amounts based on their individual 

circumstances. In such cases, it would 

be very difficult or impossible to 

provide accurate information about total 

cost in commercial communications 

directed at general audiences. 

Nevertheless, the record shows that 

many MARS providers do not inform 

individual consumers about their fees 

prior to the time of contracting.243 The 

total cost of a MARS is perhaps the most 

material information for consumers in 

making decisions whether to enter into 

a transaction with the provider. 

Requiring this disclosure will help 

protect consumers from being misled by 

providers who give incomplete, 

inaccurate, or confusing cost 

information. This disclosure, therefore, 

is reasonably related to the prevention 

of deception. 

3. Disclosures Not Adopted 

The Commission declines to adopt 

some modifications to the disclosure 

requirements that some commenters 

suggested. The reasons are set forth 

below. As a general matter, the 

disclosures required in the Final Rule 

are focused on responding to the core 

unfair and deceptive acts and practices 

that the Commission has identified 

through its law enforcement actions and 

through public comments. Adding more 

disclosure requirements, even to the 

extent they might provide some help to 

some consumers, risks overshadowing 

more important information or 

overloading consumers with too much 

information.244

Two commenters suggested that 

requiring MARS providers to disclose 

their historical performance could help 

consumers understand the risks in 

purchasing MARS from them.245

Performance data, if it could be 

calculated in a useful, non-misleading 

way, likely would be valuable 

information to consumers in deciding 

whether to purchase MARS. The 

Commission has concluded, however, 

that requiring MARS providers to 

disclose their performance data is 

impracticable. Given the broad variety 

of results MARS providers might be able 

to obtain, they would have to 

incorporate many potential variables to 

calculate success rates for consumers. 

For example, one consumer may 

consider a short sale a success, while 

another may consider only a loan 

modification to be a success. It is, 

therefore, impracticable to develop 

accurate and comparable performance 

data that providers could disclose to 

consumers. Moreover, requiring 

disclosure of historical performance 

data would not be feasible for the large 

number of MARS providers who are 

new market entrants, because they lack 

past data on which to base a valid 

historical performance claim. Further, 

shifting market conditions and changes 

in government and other assistance 

programs could have substantial effects 

on the reliability of historical 

performance data as a predictor of 

future success.246 The Commission 

concludes that, to prevent providers 

from deceiving consumers regarding 

their performance, it is enough that: (1) 

§ 322.3(b)(1) of the Final Rule prohibits 

MARS providers from misrepresenting 

the likelihood that purchasing MARS 

will result in a successful outcome, and 

(2) §§ 322.4(a)(2) and 322.4(b)(3) require 

providers to disclose that lenders may 

not agree to modify loans even if 

consumers purchase MARS.247

Four commenters suggested that 

MARS providers be required to disclose 

that MARS are available for free or at 

lower cost from nonprofit housing 

counseling agencies, such as those 

certified by HUD, and disclose the 

contact information for these 

agencies.248 Although some consumers 

would benefit from this information, it 

is already available from other sources, 

including the agencies themselves. In 

addition, the Commission is mindful of 

the need to limit the number of 

disclosures to maximize their 

effectiveness. As noted above, the 

greater the number of disclosures, the 

higher the risk of overloading 

consumers such that they do not read or 

comprehend any of the information. For 

these reasons, the Commission 

determines that the Final Rule’s 

prohibition on misrepresenting the 

availability, performance, cost, or 

characteristics of any alternative means 

for consumers to obtain MARS, which 

includes misrepresentations regarding 

any nonprofit housing counseling 

agency or program, is sufficient.249

Finally, one commenter suggested 

that MARS providers be required to 

provide their physical address and 

landline telephone number.250 Many 

MARS providers, like other businesses, 

routinely make contact information 

available to prospective customers and 

do not need to be compelled to do so. 

In addition, after the consumer agrees to 

use a provider’s services, the 

prohibition on advance fees in the Final 

Rule means that the provider will have 

to communicate with the consumer to 

proffer the results and obtain payment. 

There is no information in the record to 

support the conclusion that MARS 

providers generally are not already 

making their contact information 

available, or that they generally would 

not make such information available to 

get paid. In the absence of information 


jlentini on DSKJ8SOYB1PROD with RULES6
75114 Federal Register / Vol. 75, No. 230 / Wednesday, December 1, 2010 / Rules and Regulations 

251As detailed in the NPRM, many of these 

commenters recommended at the ANPR stage that 

the Commission include an advance fee ban. See 

MARS NPRM, 74 FR at 10808 & nn.19–21. In 

addition, some commenters who did not comment 

on the NPRM had advocated an advance fee ban at 

the ANPR stage. See CRC (ANPR) at 4 (‘‘Banning 

advance fees is a crucial component to any effort 

to reduce * * * unfair and deceptive practices in 

the loan modification industry and will likely push 

many scam artists out of our communities. The FTC 

should ban the collection of advance fees outright 

* * *.’’); Shriver at 2 (recommending prohibition 

on up-front fees); NCLR at 1 (recommending that 

up-front fees be banned); CMC at 8 (‘‘The CMC 

would support a ban or limitation on the collection 

of advance fees by MARS providers.’’); Chase at 3 

(‘‘[T]he payment of advance fees should be banned 

because there is no guarantee the MARS provider 

will be successful * * *.’’); HPC at 2 (arguing that 

consumers should not be required to pay up-front 

fees). 

252NAAG at 2–3; see also NAAG (ANPR) at 9 (‘‘A 

ban on advance fees * * * is necessary for any 

meaningful mortgage consultant regulation * * *. 

A key provision of any rule regulating mortgage 

consultants is that no fee may be charged or 

collected until after the mortgage consultant has 

fully performed each and every service the 

mortgage consultant contracted to perform or 

represented that he or she would perform.’’). 

253NAAG at 2. 

254See, e.g., MN AG at 2–3; MA AG at 1; OH AG 

at 1; see also, e.g., NYC DCA at 3–5 (New York City 

Department of Consumer Affairs stating support for 

advance fee ban). 

255See CSBS at 3. 

256See NAAG at 3; MN AG at 3; CSBS at 4; MA 

AG at 2. Some commenters also noted that they 

have observed MARS providers that charge fees 

piecemeal in order to circumvent state statutory 

advance fee bans. See NAAG at 3; MN AG at 3; MA 

AG at 2. 

257NAAG at 3; MN AG at 3; MA AG at 2 (‘‘[U]nder 

an exemption for piecemeal fees, providers would 

continue the widespread current practice of front 

loading piecemeal fees, so that the provider quickly 

obtains a substantial payment that is 

disproportionate to the amount of services 

provided.’’). 

258See CRL; LFSV at 2–3; LCCR at 4; WMC at 1; 

NCLC at 3; LOLLAF at 4; CUUS at 6–8. 

259See, e.g., CUUS at 7 (‘‘The prohibitions on 

advance fee payments is the most effective tool in 

this proposed rule to drive bad actors from the 

marketplace, making room for the legitimate 

companies to fill in the void and provide quality, 

honest services and products to consumers.’’); NCLC 

at 3 (‘‘The single most important provision is 

section 322.5 * * *. Wrongdoers are attracted to 

mortgage assistance relief services by the potential 

for extracting large payments from homeowners 

without performing any work or providing anything 

of value. Requiring mortgage assistance relief 

services (MARS) providers to earn their fee before 

being paid will rid the market of those who 

specialize in nothing more than ‘take the money 

and run.’’’); LCCR at 4 (‘‘The ban will also protect 

struggling homeowners by incentivizing MARS 

providers to represent their capabilities in a way 

that reflects services they can realistically provide 

in a timely manner.’’). 

in the record SE showing that contact 

information is or will be lacking, the 

Commission declines to include in the 

Final Rule a requirement that MARS 

providers must disclose this 

information. 

E. Section 322.5: Prohibition on 

Collection of Advance Fees and Related 

Disclosures 

The proposed rule banned MARS 

providers from requiring that consumers 

pay in advance for their services, i.e., 

prior to providers delivering the 

promised results. The Commission has 

determined to adopt an advance fee ban 

in the Final Rule, but with two 

significant revisions to the ban in the 

proposed rule. First, the Final Rule 

prohibits a provider of any mortgage 

assistance relief service—including loan 

modifications or other forms of MARS— 

from collecting any fees until the 

provider negotiates, and the consumer 

executes, a written agreement for 

mortgage relief with the lender or 

servicer. Second, to effectuate this 

provision, the Final Rule also requires 

MARS providers, at the time of 

forwarding the offer of mortgage relief, 

to disclose that consumers have the 

right to accept or reject the offer, and to 

provide consumers with a notice from 

their lender or servicer disclosing the 

material differences between the terms, 

conditions, and limitations of 

consumers’ current loans and those 

associated with the offer for mortgage 

relief. These provisions supplant the 

proposed rule’s allowance of fees once 

(1) the provider delivers an offer from 

the servicer or lender for a mortgage 

loan modification meeting certain 

minimum requirements; or (2) in the 

case of providers offering MARS other 

than loan modifications, the provider 

delivers the result that it represented it 

would deliver. The reasons for these 

alterations to the proposed rule are 

discussed below. 

1. Proposed Rule and Public Comments 

Received 

The advance fee ban in the proposed 

rule included two separate provisions, 

one addressing the marketing of MARS 

generally and the other addressing the 

marketing of MARS specifically to 

obtain loan modifications. The first 

provision in the proposed rule, 

§ 322.5(a), prohibited MARS providers 

from requesting or receiving payment 

until they achieved all of the results 

that: (1) The provider had represented 

that the service would achieve; and (2) 

would be consistent with consumers’ 

reasonable expectations about the 

service. The second provision, proposed 

§ 322.5(b), prohibited MARS providers 

that represented that they would obtain 

a loan modification from requesting or 

receiving payment until they had 

achieved a modification meeting certain 

specifications, namely: The contractual 

change to one or more terms of an 

existing dwelling loan between the 

consumer and the owner of such debt 

that substantially reduces the 

consumer’s scheduled periodic 

payments, where the change is (1) 

Permanent for a period of five years or 

more; or (2) Will become permanent for 

a period of five years or more once the 

consumer successfully completes a trial 

period of three months or less. 

The proposed rule also required 

MARS providers, prior to collecting 

payment, to furnish to consumers 

documentation showing that they have 

secured an offer of mortgage relief from 

the consumer’s lender or servicer. 

a. Comments Supporting the Advance 

Fee Ban 

A large number of commenters 

supported the proposed advance fee 

ban.251 NAAG’s comment, representing 

40 attorneys general, urged the 

Commission to adopt proposed § 322.5, 

arguing that it was ‘‘critical’’ and ‘‘the 

linchpin of effective deterrence of 

fraudulent practices’’ by MARS 

providers.252 According to NAAG, ‘‘[t]he 

collection of advance fees virtually 

ensures that consumers will have no 

recourse when consultants fail to 

perform services, as is generally the 

case.’’ 253 Three state attorneys general 

who joined the NAAG comment also 

submitted individual comments offering 

similar reasons for supporting the 

proposed advance fee ban.254 In 

addition, a coalition of state regulators 

of financial institutions supported the 

proposed ban, arguing that it would 

curb abuses in the MARS industry.255

NAAG, individual state attorneys 

general, and the financial institution 

regulators specifically recommended 

that a final rule eliminate the possibility 

of MARS providers evading the ban by 

charging fees on a piecemeal basis 

before they have delivered all of the 

results they represented.256 NAAG and 

the individual state attorneys general 

noted that many MARS providers split 

their service into discrete steps and then 

demand most of their fees after 

completing relatively insignificant 

initial steps, such as answering a phone 

call or sending the consumer 

preliminary forms.257

A wide array of consumer advocates, 

community organizations, and legal 

service providers also submitted 

comments generally supporting the 

proposed advance fee ban.258 These 

comments argued that a ban is necessary 

to ensure that providers deliver the 

results they promise and to curb 

deception and abuse.259 Like those of 

the state law enforcement agencies and 

financial regulators, some of these 

comments also urged the Commission to 


jlentini on DSKJ8SOYB1PROD with RULES6
Federal Register / Vol. 75, No. 230 / Wednesday, December 1, 2010 / Rules and Regulations 75115 

260See LFSV at 2; LCCR at 8; LOLLAF at 5 

(‘‘Allowing any fees to be collected prior to 

providing a permanent loan modification presents 

MARS providers with a back door opportunity to 

extract significant sums of money without any 

benefit provided to the consumer.’’). 

261See, e.g., MBA at 2–3; AFSA at 5. AFSA 

argued that banning advance fees is the best way 

to ensure that providers deliver a beneficial service 

to consumers. 

262See Greenfield at 2 (‘‘We applaud the basic 

restrictions that are proposed on the ability of 

MARS providers * * * to request and accept 

advance fees. These restrictions are warranted 

because there is ample evidence from the state 

Attorneys General and other sources in California 

and nationwide that persons who are looking to 

take advantage of distressed consumers are 

gravitating toward this relatively new field.’’). 

263 75 FR at 10730–31. For purposes of discussion 

in this Section of the SBP, the Commission uses the 

phrase ‘‘dedicated account’’ to include any account 

into which a MARS provider might request or 

require consumers to set aside fees to ensure that 

the provider can later collect them. The term 

encompasses an ‘‘escrow account,’’ a phrase 

frequently used in the real estate context to describe 

an account controlled by a third-party administrator 

into which a consumer places a deposit for the 

purchase of a home. It also encompasses a ‘‘trust 

account,’’ a phrase most commonly used to describe 

funds paid by clients to attorneys, which attorneys 

set aside and from which they later collect or 

withdraw their fees. The public comments and 

other materials in the record sometimes use these 

phrases interchangeably, and the Commission 

intends for ‘‘dedicated accounts’’ to include all of 

these mechanisms, and any other variations, for 

setting aside consumer funds. 

264See NAAG at 2–3; MA AG at 2; CSBS at 4; see 

also NYC DCA at 5. Specifically, NAAG raised 

concerns that the use of dedicated accounts would 

not protect consumers because (as demonstrated in 

one law enforcement action described in its 

comment) providers might inappropriately access 

the funds set aside or refuse to return those funds 

to consumers. NAAG at 2–3. In response to similar 

concerns about permitting dedicated accounts in 

the provision of debt relief services, for purposes of 

its recent amendments to the TSR, the Commission 

imposed several conditions for using such accounts 

to ensure that providers do not improperly obtain 

or control the funds. See TSR; Final Rule, 75 FR at 

49490–91. 

265CUUS at 6; LCCR at 4; LOLLAF at 5. 

266LOLLAF at 5; CUUS at 6. 

267LFSV at 3; CUUS at 7; WMC at 2; LOLLAF at 

5. 

268LFSV at 3; LOLLAF at 5. 

269See, e.g., Mobley; Deal; Rogers; Dargon; Holler; 

Giles; 1st ALC. Many of the objections that MARS 

providers who are attorneys raised to the proposed 

advance fee ban applied equally to non-attorney 

MARS providers. Other objections were attorneyspecific. 

270See, e.g., MFP (non-attorney provider); 

Metropolis (same); Rate Modifications (same); 

Fortress (same). 

271See, e.g., Giles at 3–4; Dargon at 2. 

272See, e.g., Dargon at 2; Goldberg at 2; Greenfield 

at 4. 

273See, e.g., 1st ALC at 8. 

274See, e.g., Giles at 3. 

275See, e.g., Giles at 3 (‘‘I do the ‘hand holding’ 

throughout the process and I am the one that 

assures them they are not going to lose their 

homes.’’). One commenter also noted that, even 

when unsuccessful at obtaining a loan modification, 

he often can force a delay in his customers’ 

foreclosure proceedings so that they can remain in 

their homes for an additional period of time. See 

Carr at 3. 

276See Rogers at 2 (stating that his firm has 

obtained trial modifications for over 90% of its 

customers and has never failed to convert a trial 

modification into a permanent modification); 

Hawthorne at 1 (‘‘I have over 600 success stories, 

and i [sic] get 80 loan modifications in a month for 

our clients.’’). 

277See, e.g., Sygit at 1; Rate Modifications at 1; 

Rogers at 9–10; Wallace at 1; Holler at 1; Giles at 

3; Dargon at 1, 3; Carr at 5; Goldberg at 1–2; Deal 

at 4. One comment submitted by a group of 

attorneys who provide MARS suggested that many 

attorneys in California have already stopped 

offering these services to consumers as a result of 

that state’s advance fee ban, which recently became 

applicable to attorneys. See Greenfield at 4. 

278See, e.g., Rogers at 9; Dix at 1; GLS at 1; 

Hunter at 1 (‘‘How are the lights, phones, 

computers, marketing, and payroll to be met if we 

only receive compensation down the road?’’). 

279See, e.g., Rogers at 9; Peters at 1; GLS at 1; 

Dargon at 3; Giles at 3 (noting that ‘‘a successful 

loan modification takes a year, and is never 

accomplished in less than six (6) months’’); 

Greenfield at 4 (‘‘Mortgage loan modifications often 

take from six months to a year to reach a 

resolution.’’). 

280USHS at 1; Rogers at 9; ARS/Peters at 1; GLS 

at 1; ARS/Peters at 1 (stating that, under California 

law barring upfront fees, ‘‘I am having to spend 

hours chasing down payments from clients and 

getting the run around’’); Deal at 5 (‘‘I am not 

interested in chasing clients who fail to pay. It is 

usually a waste of time and money.’’). 

prohibit MARS providers from 

collecting fees piecemeal.260

Comments from the financial services 

industry, including a trade association 

representing mortgage brokers and 

another representing financial 

institutions, also supported the advance 

fee ban.261 In addition, several 

California attorneys who provide MARS 

supported an advance fee ban for nonattorney MARS providers, asserting that 

it would curb their abuses.262

In the NPRM, the Commission 

requested comment on possible 

alternatives to the proposed advance fee 

ban, e.g., permitting a limited advance 

fee or allowing providers to require 

consumers to set fees aside in a 

dedicated account.263 In response to this 

request, state attorneys general and 

regulators argued that the alternatives 

on which the Commission requested 

comment would be inadequate to 

prevent deception and unfairness.264

Several consumer group comments 

similarly recommended that the 

Commission not adopt either of these 

alternatives. For example, three 

commenters specifically opposed 

allowing providers to collect a fixed, 

limited advance fee; 265 two of the three 

argued that providers would collect any 

upfront fee amount permitted and never 

provide any benefits to consumers.266

Other commenters urged the 

Commission not to permit providers to 

force consumers to set aside fees in 

dedicated accounts.267 Among other 

reasons, these commenters asserted that 

allowing MARS providers to require 

such accounts would place the onus on 

consumers to recover the deposited 

funds if providers failed to perform.268

b. Comments Opposing the Proposed 

Advance Fee Ban 

A number of MARS providers, many 

of them attorneys,269 submitted 

comments opposing the proposed 

advance fee ban.270 These commenters 

offered several reasons for their 

opposition. First, MARS providers 

argued that their services frequently 

confer substantial benefits on 

consumers, including collecting, 

reviewing, and explaining to consumers 

the paperwork sent by lenders and 

servicers; 271 making repeated phone 

calls on behalf of consumers to lenders 

and servicers to ensure that they have 

received necessary information and 

documents; 272 advising consumers on 

whether they would be eligible for a 

loan modification or other 

alternative; 273 recommending that 

consumers consider bankruptcy; 274 and 

offering emotional support.275 At least 

two MARS providers submitted 

comments claiming that they have 

secured loan modifications for a large 

number of their customers,276 although 

they offered no data or other 

substantiation for these claims. 

Second, MARS providers asserted 

that, without the ability to collect fees 

in advance, legitimate MARS providers 

would be unable to stay in business and 

would stop providing services, leaving 

consumers either without assistance or 

vulnerable to illegitimate providers.277

These commenters argued that MARS 

providers need advance fees to cover 

their ongoing operating costs—e.g., for 

payroll, office space, and equipment—as 

well as the direct costs of seeking 

modifications, all of which they incur 

prior to obtaining the modifications.278

The commenters claimed that, as a 

result of delays and other problems 

lenders and servicers cause, it can take 

from several months to a year to obtain 

a modification, a long time to go 

without being paid.279 The commenters 

also argued that they need consumers’ 

payments upfront because most 

consumers who purchase MARS are in 

financial distress and may be unwilling 

or unable to pay the amount owed to the 

provider even when the provider has 

completely fulfilled its promises.280

2. Legal Basis 

a. Unfairness 

Based on the record in this 

proceeding, the Commission concludes 

that it is an unfair act or practice for 

MARS providers to charge advance fees, 

because: (1) It causes or is likely to 


jlentini on DSKJ8SOYB1PROD with RULES6
75116 Federal Register / Vol. 75, No. 230 / Wednesday, December 1, 2010 / Rules and Regulations 

281 15 U.S.C. 45(n). 

282See supra notes 47–49 and accompanying text. 

In the Commission’s law enforcement actions, 

MARS providers uniformly have charged advance 

fees to consumers. See FTC Case List, supra note 

28. But see USHS at 1 (MARS provider stating that 

he only collects fees after obtaining a trial 

modification for his customers). 

283See TSR; Final Rule, 75 FR at 48482. 

Moreover, this practice creates incentives for MARS 

providers that are fundamentally at odds with the 

interests of consumers—to expend their resources 

on soliciting customers and collecting fees, rather 

than providing services. See also id. at 48484. 

284See, e.g., NCRC (ANPR) at 3 (‘‘The high costs 

of loan modification and foreclosure rescue services 

may also prevent financially stressed consumers 

from being able to pay their regular mortgage 

payment, if they buy into companies’ promises. If 

the company does not deliver, they may be unable 

to correct the delinquency for lack of these funds.’’); 

NAAG (ANPR) at 10 (‘‘Paying the fee upfront likely 

means that some of the consumer’s other bills will 

not be paid or that the consumer will have to use 

credit cards or funds from friends or family.’’); MN 

AG (ANPR) at 2 (‘‘These advance fees often make 

it even more difficult for the homeowner—and the 

loan modification or foreclosure rescue 

consultant—to effectively resolve the homeowner’s 

financial dilemma.’’); see also TSR; Final Rule, 75 

FR at 48484. 

285Financial Services and Products: The Role of 

the Federal Trade Commission in Protecting 

Consumers, Hearing Before the S. Comm. on 

Commerce, Sci. & Transp., 111th Cong. 6 (2010) 

(testimony of FTC). 

286See, e.g., FTC Case List, supra note 28; NAAG 

(ANPR) at 6 (‘‘In our experience, we have found that 

services provided by foreclosure rescue services 

companies result only in costs to consumers. There 

are no benefits. The companies collect an upfront 

fee that consumers can ill-afford to pay. Consumers 

then submit financial information to the companies 

and the companies promise to forward the 

information to the consumers’ loan servicers and 

obtain a loan modification offer. In the majority of 

cases, the companies do nothing with the 

consumers’ information. The consumers then end 

up turning to a non-profit for help, calling their 

servicers themselves, or falling further behind on 

their mortgage payments as they wait for the 

promised loan modification offer that never 

materializes.’’); see also, e.g., Press Release, Cal. 

Att’y Gen., Four Arrested, Five Wanted for Fleecing 

Hundreds of Homeowners Seeking Foreclosure 

Relief (May 20, 2010) (criminal matter alleging that, 

‘‘[i]n almost every case, no loan modifications were 

completed [by defendants], as promised,’’ although 

they promoted 90% to 100% success rates), 

available at http://ag.ca.gov/newsalerts/ 

release.php?id=1923; NAAG (ANPR) at 3 (‘‘As of 

July 1, 2009, the Office of the Illinois Attorney 

General had identified roughly 170 companies 

operating in Illinois that appeared to have offered 

or were presently offering foreclosure rescue 

services that violated Illinois state laws. The 

majority of these companies take impermissible upfront fees and then fail to deliver promised 

services.’’); MN AG (ANPR) at 2 (‘‘As a general rule, 

these companies provide no service, or at most, 

simply submit paperwork to the homeowner’s 

mortgage company.’’); Chase (ANPR) at 1 (‘‘Chase’s 

experience has been that MARS entities disrupt the 

loan modification process and provide little value 

in exchange for the high fees they charge.’’). 

287FTC v. Data Med. Capital, Inc., No. SA–CV– 

99–1266 AHS (Eex), Contempt Or. at 55 (C.D. Cal. 

filed Jan. 15, 2010). 

288FTC v. Truman Foreclosure Assistance, LLC, 

No. 09–23543, Order Granting Prelim. Injunct. at 11 

(S.D. Fla. entered Jan. 11, 2010); see also, e.g., FTC 

v. Federal Loan Modification Ctr., LLP, No. SACV 

09–401 CJC (MLGx), Mem. Sup. Pls. Mot. Supp. 

Summ. J. at 13 (C.D. Cal. filed Oct. 6, 2010) (alleging 

that company obtained results for consumers at a 

rate ranging from 8.9% to 17.76%); FTC v. Loss 

Mitigation Servs., Inc., No. SACV09–800 DOC 

(ANX), Rep. Mem. Supp. Prelim. Injunct. at 2 (C.D. 

Cal. filed Aug. 13, 2009) (alleging that, even 

according to statistics self reported by defendant, 

‘‘only 27% of [defendant’s] clients were ‘approved’ 

for a loan modification, and only 16% found the 

modification acceptable’’); FTC v. US Foreclosure 

Relief Corp., No. SACV09–768 JVS (MGX), Second 

Int. Rep. Temp. Receiver at 4 (C.D. Cal. filed Sept. 

17, 2009) (estimating that 21% of defendants’ 

customers were approved for loan modifications); 

FTC v. LucasLawCenter ‘‘Inc.’’, No. SACV–09–770 

DOC (ANX), Mem. Supp. TRO at 19 (C.D. Cal. filed 

July 7, 2009) (alleging that ‘‘[n]early every consumer 

who is promised a loan modification never received 

any offer to modify their home loans’’); FTC v. 

Freedom Foreclosure Prevention Specialists, LLC, 

No. 2:09–cv–01167–FJM (D. Ariz. June 1, 2009) 

(alleging that defendants only completed loan 

modifications for about 6% of customers). 

289See IL AG (June 30, 2010) at 2–4; see also GAO 

Report, supra note 45, Executive Summary (finding 

that ‘‘the most active [MARS] scheme is one in 

which individuals or companies charge a fee for 

services not rendered’’). 

290See, e.g., FTC Case List, supra note 28. 

291See, e.g., Manuel Adelino et al., Why Don’t 

Lenders Renegotiate More Home Mortgages? 

Redefaults, Self-Cures, and Securitization 3 

(Federal Reserve Bank of Atlanta, Working Paper 

No. 2009–17a, 2009), available at http:// 

www.bos.frb.org/economic/ppdp/2009/ 

ppdp0904.pdf (finding that lender provided 

monthly payment-lowering modifications to only 

3% of seriously delinquent loans in 2007 and 2008); 

NCLC at 6 (pointing to ‘‘[o]ne analysis of statistics 

for modifications made in May 2009 [which] 

showed that only 12% reduced the interest rate or 

wrote-off fees or principal’’). 

292See supra note 291; see also, e.g., Alan M. 

White, Deleveraging the American Homeowner: The 

Failure of 2008 Voluntary Mortgage Contract 

Modifications, 41 Conn. L. Rev. 1107, 1111 (2009) 

(arguing, inter alia, that ‘‘[n]o single servicer or 

group of servicer * * * has any incentive to 

organize a pause in foreclosures or organized 

deleveraging program to benefit the group’’). But see 

Press Release, HOPE NOW, HOPE NOW Reports 

More Than 476,000 Loan Modifications in First 

Quarter of 2010 (May 10, 2010) (coalition including 

mortgage servicers announcing that its members 

have offered 2.88 million loan modifications to 

consumers), available at http://www.hopenow.com/ 

press_release/files/ 

1Q%20Data%20Release_05_10_10.pdf. 

cause substantial injury to consumers; 

(2) the injury is not outweighed by 

countervailing benefits to consumers or 

competition; and (3) the injury is not 

reasonably avoidable by consumers 

themselves.281 To prevent this injury, 

the Final Rule bans MARS providers 

from collecting advance fees for their 

services. 

(1) Consumer Injury from Advance Fees 

The record shows that charging fees 

for MARS prior to delivering results— 

the most common business model in 

this industry 282—causes or is likely to 

cause substantial injury to consumers. 

Consumers in financial distress suffer 

monetary harm—in the hundreds or 

thousands of dollars—when, following 

sales pitches frequently characterized by 

high pressure and deception, they use 

their scarce funds to pay in advance for 

promised results that rarely 

materialize.283 When MARS providers 

fail to perform, consumers may lose 

funds they need to make monthly 

mortgage payments and thus may lose 

their homes as well. 

(a) Consumers Are Injured Because 

They Pay for Services That Are Never 

Provided 

The record shows that MARS 

providers do not achieve successful 

results for the vast majority of their 

customers. Consumers who pay advance 

fees but do not receive promised 

benefits lose the often considerable 

sums they have paid for MARS services 

(typically hundreds or thousands of 

dollars), funds financially-distressed 

consumers often need to make mortgage 

payments or meet other basic needs.284

The FTC and state law enforcement 

agencies have collectively filed over two 

hundred cases against MARS 

providers.285 These cases typically have 

alleged that the defendants employed 

deceptive success claims to entice 

consumers to purchase their services, 

and then did not produce the results 

they promised.286 In one recent FTC 

action, for example, the court found that 

defendants successfully obtained loan 

modifications for fewer than 5% of their 

customers, despite their frequent claims 

of a 90% or 100% success rate.287

Similarly, the court in another FTC 

lawsuit concluded that the defendants 

had a success rate of ‘‘no more than 

between 1% and 10%.’’ 288 The Illinois 

Attorney General likewise submitted a 

comment stating that in the majority of 

its lawsuits against MARS providers, 

virtually none of the defendants’ 

customers appear to have receive 

promised services or results.289

Consumers are especially unlikely to 

obtain the claimed results if the MARS 

provider has promised a loan 

modification.290 Many consumers who 

purchase services from MARS providers 

are not even eligible for the government 

programs that offer incentives for 

lenders and servicers to make loan 

modifications.291 Apart from these 

programs, lenders and servicers often 

are unwilling to modify the terms of 

loans or forgive fees and penalties as an 

alternative to foreclosure.292 Even if 

lenders and servicers might be amenable 

to modification, many MARS providers 

often do little or no work for their 

customers—for example, neglecting to 

contact lenders or servicers or failing to 

respond to their requests for basic 

information—thereby increasing the 


jlentini on DSKJ8SOYB1PROD with RULES6
Federal Register / Vol. 75, No. 230 / Wednesday, December 1, 2010 / Rules and Regulations 75117 

293See supra note 79. 

294See Loan Modification Scam Prevention 

Network (LMSPN), National Loan Modification 

Scam Database Report—August 2010, available at 

http://www.preventloanscams.org/tools/assets/files/ 

August-LMSPN-Report-Final.pdf; LMSPN, National 

Loan Modification Scam Database Report—July 

2010, available at http:// 

www.preventloanscams.org/tools/assets/files/JulyLMSPN-Report-Final.pdf; LMSPN, National Loan 

Modification Scam Database Report—June 2010, 

available at http://www.preventloanscams.org/ 

newsroom/publications_and_testimony?id=0011; 

LMSPN, National Loan Modification Scam 

Database Report—May 2010, available at http:// 

www.preventloanscams.org/tools/assets/files/MayLMSPN-Report-Final.pdf; LMSPN, National Loan 

Modification Scam Database Report—April 2010, 

available at http://www.preventloanscams.org/ 

tools/assets/files/April-LMSPN-Report-Final.pdf. 

295Consumer Fed’n of Am., 2009 Consumer 

Complaint Survey Report 25 (July 27, 2010) 

(surveying state and local government agencies 

regarding their consumer complaints), available at 

http://www.consumerfed.org/elements/ 

www.consumerfed.org/file/ 

Consumer_Complaint_Survey_Report072009.pdf. 

Moreover, the Financial Crimes Enforcement 

Network reported that financial institutions 

submitted about 3,000 suspicious activity reports 

related to loan modification and foreclosure rescue 

scams in 2009. FinCEN, Loan Modification and 

Foreclosure Rescue Scams—Evolving Trends and 

Patterns in Bank Secrecy Act Reporting at 10 (May 

2010), available at http://www.fincen.gov/ 

news_room/rp/files/MLFLoanMODForeclosure.pdf 

(FinCEN, Foreclosure Rescue Fraud Report May 

2010). 

296See, e.g., Dennis E. Garrett, The Frequency and 

Distribution of Better Business Bureau Complaints: 

An Analysis Based on Exchange Transactions, 17 

J. Consumer Satisfaction, Dissatisfaction, & 

Complaining Behav. 88, 90 (2004) (noting that only 

a small percentage of dissatisfied consumers 

complain to third-party entities or agencies); Jeanne 

Hogarth et al., Problems with Credit Cards: An 

Exploration of Consumer Complaining Behaviors, 

14 J. Consumer Satisfaction, Dissatisfaction, & 

Complaining Behav. 88, 98 (2001) (finding that only 

7% of consumers having problems with their credit 

card company complain to third-party entities or 

agencies). 

297See Unfairness Policy Statement, supra note 

187, at 1074 (noting that the Commission may 

consider the ‘‘exercise [of] undue influence over 

highly susceptible classes of purchasers’’ as part of 

the unfairness analysis). 

298 Id. at 1074 n.3. 

299See, e.g., FTC v. Loss Mitigation Servs., Inc., 

No. SACV09–800 DOC (ANX), Mem. Supp. TRO at 

17 (C.D. Cal. filed July 13, 2009) (‘‘Defendants 

[allegedly] create[d] an atmosphere of pressure and 

urgency to encourage consumers to pay the up-front 

fee. In numerous instances, Defendants’ 

representatives have sent consumers emails 

transmitting [defendants’] loan modification 

application that includes arbitrary deadlines and 

other warnings to pressure consumers to return the 

information fast * * * [including statements that] 

‘[i]f the Application Process and Mitigation Process 

are not handled with precision and a sense of 

urgency you could very likely lose your home’ and 

‘[i]t is extremely important that this application be 

faxed back by the (3) day deadline to avoid 

cancellation of the file.’’’); FTC v. Truman 

Foreclosure Assistance, LLC, No. 09–23543, Mem. 

Supp. P.I. at 14–15 (S.D. Fla. filed Nov. 23, 2009) 

(alleging that defendants’ Web sites stated, ‘‘[t]he 

single-most important factor in stopping your 

foreclosure is SPEED! Time is not your friend’’ and 

that defendants’ solicitations stated ‘‘[y]ou must act 

immediately,’’ and ‘‘URGENT NOTICE: Please Call 

Immediately!’’); FTC v. Data Med. Capital Inc., No. 

SA–CV–99–1266 AHS (Eex), Mem. Supp. App. 

Contempt at 8 (C.D. Cal. filed May 27, 2009) (‘‘The 

fuel for [defendant’s alleged] scheme was the 

desperate plight of consumers facing a recessionary 

economy and a free falling real estate market. * * * 

[T]elemarketers were trained to * * * ‘capitalize on 

fear’ and ‘create urgency.’ ’’). 

300See TSR; Final Rule, 75 FR at 48485 & n.379 

(citing Unfairness Policy Statement, supra note 187, 

at 1074); In re Amrep, 102 F.T.C. 1362 (1983), aff’d, 

768 F. 2d 1171 (10th Cir. 1985); In re Horizon Corp., 

97 F.T.C. 464 (1981); In re Sw. Sunsites, 105 F.T.C. 

7, 340 (1985), aff’d, 785 F. 2d 1431 (9th Cir. 1986). 

301As the Commission recently concluded in 

promulgating the debt relief amendments to the 

TSR, transactions characterized by deception 

exacerbate the potential for consumer injury. See 

TSR; Final Rule, 75 FR at 48485. 

302Supra note 75. 

303Supra notes 72–74. 

304See supra note 77. 

305See TSR; Final Rule, 75 FR at 48485 (citing 

Cooling Off Period For Door-to-Door Sales; Trade 

Regulations Rule and Statement of Basis and 

Purpose, 37 FR 22934, 22947 (Oct. 26, 1972) 

(codified at 16 CFR 429)); Preservation of 

Consumers’ Claims and Defenses, Statement of 

Basis and Purpose, 40 FR 53506, 53523 (Nov. 18, 

1975) (codified at 16 CFR 433) (same); In re Orkin 

Exterminating, 108 F.T.C. 263, 364 (‘‘By raising the 

Continued 

odds even further that their customers 

will not receive the promised results.293

In addition to past law enforcement 

actions, the significant and growing 

number of consumer complaints about 

MARS providers strongly suggests that 

they are continuing to fail to deliver the 

results they promise. For example, one 

coalition of government and private 

groups that collects consumer 

complaints regarding MARS received 

3,461 consumer complaints against 

MARS providers between April and 

August of 2010.294 Similarly, state and 

local consumer protection agencies 

reported that fraudulent offers of help to 

save homes from foreclosure was the 

fastest growing complaint category in 

2009.295

The Commission’s extensive 

experience with consumer complaints 

teaches that such complaints—while not 

a representative sample of MARS 

consumers—are the ‘‘tip of the iceberg’’ 

in terms of the actual levels of consumer 

dissatisfaction.296 The Commission has 

decades of experience in its law 

enforcement work in drawing inferences 

from the number and types of consumer 

complaints. In this matter, the frequency 

and consistency of the conduct 

described in consumer complaints 

raises, at a minimum, a strong inference 

that this conduct is widespread in the 

MARS industry. The complaint data 

corroborates the other evidence in the 

record discussed above that MARS 

providers, after collecting substantial 

advance fees, fail to deliver promised 

results for most consumers. 

(b) The Context in Which MARS Are 

Offered Has Contributed to the 

Substantial Injury 

The Commission concludes that 

several aspects of the marketing of 

MARS have contributed to the 

substantial injury caused by charging 

advance fees. First, MARS providers 

direct their claims to financially 

distressed consumers who often are 

desperate for any solution to their 

mortgage problems and thus are 

vulnerable to the providers’ purported 

solutions.297 The Commission has long 

held that the risk of injury is 

exacerbated in situations in which 

sellers exercise undue influence over 

susceptible classes of purchasers.298

Second, MARS providers frequently 

use high pressure sales tactics in selling 

their services.299 Thus, the manner in 

which MARS are sold impedes the free 

exercise of consumer decision making, a 

traditional hallmark of an unfair 

practice.300

Third, the transactions in which 

consumers agree to purchase MARS and 

make advance payments often take 

place in the context of extensive 

deception.301 To induce consumers to 

purchase their services and pay advance 

fees, MARS providers make aggressive 

performance claims. As discussed 

above, in their ads and in follow-up 

telemarketing and email interactions 

with consumers, MARS providers 

commonly claim that there is a high 

probability, or even a guarantee, that 

they will obtain dramatic reductions in 

payments or other mortgage relief.302 To 

increase the credibility of these claims, 

many MARS providers misrepresent 

that they have special expertise in 

mortgage relief assistance and a close 

affiliation with the government, a nonprofit program, or the consumer’s lender 

or servicer.303 Morever, providers seek 

to allay concerns consumers might have 

about paying in advance by falsely 

claiming that they will provide refunds 

if they do not obtain the promised 

results.304

Finally, charging advance fees for 

MARS requires consumers to bear the 

full risk of the possible failure of the 

provider to perform, even though the 

provider is in a better position to 

assume risk. When selling MARS to 

consumers, only the MARS provider 

knows how frequently, and under what 

circumstances, it has been successful in 

the past. Consumers, in contrast, are not 

likely to know whether a successful 

outcome is likely for them. Consumers 

are injured by a business model that 

forces them to bear the full risk of 

nonperformance and the resulting harm, 

particularly, as in this context, where 

the seller is in a better position to know 

and account for the risks.305


jlentini on DSKJ8SOYB1PROD with RULES6
75118 Federal Register / Vol. 75, No. 230 / Wednesday, December 1, 2010 / Rules and Regulations 

fees, Orkin unilaterally shifted the risk of inflation 

that it had assumed under the pre-1975 contracts 

to its pre-1975 customers.’’), aff’d 849 F.2d 1354 

(11th Cir. 1988); In re Thompson Med. Co., 104 

F.T.C. 648 (1984) (noting that marketers must 

provide a high level of substantiation to support 

‘‘claim[s] whose truth or falsity would be difficult 

or impossible for consumers to evaluate by 

themselves’’). 

306For similar reasons, the TSR prohibits advance 

fees for three types of services that often are 

promoted deceptively to consumers in financial 

crisis: debt relief services, credit repair services, 

and certain loan offers. See 16 CFR 310.4(a); TSR; 

Final Rule, 75 FR at 48484–85. The Credit Repair 

Organizations Act also bans the collection of 

advance fees for credit repair services. 15 U.S.C. 

1679b(b). 

307See supra § III.E.1.b. 

308As noted earlier, MARS providers suggest that, 

even in instances where they do not secure the 

promised result, they offer consumers other services 

that are beneficial to them, such as day-to-day 

assistance in communicating with servicers or 

lenders, delays in foreclosure proceedings, and 

emotional support. See supra § III.E.1.b. There is no 

evidence in the record establishing the frequency 

with which providers deliver these ‘‘benefits.’’ In 

any event, providers generally do not advertise such 

services or ancillary ‘‘benefits,’’ but instead solicit 

customers by touting the end result, such as a 

modified loan. Presumably, this is because 

consumers are much more interested in receiving, 

and much more willing to pay for, the promised 

result. See TSR; Final Rule, 75 FR at 48479 

(dismissing arguments that debt relief service 

providers offer ancillary services such as education 

and financial advice because industry members did 

not provide evidence to establish how many 

providers offer the services, how extensive they are, 

or how much they cost to provide). 

309MARS ANPR, 74 FR at 26137; MARS NPRM, 

75 FR at 10727, 10729. 

310Only one MARS commenter offered a selfreported success rate, stating that he places over 

90% of his clients into trial or permanent loan 

modifications. See Rogers at 1. However, this 

commenter did not submit any additional 

information or data supporting this claim. Another 

commenter reported anecdotal accounts of a small 

number of consumers for whom he purportedly 

obtained loan modifications. See Parkey (audio 

files). Another MARS provider reported that it has 

over ‘‘600 success stories’’ and secures over 80 loan 

modifications per month. See, e.g., Metropolis at 1. 

This commenter also failed to submit information 

or data supporting this claim, defining ‘‘success 

story,’’ or indicating the percentage of its customers 

who received modifications out of the total who 

purchased the services. 

311See supra § III.E.1. 

312See supra § III.E.1.b.; see also, e.g., Gutner 

(ANPR) at 1 (‘‘[L]oan modification is not as simple 

as filling out a few forms and then it is done. Loan 

modification is a long and involved process. * * * 

Loan modification companies have expenses just 

like any other company—payroll, lease, insurance, 

equipment etc.’’); TNLMA (ANPR) at 5 (‘‘[MARS 

providers] incur significant costs before the 

consumer’s mortgage is ready to be modified.’’). 

313See supra § III.E.1.b.; see also, e.g., TNLMA 

(ANPR) at 5 (‘‘Nearly all professions, from attorneys 

to accountants to personal trainers, charge advance 

fees. * * * The reason these other professions 

charge fees ‘up-front’ is to avoid the risk of being 

‘stiffed’ at the end of a laboriously costly effort.’’). 

314See supra § III.E.1.b. One commenter argued, 

alternatively, that the advance fee ban would 

compel legitimate MARS providers to charge 

consumers higher fees to account for the risk of 

nonpayment. Rogers at 18. There is no evidence in 

the record substantiating this theory. Assuming that 

MARS providers compete with one another, it is not 

clear that they would be able to raise prices with 

impunity, thereby passing this cost on to 

consumers. 

315Notably, FTC law enforcement actions suggest 

that a predominant portion of providers’ costs are 

dedicated to marketing and sales, instead of the 

process of assisting consumers obtain mortgage 

relief. See, e.g., FTC v. US Foreclosure Relief Corp., 

No. SACV09–768 JVS (MGX), Prelim. Rep. Temp. 

Receiver at 9 (C.D. Cal. filed July 15, 2009) (‘‘[T]he 

typical commission [for a MARS provider’s 

telephone sales people] was $450 for a fully paid 

sale—i.e., $2,500—with an extra $25 if the 

consumer paid by debit card or wire transfer.’’). 

316See, e.g., LCCR at 4 (‘‘The for-profit business 

should be able to capitalize its business in a manner 

so that it can carry forward these nominal fees as 

operating costs and then incorporate that operating 

cost into the fee obtained from the consumer after 

the services are rendered.’’). See generally TSR; 

Final Rule, 75 FR 48458 (Aug. 10, 2010). 

317 In connection with the FTC’s recent 

amendments to the TSR to curb deception and 

abuse in debt relief services, industry 

representatives similarly argued that they would be 

unable to pay their operating costs without 

collecting advance fees. See TSR; Final Rule, 75 FR 

at 48486. In fact, after the Commission issued the 

TSR amendments, a major debt relief trade 

association stated that the rule, while providing a 

‘‘significant capital challenge’’ to the industry, 

would ‘‘allow good companies that are getting 

results for consumers’’ to survive. Press Release, 

The Ass’n of Settlement Cos., TASC Announces 

Support for FTC Debt Settlement Rules (Aug. 17, 

2010), available at http://www.marketwire.com/ 

press-release/TASC-Announces-Support-for-FTCDebt-Settlement-Rules-1305731.htm. 

318See TSR; Final Rule, 75 FR at 48486; Truth in 

Lending—Final Rule; Fed Res. Brd. Official Staff 

Commentary, 75 FR 58509, 58518 (Sept. 24, 2010) 

(compensation restrictions for mortgage brokers 

may result in new business models, but ‘‘the Board 

does not believe mortgage brokerage firms will no 

longer be able to compete in the marketplace unless 

they can continue to engage in compensation 

practices the Board has found to be unfair.’’). 

319 Increased revenue or profit for a seller, alone, 

is not a benefit to consumers or competition for 

purposes of unfairness analysis. See In re Orkin 

Exterminating Comp., Inc., 108 F.T.C. 263, 365–66 

(1986), aff’d, 849 F.2d 1354, 1363 (11th Cir. 1988). 

Thus, the Commission concludes that 

the practice of charging an advance fee 

for MARS causes or is likely to cause 

substantial consumer injury.306

(2) Benefits to Consumers or 

Competition From Advanced Fees 

The second factor in the unfairness 

analysis under Section 5(n) of the FTC 

Act is a consideration of whether an act 

or practice has benefits to consumers 

and competition and, if so, whether they 

outweigh the actual or likely harm to 

consumers. MARS provider commenters 

posited two main arguments to support 

their contention that charging advance 

fees is beneficial to consumers. 

First, the providers argued that, in 

exchange for their upfront fees, they 

provide significant benefits to 

consumers in the form of completed 

services and successful results.307

However, the rulemaking record 

demonstrates that the vast majority of 

consumers fail to receive successful 

loan modifications or other forms of 

mortgage assistance promised.308 In the 

ANPR and NPRM, the Commission 

specifically requested empirical 

evidence on the success rates of MARS 

providers in delivering promised 

results.309 No such evidence was 

submitted. Although a few comments 

from MARS providers included 

anecdotes and unsupported assertions 

of success,310 the bulk of the 

comments 311 and the Commission’s law 

enforcement experience provide strong 

evidence that MARS providers rarely 

deliver the results they promise. 

Second, MARS providers have 

asserted that an advance fee ban would 

impose undue burdens on them, 

because: (1) They would not have the 

cash flow necessary to fund their dayto-day operations; 312 and (2) they might 

not get paid for the services they 

rendered given the precarious financial 

situation of their customers.313 As a 

result, according to these commenters, 

many MARS providers could not afford 

to stay in business, and would therefore 

no longer be able to provide consumers 

the benefits of their services.314

There is scant evidence in the 

rulemaking record to support this 

argument, and no industry members 

submitted cost data to back up this 

claim.315 The Commission cannot 

predict with precision the impact of an 

advance fee ban, but recognizes it may 

force some MARS providers to 

capitalize adequately to fund their 

initial operations, until they begin 

receiving fees generated by their 

delivery of services.316 Companies in 

many other lines of business capitalize 

for this purpose. Thus, although the 

advance fee ban in the Final Rule may 

result in new business models,317 there 

is no evidence in the record to 

substantiate the claim that MARS 

providers will not be able to operate if 

they are paid after they deliver results 

to their customers.318

A ban on advance fees would shift 

some of the risk of nonperformance 

under the contract from consumers to 

MARS providers. At present, consumers 

bear the full risk—typically, they must 

pay thousands of dollars up front with 

no assurance that they will ever receive 

any benefit in return. The poor 

performance of this industry makes it 

likely that consumers will be harmed if 

they continue to bear the full risk of 

nonperformance.319 Prohibiting the 

charging of advance fees reallocates 

some of this risk to MARS providers and 

gives them a powerful incentive to 

actually deliver results. 

In short, the Commission concludes 

that charging advance fees for MARS 


jlentini on DSKJ8SOYB1PROD with RULES6
Federal Register / Vol. 75, No. 230 / Wednesday, December 1, 2010 / Rules and Regulations 75119 

320Unfairness Policy Statement, supra note 187, 

at 1074. 321 Id. 322 Id. 323Orkin Exterminating Co., 108 F.T.C. 263, 366 

(1986), aff’d, 849 F.2d 1354, 1368 (11th Cir. 1988); 

see Int’l Harvester Co., 104 F.T.C. 949, 1061 (1984) 

(‘‘whether some consequence is ‘reasonably 

avoidable’ depends not just on whether they know 

the physical steps to take in order to prevent it, but 

also whether they understand the necessity of 

actually taking those steps.’’). 

324See Int’l Harvester Co., 104 F.T.C. at 366 

(Consumers ‘‘seek to mitigate the damage afterward 

if they are aware of potential avenues toward that 

end.’’). 

325Even if MARS providers granted refunds, it 

would not be sufficient to eliminate the harm to 

consumers from paying the advance fee because 

financially distressed consumers are deprived of the 

use of the money from the time of payment to the 

time of refund and because the process of obtaining 

a refund from a MARS provider imposes costs on 

them. See FTC v. Think Achievement Corp., 312 F. 

3d 259, 261 (7th Cir. 2002) (‘‘This might be a tenable 

argument if obtaining a refunds were costless, but 

of course it is not. No one would buy something 

knowing that it was worthless and that therefore he 

would have to get a refund of the purchase price.’’). 

326See Unfairness Policy Statement, supra note 

187, at 1074 n.19 (‘‘In some senses any injury can 

be avoided—for example, * * * by private legal 

actions for damages—but these courses may be too 

expensive to be practicable for individual 

consumers to pursue.’’); see also In re Orkin 

Exterminating, 108 F.T.C. at 379–80 (Oliver, Chmn., 

concurring) (suing for breach of contract is not a 

reasonable means for consumers to avoid injury). 

327 15 U.S.C. 45(n). 

328See supra note 98. 

329See NAAG at 2–3; NAAG (ANPR) at 9; MN AG 

(ANPR) at 4; MA AG (ANPR) at 2; OH AG (ANPR) 

at 3. 

330Unfairness Policy Statement, supra note 187, 

at 1075 (‘‘Conversely, statutes or other sources of 

public policy may affirmatively allow for a practice 

that the Commission tentatively views as unfair. 

The existence of such policies will then give the 

agency reason to reconsider its assessment of 

whether the practice is actually injurious in its net 

effects.’’). 

331As noted earlier, the Commission reached the 

same conclusion, for similar reasons, with respect 

to the charging of an advance fee for four other 

products or services covered by the TSR that have 

been routinely misrepresented: debt relief services, 

credit repair services, money recovery services, and 

guaranteed loans or other extensions of credit. See 

Telemarketing Sales Rule Statement of Basis and 

Purpose, 68 FR 4580, 4614 (Jan. 29, 2003) (codified 

at 6 CFR 310.4(a)). Although the TSR declares the 

charging of advance fees in these contexts to be 

‘‘abusive’’—the term used in the Telemarketing 

Act—the Commission used the unfairness test set 

forth in Section 5(n) of the FTC Act in finding that 

the practice was abusive. See 75 FR at 48482–87; 

TSR: Notice of Proposed Rulemaking, 67 FR 4492– 

4511 (Jan. 30, 2002). 

332See supra note 105. 

333See supra note 326. 

334See supra § III.E.3. In addition, purchases of 

MARS typically are a one-time event, and thus 

reputational costs are unlikely to be a major 

deterrent for providers. 

335See, e.g., LOLLAF at 4; CRL at 5 (‘‘[W]e are 

supportive of the comprehensive ban on advance 

fees proposed by the FTC, which would align the 

incentives of MARS providers and consumers.’’); 

NAAG at 5 (‘‘Requiring these companies to obtain 

the promised loan modification as a condition of 

being paid will substantially reduce their incentive 

for making false or inflated promises of foreclosure 

assistance.’’); LCCR at 4 (‘‘The ban will * * * 

incentiviz[e] MARS providers to represent their 

capabilities in a way that reflects services they can 

realistically provide in a timely manner. After all, 

Continued 

does not provide benefits to consumers 

or competition, and, even if such 

benefits were to exist, they would not 

outweigh the substantial injury this 

practice demonstrably causes or is likely 

to cause to consumers. 

(3) Reasonably Avoidable Harm 

The third prong of the unfairness 

analysis under Section 5(n) of the FTC 

Act requires the Commission to 

consider whether consumers could 

reasonably avoid the harm caused by an 

act or practice. The Commission finds 

an act or practice unfair ‘‘not to secondguess the wisdom of particular 

consumer decisions, but rather to halt 

some form of seller behavior that 

unreasonably creates or takes advantage 

of an obstacle to the free exercise of 

consumer decision making.’’ 320 The 

extent to which a consumer can 

reasonably avoid injury is determined in 

part by whether the consumer can make 

an informed choice.321 In this regard, 

the Unfairness Policy Statement 

explains that certain types of sales 

techniques may effectively prevent 

consumers from making informed 

decisions and that corrective action may 

therefore be necessary.322

For harm to be reasonably avoidable, 

consumers must have ‘‘reason to 

anticipate the impending harm and the 

means to avoid it.’’ 323 As discussed 

above, the deceptive success and other 

claims MARS providers disseminate 

prevent or substantially hinder the 

ability of consumers to recognize the 

risks they face in paying advance fees to 

MARS providers. This is especially so 

because consumers often are under dire 

pressure to make decisions quickly. 

Moreover, consumers have little 

experience with purchasing services to 

stave off foreclosure, which is not a 

routine consumer transaction, whereas 

the provider has presumably handled 

the transaction many times. 

Once they have paid in advance and 

learned that a MARS provider has not 

obtained a result they are willing to 

accept, consumers cannot reasonably 

eliminate or mitigate the harm.324 As 

discussed above, MARS providers rarely 

provide refunds for nonperformance.325

In addition, although consumers may 

have the right under state law to bring 

breach of contract actions to recover 

advance fees from MARS providers who 

do not perform, many consumers are 

unaware of their legal rights or are 

unable to afford the costs and risks of 

litigation.326 Thus, the Commission 

finds that consumers cannot reasonably 

avoid the injuries they face in 

connection with MARS providers 

charging advance fees. 

(4) Public Policy Concerning Advance 

Fees 

Section 5(n) of the FTC Act permits 

the Commission to consider established 

public policies in determining whether 

an act or practice is unfair, although 

those policies cannot be the primary 

basis for that determination.327 At least 

20 states currently prohibit charging 

advance fees for MARS because of its 

adverse impact on consumers.328

Consistent with these state statutes and 

their law enforcement experience, over 

40 attorneys general filed comments 

strongly advocating an FTC rule 

prohibiting advance fees for MARS.329

Thus, public policies embodied in state 

laws and law enforcement further 

support the Commission’s finding that 

this practice is unfair.330

For the reasons set forth above, the 

Commission concludes that charging an 

advance fee for MARS is an unfair act 

or practice under Section 5(n) of the 

FTC Act.331

b. The Advance Fee Ban Is Reasonably 

Related to the Goal of Preventing 

Deception 

As explained above, the Omnibus 

Appropriations Act, as clarified by the 

Credit Card Act, authorized the FTC not 

only to prohibit conduct that is itself 

unfair or deceptive, but also to adopt 

rules that are reasonably related to 

preventing unfair or deceptive conduct 

in connection with MARS.332 For the 

reasons detailed here, the Commission 

concludes that an advance fee ban for 

MARS is reasonably related to the goal 

of protecting consumers from the 

deception that is widespread in the 

offering of these services. 

As detailed in Section II of this SBP, 

MARS providers commonly make 

deceptive claims as to the results they 

will obtain. These claims induce 

consumers to pay advance fees of 

hundreds or thousands of dollars for 

results the providers typically do not 

deliver. Because the likelihood of 

consumers pursuing judicial remedies 

against nonperformance is small,333

MARS providers have little incentive to 

perform, and in fact many do not.334

The advance fee ban proposed in § 322.5 

realigns the incentives of MARS 

providers to deliver on their promises, 

because they will not be paid until they 

deliver results that the consumer finds 

acceptable.335 As a result, the ban is 


jlentini on DSKJ8SOYB1PROD with RULES6
75120 Federal Register / Vol. 75, No. 230 / Wednesday, December 1, 2010 / Rules and Regulations 

the sooner the providers are able to make good on 

the representations to the consumer, the sooner 

they will be able to charge their fees.’’); CUUS at 

6 (‘‘[W]e believe that imposing this requirement will 

force for-profit MARS providers to sell their 

services only to those they can reasonably expect 

to help rather than anyone they can sign up to 

generate advance fees even when there is no hope 

of offering them the help they seek.’’); MARS NPRM, 

75 FR at 10719 n.148. 

336See supra note 105. 

337The Commission cautions that providers not 

attempt to evade the requirements of § 322.5(a) by 

entering a contract with consumers signed at the 

outset specifying the consumer’s preapproval, for 

example, that any offer that involves a certain type 

of concession from the lender or servicer will be 

deemed acceptable. Moreover, the provider may not 

rely on authority obtained through a power of 

attorney at the time or before the time of contracting 

to execute an agreement incorporating the offer of 

mortgage relief from the lender or servicer on the 

consumer’s behalf, because the Commission would 

not regard the consumer as having accepted the 

offer—as required under § 322.5(a). The 

Commission further cautions that providers not use 

deceptive or unfair practices to convince consumers 

to accept concessions to which they would not 

otherwise agree, as doing so may constitute a 

violation of § 322.5(a) and other provisions of the 

Rule, including § 322.3(b)(12). 

likely to discourage providers from 

making deceptive claims and is thus 

reasonably related to the goal of 

preventing deception.336 Although the 

Final Rule prohibits deceptive 

representations and mandates certain 

disclosures, there is no assurance that 

these measures will be effective in every 

case or that all providers will abide by 

them. The advance fee ban will provide 

additional protection against continued 

deception in this industry, 

3. The Ban on Advance Payments 

Section 322.5 of the Final Rule 

provides that: 

It is a violation of this rule for any 

mortgage assistance relief service 

provider to: 

(a) Request or receive payment of any 

fee or other consideration until the 

consumer has executed a written 

agreement between the consumer and 

the consumer’s dwelling loan holder or 

servicer incorporating the offer of 

mortgage assistance relief the provider 

obtained from the consumer’s dwelling 

loan holder or servicer; 

(b) Fail to disclose, at the time the 

mortgage assistance relief service 

provider furnishes the consumer with 

the written agreement specified in 

paragraph (a) of this section, the 

following information: ‘‘This is an offer 

of mortgage assistance we obtained from 

your lender [or servicer]. You may 

accept or reject the offer. If you reject 

the offer, you do not have to pay us. If 

you accept the offer, you will have to 

pay us [same amount as disclosed 

pursuant to § 322.4(b)(1)] for our 

services.’’ The disclosure required by 

this paragraph must be made in a clear 

and prominent manner, on a separate 

written page, and preceded by the 

heading: ‘‘IMPORTANT NOTICE: Before 

buying this service, consider the 

following information.’’ The heading 

must be in bold face font that is two 

point-type larger than the font size of 

the required disclosure; or 

(c) Fail to provide, at the time the 

mortgage assistance relief service 

provider furnishes the consumer with 

the written agreement specified in 

paragraph (a) of this section, a notice 

from the consumer’s dwelling loan 

holder or servicer that describes all 

material differences between the terms, 

conditions, and limitations associated 

with the consumer’s current mortgage 

loan and the terms, conditions, and 

limitations associated with the 

consumer’s mortgage loan if he or she 

accepts the dwelling loan holder’s or 

servicer’s offer, including but not 

limited to differences in the loan’s: 

(i) Principal balance; 

(ii) Contract interest rate, including 

the maximum rate and any adjustable 

rates, if applicable; 

(iii) Amount and number of the 

consumer’s scheduled periodic 

payments on the loan; 

(iv) Monthly amounts owed for 

principal, interest, taxes, and any 

mortgage insurance on the loan; 

(v) Amount of any delinquent 

payments owing or outstanding; 

(vi) Assessed fees or penalties; and 

(vii) Term 

The notice must be made in a clear and 

prominent manner, on a separate 

written page, and preceded by the 

heading: ‘‘IMPORTANT INFORMATION 

FROM YOUR [name of lender or 

servicer] ABOUT THIS OFFER.’’ The 

heading must be in bold face font that 

is two-point-type larger than the font 

size of the required disclosure. 

(d) Fail to disclose in the notice 

specified in paragraph (c) of this 

section, in cases where the offer of 

mortgage assistance relief the provider 

obtained from the consumer’s dwelling 

loan holder or servicer is a trial 

mortgage loan modification, the terms, 

conditions, and limitations of this offer, 

including but not limited to, (i) the fact 

that the consumer may not qualify for a 

permanent mortgage loan modification, 

and (ii) the likely amount of the 

scheduled periodic payments and any 

arrears, payments, or fees that the 

consumer would owe in failing to 

qualify. 

This provision is intended to prevent 

MARS providers from requesting or 

receiving any fees or any other form of 

compensation, including an equity stake 

in consumers’ property, until they have 

delivered a loan modification or another 

result the consumer accepts. 

a. The Consumer Acceptance 

Requirement 

Section 322.5(a) of the Final Rule 

prohibits a MARS provider from 

collecting a fee until ‘‘the consumer has 

executed a written agreement between 

the consumer and the consumer’s 

dwelling loan holder or servicer 

incorporating the offer of mortgage 

assistance relief the provider obtained 

from the consumer’s dwelling loan 

holder or servicer.’’ This provision will 

ensure that MARS providers only 

collect fees after they have delivered a 

concession or other result from the 

lender or servicer and the consumer has 

accepted that result. 

The proposed rule did not require 

such acceptance, but instead allowed a 

provider to collect a fee once it had (1) 

in the case of providers promoting 

mortgage loan modifications, 

‘‘[o]btained a mortgage loan 

modification [as defined in the 

proposed rule] for the consumer’’ and 

delivered a written offer from the lender 

or servicer for a loan modification to the 

consumer; or (2) in the case of providers 

offering MARS other than loan 

modifications, ‘‘[a]chieved all of the 

results that * * * [t]he provider 

represented, expressly or by 

implication, to the consumer that the 

service would achieve, and * * * [that 

are] consistent with consumers’ 

reasonable expectations about the 

service’’ and delivered documentation of 

these results to consumers. Under the 

proposed rule, payment was contingent 

upon either delivering a specific result 

defined in the rule (e.g., a ‘‘mortgage 

loan modification’’) or obtaining the 

results the MARS provider promised at 

the time the consumer agreed to use the 

service. The Final Rule, however, 

requires that payment be contingent 

upon consumer acceptance of results 

the provider presents.337 Regardless of 

how the result the provider delivers 

compares to what it promoted or 

promised at the time the consumer 

agreed to use its service, the provider 

still must secure a written agreement 

between the consumer and his or her 

lender or servicer accepting the results 

delivered before collecting any fees. The 

Commission has adopted an approach 

different from that in the proposed rule 

because it concludes that the new 

approach strikes a better balance 

between protecting consumers and 

ensuring that MARS providers can 

collect fees for beneficial results they 

achieve. 

At the same time, the Final Rule 

permits providers to collect fees if they 


jlentini on DSKJ8SOYB1PROD with RULES6
Federal Register / Vol. 75, No. 230 / Wednesday, December 1, 2010 / Rules and Regulations 75121 

338 In response to the proposed rule, which sets 

forth specific requirements as to the result that 

entities promoting loan modifications must deliver 

before collecting fees, some commenters 

recommended that the Final Rule add requirements 

that MARS providers obtain a ‘‘sustainable’’ or 

‘‘affordable’’ loan modification for the consumer. 

See, e.g., LOLLAF at 4, 6; LFSV at 3; CSBS at 4; 

NCLC at 18; LCCR at 4–5 (‘‘We believe that MARS 

providers who negotiate mortgage loan 

modifications for homeowners in exchange for 

compensation must confer a real benefit in the form 

of a modified mortgage that is affordable and 

sustainable.’’). Some of these commenters noted that 

many consumers who have obtained loan 

modifications have subsequently re-defaulted, or 

are at risk of doing so, and therefore that the 

Commission should adopt specific benchmarks for 

determining if a loan modification will benefit the 

consumer (for example, by reducing their monthly 

payments by at least 20% for five years or by 

employing HAMP guidelines for interest rates). 

Because the Final Rule requires that the 

consumer consent to the result delivered by the 

provider, it will help ensure that consumers only 

pay fees for loan modifications that they believe to 

be affordable and sustainable. Consumers’ ability to 

make monthly payments vary depending on their 

circumstances and over time. The requirements of 

government programs like the MHA and servicer 

policies also may change. By making payment of 

fees contingent upon consumer acceptance, the 

Final Rule gives each consumer the ability to 

determine, based on her individual circumstances, 

the type of loan modification that would best assist 

her. Therefore, the Commission believes it is 

unnecessary to adopt an affordability requirement 

for loan modifications. 

339See 16 CFR 310.4(a)(5)(i)(A) (prohibiting debt 

relief providers from collecting fees until, inter alia, 

the customer has executed the debt relief 

agreement). 

340See, e.g., NYC DCA at 4; NCLC at 17–18 (also 

arguing that consumers who enter trial 

modifications frequently suffer a number of 

negative consequences, including harm to their 

creditworthiness and, if they do not qualify for a 

permanent modification, significant arrearages that 

can result in foreclosure). 

341This disclosure also complements 

§ 322.3(b)(7), which prohibits providers from 

misrepresenting that they have the right to claim or 

charge a fee. Under § 322.3(b)(7), providers may not 

circumvent this written disclosure by 

misrepresenting expressly or by implication—orally 

or otherwise—that the consumer must pay 

providers’ fees. 

342See, e.g., NAAG (ANPR) at 5 (‘‘We are now 

seeing consultants offering these services 

piecemeal. For example, some companies represent 

they will help consumers gather their financial 

documents and prepare the information to submit 

to their mortgage servicer for a fee. Then, for 

another fee, the companies represent that they will 

facilitate communication between the consumers 

and their mortgage servicer.’’); see also CSBS at 4; 

LCCR at 8; MA AG at 2; NAAG at 3. 

deliver results that, although different 

from what they promised to consumers, 

are ultimately acceptable to consumers. 

It avoids disputes over what the 

provider actually promised, and allows 

consumers to make the decision about 

whether the offered mortgage relief is 

satisfactory to them. It also ensures that 

the consumer receives a result that he or 

she determines to be beneficial—for 

example, a loan modification with a 

particular reduction in monthly 

payments 338 or lasting a specific 

duration. This approach is similar to the 

one taken in the TSR’s advance fee ban 

for debt relief services.339

The Commission warns that securing 

consumer acceptance to an offer will not 

immunize a provider from other 

violations of the Rule. Providers cannot 

misrepresent the results consumers will 

receive if they use MARS. For example, 

if a provider represents to a consumer 

that it will obtain a reduction in the 

amount of interest, principal balance, or 

monthly payments, but only obtains a 

forbearance agreement, then, regardless 

of whether the consumer accepts the 

forbearance agreement, that provider 

has made a misrepresentation in 

violation of § 322.3(b) of the Final Rule. 

In order to comply with § 322.3(b), the 

provider should qualify its claims 

sufficiently so that a reasonable 

consumer would understand that he or 

she may not receive a reduction in the 

amount of interest, principal balance, or 

monthly payments. 

Further, as described above, § 322.5(b) 

of the Final Rule requires providers to 

inform consumers: (a) that they do not 

have to pay any fees to the MARS 

provider unless and until they accept 

the result that the provider has 

delivered, and (b) the total amount in 

fees consumers will have to pay the 

provider if they accept that result. 

Additionally, Section 322.5(c) of the 

Final Rule requires providers to furnish 

the consumer with a written notice from 

the consumer’s lender or servicer 

describing all ‘‘material differences’’ 

between the terms, conditions, and 

limitations of the consumer’s current 

mortgage loan and those associated with 

the offer for mortgage relief, including 

but not limited to differences in the 

principal balance; contract interest rate, 

including the maximum rate and any 

adjustable rates, if applicable; amount 

and number of the consumer’s 

scheduled periodic payments on the 

loan; monthly amounts owed for 

principal, interest, taxes, and any 

mortgage insurance on the loan; amount 

of any delinquent payments owing or 

outstanding; assessed fees or penalties; 

or term of the loan. Based on its law 

enforcement experience and the 

rulemaking record, the Commission 

concludes that these factors are essential 

to consumers’ ability to compare the 

mortgage relief offered with their 

current mortgage loan and, thus, 

whether they should accept it. 

Requiring that the lender or servicer 

prepare the written disclosure also 

better ensures that the information 

provided is consistent with the terms of 

the offer, and mitigates against the risk 

that MARS providers would mislead 

consumers about the offer. 

Section 322.5(d) also specifies that in 

cases where the mortgage relief offer 

obtained from the lender or servicer is 

a trial loan modification, the notice from 

the lender or servicer that the provider 

must furnish to the consumer with the 

offer of mortgage assistance must 

include: (1) that the consumer may not 

qualify for a permanent modification, 

and (2) if the consumer does not qualify, 

the likely amount of the scheduled 

periodic payments that he will have to 

pay and any arrearages or fees that may 

accumulate. Some commenters 

recommended that the proposed rule be 

changed to prohibit providers from 

collecting fees for obtaining a trial 

modification, because most consumers 

who receive trial modifications do not 

receive permanent modifications that 

would substantially reduce the amount 

they pay on their loans.340 The 

Commission has determined that, in 

light of the changes in the Final Rule, 

including the advance fee ban and 

related disclosures, such a prohibition is 

unnecessary. As noted above, § 322.5 

will ensure that consumers are told that 

they are being offered a trial 

modification and ensure that they have 

the opportunity to reject the offer. 

Given that, under the advance fee ban 

provision, providers must deliver a 

written agreement from the servicer or 

lender to the consumer, and obtain the 

consumer’s written acceptance of that 

agreement, the Final Rule requires that 

the disclosures in §§ 322.5(b)–(d) also be 

made in writing, each on a separate page 

from the agreement. These disclosures 

must also be made ‘‘at the time that the 

* * * provider furnishes the consumer 

with a written agreement to be 

executed’’ by the consumer. Sections 

322.5(b)–(d) will ensure that consumers 

receive this critical information when 

they are in a position either to accept or 

reject the result secured by the 

provider.341 These disclosures are 

necessary to effectuate the advance fee 

ban and, accordingly, are reasonably 

related to the prevention of deceptive or 

unfair practices. 

b. Prohibition on Advance Fees for 

Piecemeal Services 

As detailed above, NAAG and several 

other commenters strongly supported 

the proposed rule’s prohibition on the 

practice of collecting advance fees for 

piecemeal services.342 The Commission 

agrees that without such a prohibition, 

many MARS providers would attempt to 

collect fees for discrete tasks that fall 

short of, and often may never lead to, 

the result promised. These individual 

tasks might include: conducting an 

initial consultation with the consumer; 


jlentini on DSKJ8SOYB1PROD with RULES6
75122 Federal Register / Vol. 75, No. 230 / Wednesday, December 1, 2010 / Rules and Regulations 

343See supra note 56 and accompanying text. 

344See supra note 342. 

345Baughman at 1; Hunter at 1; Casey at 1. Some 

state statutes include fee caps for MARS providers. 

For example, Maine limits providers to a $75 upfront fee. See Me. Rev. Stat. Ann. tit. 32, § 6174– 

A. 

346See, e.g., MBA at 3; CSBS at 4; MA AG at 1; 

CUUS at 6; CRL at 2. 

347LOLLAF at 5 (‘‘Allowing any fees to be 

collected prior to providing a permanent loan 

modification presents MARS providers with a back 

door opportunity to extract significant sums of 

money without any benefit provided to the 

consumer.’’); CUUS at 6 (‘‘It may seem innocent 

enough to allow a small initial fee of $25.00 or 

$50.00. At first glance, this fee may not seem 

particularly burdensome to consumers. However, 

this may incentivize certain for-profit MARS 

providers to simply sign up as many people as 

possible only for the initial fee, and nothing else. 

The small fees could potentially add up to sizeable 

profits for MARS companies, depending on the 

aggressive nature of the MARS provider’s marketing 

campaign.’’). 

348LFSV at 2–3; LOLLAF at 5; NCLC (ANPR) at 

13; see also MA AG at 2 (recommending that the 

Commission consider a ‘‘sliding scale’’ fee cap as a 

complement to the advance fee ban); LCCR at 7–8 

(same). 

349See TSR; Final Rule, 75 FR at 48488 (finding 

that fee setting is best done by a competitive 

market, that the Commission’s role is to remove 

obstacles to consumers making informed choices in 

the market, and that the amended TSR is designed 

to ensure that the debt relief market functions 

properly). 

350The purpose of the FTC’s unfairness doctrine 

is not to allow the Commission to obtain better 

bargains for consumers than they can obtain in the 

marketplace. See, e.g., Am. Fin. Servs. Ass’n v. FTC, 

767 F.2d 957, 964 (DC Cir. 1985). Instead, it is to 

prohibit acts and practices that may unreasonably 

create or take advantage of an obstacle to 

consumers’ ability to make informed choices. See 

id. at 976. 

351A federally established maximum advance fee 

might well become the de facto actual fee for 

MARS. F.M. Scherer, Focal Point Pricing and 

Conscious Parallelism, in Competition Pol’y, 

Domestic & Int’l 89–97 (2000); F. M. Scherer, 

Industrial Market Structure and Economic 

Performance 190–93, 204 (1st ed. 1980). Further, fee 

caps can quickly become obsolete, as changes in 

market conditions and technologies render the fixed 

maximum fee too low (e.g., if the costs of providing 

the service rise) or too high (e.g., if new technology 

lowers the cost of providing the service or if market 

participants would compete on price absent 

regulation). United States. v. Trenton Potteries Co., 

273 U.S. 392, 397 (1927) (‘‘The reasonable price 

fixed today may through economic and business 

changes become the unreasonable price of 

tomorrow.’’). 

352See 75 FR at 10721, 10729–30. 353As discussed in § III.G., the Final Rule 

exempts attorneys from the advance fee ban if they 

meet certain conditions, including depositing such 

fees into their client trust accounts. 354See, e.g., CUUS at 7; CSBS at 4. Only a single 

commenter recommended that the Rule allow 

providers (other than attorneys) to use such 

accounts, and that commenter provided no analysis 

of the costs and benefits of his proposal. See 

Goldberg at 4 (‘‘Even escrowing funds through 

dedicated trust accounts is a better alternative and 

less of a financial burden on the consumer.’’). An 

additional comment noted that MARS providers 

may use dedicated accounts under Nevada’s 

relevant statute. See Hirsch at 1; see also Nev. Rev. 

Stat. § 645F.300, et seq. 

355OPLC at 1; NYC DCA at 5 (‘‘Given the high 

cost and potential for improper access to funds by 

MARS providers, the FTC should apply the 

prohibition on collection of fees in advance of 

permanent loan modifications to payments held in 

escrow accounts.’’); NAAG at 2 (‘‘Likewise, thirdparty escrow accounts will not protect consumers’ 

interests in the same manner as an advance fee 

prohibition. Indeed, there is evidence that thirdparty escrow accounts are subject to manipulation 

that renders their purported protections 

ineffective.’’). 

356LFSV at 3; NCLC at 15; LOLLAF at 5 

(‘‘[E]scrowing funds and not allowing MARS 

providers to access them without providing a 

benefit, does not provide a significant safeguard to 

protect consumers from abusive MARS providers. 

Consumers who seek to recover fees may have to 

bring a lawsuit to either recover them from escrow 

or to claw back the fees paid to a MARS provider.’’). 

reviewing or auditing the consumer’s 

mortgage loan documents; 343 gathering 

financial or other information from the 

borrower; sending an application or 

other request to the lender or servicer; 

facilitating communications between 

the borrower and the lender or servicer; 

or responding on behalf of the consumer 

to requests from the lender or servicer. 

The record demonstrates that many 

MARS providers currently charge 

discrete fees for these types of tasks, in 

some instances to evade state advance 

fee bans.344

Section 322.5 of the Final Rule, 

although modified, still prohibits MARS 

providers from collecting fees for 

piecemeal services. Section 322.5(a) 

requires the provider to secure the 

consumer’s written agreement to 

accepting the mortgage relief it has 

obtained; thus, providers will be unable 

to charge a fee for intermediate services 

unless and until the consumer accepts 

the result the MARS provider obtains 

from the consumer’s lender or servicer. 

c. Documentation Requirement 

Under § 322.5 of the Final Rule, 

MARS providers must provide 

consumers with documentary proof of 

the results they achieved before 

requesting or receiving payment. 

Section 322.5(a) of the Final Rule 

requires providers to give consumers a 

written offer—for the consumer to 

accept or reject—from the lender or 

servicer setting forth the mortgage relief 

they have obtained for the consumer, 

such as a forbearance agreement, short 

sale, or deed-in-lieu of foreclosure 

transaction; waiver of an acceleration 

clause; opportunity to cure default or 

reinstate a loan; or repayment plan. The 

documentation required is a 

comprehensive written instrument that 

memorializes a lender’s or servicer’s 

agreement to offer the concession. 

4. Additional Provisions Not Adopted in 

the Final Rule 

In the NPRM, the Commission 

requested comment on whether the 

Final Rule should: (1) Limit or cap 

providers’ advance fees; (2) allow 

providers to use independent thirdparty escrow accounts to hold fees until 

they achieve results; and (3) include a 

right to cancel. Based on the record, the 

Commission declines to adopt any of 

these approaches. 

a. Fee Caps 

Some commenters recommended that 

the Commission allow advance fees, but 

set limits (or caps) on them.345 Other 

commenters argued that the FTC should 

not adopt caps as a substitute for an 

advance fee ban.346 Two of the latter 

group of commenters asserted that 

providers would abuse such a provision 

by simply signing up as many 

consumers as possible and collecting 

any fees permitted upfront without 

providing any benefits to consumers.347

A third group of commenters, although 

supportive of an advance fee ban, 

argued that the Commission should also 

limit MARS providers to charging backend fees that are ‘‘reasonable’’ or ‘‘not 

excessive.’’ 348

As in the recent adoption of debt 

relief amendments to the TSR, and for 

the same reasons,349 the Commission 

declines to set caps on the fees MARS 

providers can receive. While the FTC 

concludes that the collection of advance 

fees by MARS providers is an unfair act 

or practice, it has made no such 

determination about the amount of fees 

charged.350 In general, the competitive 

market should establish the prices 

MARS providers charge,351 and the 

Commission’s role is to remove 

obstacles to consumers making the 

informed choices that are necessary to a 

properly functioning market. 

b. Use of Dedicated Accounts 

In the NPRM, the Commission 

requested comment on whether, in the 

event the Rule bans advance fees, MARS 

providers should be allowed to request 

or require that consumers place any 

such fees in a dedicated bank 

account.352 The Final Rule does not 

permit MARS providers, other than 

attorneys, to request or require 

consumers to pay fees into any type of 

account prior to completing their 

services.353 The overwhelming weight 

of comments opposed allowing the use 

of such accounts,354 because, among 

other things, some unscrupulous MARS 

providers might misuse funds held in 

dedicated accounts,355 and permitting 

dedicated accounts would place undue 

burdens on consumers to recover money 

they paid into the accounts if providers 

do not deliver the results consumers 

finds acceptable.356 There is nothing in 


jlentini on DSKJ8SOYB1PROD with RULES6
Federal Register / Vol. 75, No. 230 / Wednesday, December 1, 2010 / Rules and Regulations 75123 

357The amended TSR allows debt relief providers 

to establish dedicated accounts for consumer 

payments pending completion of the services, 

subject to several conditions to ensure that 

consumers are protected. 16 CFR 310.4(a)(5)(ii). 

There are fundamental differences between debt 

settlement services and MARS, however, that make 

this distinction an appropriate one. Consumers 

typically pay for debt settlement services by making 

monthly payments, which include a portion of the 

provider’s fees as well as savings towards 

settlements. It is only after consumers save enough 

money to fund a likely settlement—a process that 

can take many months or years—that the provider 

begins negotiating with the creditor to reduce the 

debt. MARS services, on the other hand, generally 

do not include this ‘‘forced savings’’ function; 

rather, consumers simply pay the provider’s fees in 

a single or small number of payments. Any relief, 

such as a loan modification, that the MARS 

provider obtains typically would not involve a 

lump sum payment for which the consumer would 

have to save. Moreover, the record in the TSR 

proceeding showed that it is the usual practice in 

the debt settlement industry to use dedicated 

accounts and that a structure is already in place to 

administer these accounts, consisting of 

established, independent firms that manage 

accounts that the consumers own and control. TSR; 

Final Rule, 75 FR at 48490–91 & n.451. One such 

firm manages approximately 250,000 accounts for 

consumers enrolled with various debt settlement 

companies. Global Client Solutions, (Oct. 9, 2009) 

at 2, available at http://www.ftc.gov/os/comments/ 

tsrdebtrelief/543670-00138.pdf. No such 

infrastructure exists in the MARS industry. 

358See LOLLAF at 6; NCLC at 13; CUUS at 7; 

LFSV at 1–2. 

359See, e.g., CSBS at 4; CUUS at 7; LFSV at 2; 

NYC DCA at 10; NCLC at 14; LOLLAF at 6. 

360 Id. 

361See NCLC at 14; LFSV at 2. 

362See LOLLAF at 6; NCLC at 14. 

363The Commission also declined to include a 

right to cancel in the debt relief amendments to the 

TSR. See TSR; Final Rule, 75 FR at 48488. 

364The Final Rule explicitly exempts from the 

definition of ‘‘person’’ any individuals or entities 

outside the FTC’s jurisdiction. See § 322.2(k). 

365See CSBS at 4 (‘‘The state regulators support 

the Commission’s proposal to prohibit any person 

from providing substantial assistance or support to 

a MARS provider if that person knows or 

consciously avoids knowing that the provider is 

violating any provision of the proposed rule.’’); see 

also CUUS at 8 (supporting prohibition but 

suggesting alternate standard); NYC DCA at 9 

(same); NAR at 2 (same). 

366See, e.g., CUUS at 8; NY DCA at 9. 

367CUUS at 8. 

368See CUUS at 8; NYC DCA at 9. 

369See TSR Statement of Basis and Purpose, 60 

FR 43842, 43852 (1995) (‘‘The Commission further 

believes that the ordinary understanding of the 

qualifying word ‘substantial’ encompasses the 

notion that the requisite assistance must consist of 

more than mere casual or incidental dealing with 

a seller or telemarketer that is unrelated to a 

violation of the Rule.’’). 

370See, e.g., FTC v. Kirkland Young, LLC, No. 09– 

23507, Mem. Supp. TRO at 9 (S.D. Fla. filed Nov. 

24, 2009) (alleging that Defendant employed 

another entity to make some of its telemarketing 

calls to consumers). 

371Frequently, MARS providers rely on the 

services of payment processors to handle credit 

card payments. See, e.g., FTC v. Loss Mitigation 

Servs., Inc., No. SACV09–800 DOC (ANx) (C.D. Cal. 

filed July 13, 2009); FTC v. LucasLawCenter ‘‘Inc.’’, 

No. SACV09–770 DOC(ANx) (C.D. Cal. filed July 7, 

2010) (third-party papers filed by payment 

processor); Pls. Opp. Mot. Decl. Relief (C.D. Cal. 

filed Nov. 20, 2009). In other industries, the FTC 

has sued payment processors that billed consumers 

for products or services despite indications that 

those products or services were illusory on an 

assistance and facilitating theory. See, e.g., FTC v. 

InterBill, Ltd., No. 06–cv–01644–JCM–PAL (D. Nev. 

Dec. 26, 2006); FTC v. Your Money Access, LLC, No. 

07–5174 (E.D. Pa. filed Dec. 6, 2007). 

372See, e.g., FTC v. Fed. Loan Modification Law 

Ctr., LLP, No. SACV09–401 CJC (MLGx), Reply to 

Resp. Order To Show Cause at 9 (C.D. Cal. filed 

April 22, 2009) (alleging that defendants contracted 

with another entity to process backlog of consumer 

files and negotiate with lenders on behalf of those 

consumers). 

the record indicating that non-attorney 

MARS providers currently use 

dedicated accounts with any frequency 

to deposit advance fees or that an 

infrastructure to support such accounts 

exists. Without more information as to 

how MARS providers would use 

dedicated accounts and whether 

consumers would be adequately 

protected, and in light of widespread 

deceptive and unfair acts and practices 

by MARS providers, the Commission 

declines to permit providers to request 

or require that consumers place advance 

fees for MARS in such accounts.357

c. Right To Cancel 

The proposed rule did not include a 

right to cancel. However, the NPRM 

solicited comments on whether the 

Final Rule should give consumers the 

right to cancel their contracts with 

MARS providers without obligation for 

a certain period of time often referred to 

as a ‘‘cooling off period.’’ 

Several commenters recommended 

including a right to cancel in the Final 

Rule as a complement to the advance fee 

ban.358 Many of these commenters 

observed that consumers considering 

whether to purchase MARS often are 

facing an immediate crisis and may not 

take the time they need to make wellinformed decisions.359 They further 

noted that MARS providers often engage 

in aggressive sales tactics that may 

overcome any hesitancy on the part of 

consumers.360 According to these 

commenters, a right to cancel would 

provide consumers with an opportunity 

to discuss purchasing MARS with 

trusted confidants,361 reconsider their 

decision free of aggressive sales 

tactics,362 and assess whether the 

service is beneficial for them. 

The Commission declines to include 

a right to cancel provision in the Final 

Rule. Under § 322.5 of the Final Rule, 

even if a consumer enters into an 

agreement to use a MARS provider in 

circumstances undermining his or her 

ability to make a well-informed 

decision, the consumer has no 

obligation to pay any money to the 

MARS provider until he or she accepts 

an offered result. The consumer is free 

to reject offers that he or she believes are 

unsatisfactory. If the consumer never 

accepts an offer, he or she is never 

obligated to pay the provider. Thus, a 

right to cancel would provide little 

additional benefit to consumers.363

F. Section 322.6: Substantial Assistance 

or Support 

The proposed rule prohibited any 

person within the FTC’s jurisdiction 

under the FTC Act 364 from providing 

‘‘substantial assistance or support’’ to 

any MARS provider if the person 

‘‘knows or consciously avoids knowing 

that the provider is engaged in any act 

or practice that violates this rule.’’ The 

Final Rule adopts the proposed 

provision with a single, minor 

modification. 

Public comments generally supported 

a prohibition on providing substantial 

assistance or support to another who is 

violating the Rule.365 Several 

commenters asserted that such a 

measure would prevent MARS 

providers from using ‘‘lead generators’’ 

or mortgage brokers to supply contact 

information for potential customers,366

thus making it more difficult for 

deceptive MARS providers to operate. 

For example, a consumer group 

explained that such a provision would 

be valuable because entities that assist 

and facilitate fraudulent MARS 

providers often receive a substantial 

portion of the funds obtained from 

consumers for mortgage assistance relief 

services.367 As discussed below, a 

number of commenters supported a 

substantial assistance or support 

provision, but recommended including 

a different knowledge standard in a final 

rule than in the proposed rule.368

1. Substantial Assistance 

Many MARS providers rely on, or 

work in conjunction with, other entities 

to advertise their services and operate 

their businesses. The Final Rule 

provision applies to substantial—i.e., 

more than casual or incidental— 

assistance or support that such entities 

provide to MARS providers.369

Substantial assistance could include 

such critical support functions as lead 

generation, telemarketing and other 

marketing support,370 payment 

processing,371 back-end handling of 

consumer files,372 and customer 

referrals. 

A common example of those who 

provide substantial assistance to MARS 

providers are so-called ‘‘lead 

generators.’’ Lead generators obtain the 

contact information of consumers, i.e. 

leads, who have indicated interest in 

MARS by visiting the lead generator’s 


jlentini on DSKJ8SOYB1PROD with RULES6
75124 Federal Register / Vol. 75, No. 230 / Wednesday, December 1, 2010 / Rules and Regulations 

373Lead generators themselves often may also 

qualify as ‘‘mortgage assistance relief service 

providers’’ and thus be liable for primary violations 

of the Rule, because many of these entities 

‘‘arrang[e] for others to provide’’ MARS. See 

§ 322.2(j). For example, if a lead generator 

disseminates advertisements containing 

misrepresentations to entice consumers to provide 

their contact information, and then passes that 

information on to another entity that will provide 

MARS, the lead generator would likely be in 

violation of § 322.3 of the Final Rule. The 

Commission also has brought actions under Section 

5 of the FTC Act against lead generators for the 

deceptive claims they disseminated. See e.g. FTC v. 

Dominant Leads, LLC, No. 1:10–cv–0997 (D.D.C. 

filed Jun. 15, 2010); see also United States v. Ryan, 

No. 09–00173–CJC (C.D. Cal. filed July 14, 2009) 

(criminal complaint against lead generator named 

as defendant in FTC action); FTC v. Ryan, No. 1:09– 

00535 (HHK) (D.D.C. filed Mar. 25, 2009); FTC v. 

Cantkier, No. 1:09–cv–00894 (D.D.C. Am. 

Complaint filed July 10, 2009). 

374Additionally, advertising affiliate network 

companies may serve as intermediaries between 

advertisers and lead generator Web sites. Such 

companies also could be held liable if they 

knowingly provide substantial assistance to MARS 

providers who violate the Rule. 

375See, e.g., FTC v. Kirkland Young, LLC, No. 09– 

23507, Mem. Supp. TRO at 9 (S.D. Fla. filed Nov. 

24, 2009) (alleging that defendant employed lead 

generators to leave messages with consumers via 

outbound telemarketing calls); FTC v. Truman 

Foreclosure Assistance, LLC, No. 09–23543 (S.D. 

Fla. filed Nov. 23, 2009); FTC v. Hope Now 

Modifications, LLC, No. 1:09–cv–01204–JBS–JS 

(D.N.J. filed Mar. 17, 2009). 

376See, e.g., FTC v. One or More Unknown Parties 

Misrepresenting their Affiliation with the Making 

Home Affordable Program, No. 09–894 (D.D.C. filed 

May 14, 2009). 

377See CUUS (Mar. 26, 2010) at 8 (‘‘Failure to 

verify a company’s integrity in the face of clear and 

reasonable evidence to the contrary should expose 

an entity or individual to liability.’’); NYC DCA 

(Mar. 29, 2010) at 9. 

378See NAR at 2 (provision would implicate real 

estate professionals who help consumers conduct 

short sales, when the consumers are referred to 

them by MARS providers). 

379TSR Statement of Basis and Purpose, 60 FR 

43842, 43852 (Aug. 23, 1995). 

380United States. v. Dish Network, L.L.C., 667 F. 

Supp. 2d 952, 961 (C.D. Ill. 2009) (finding United 

States properly pled knowledge or conscious 

avoidance of knowledge when it alleged that 

defendant received complaints that its dealers were 

violating the TSR but continued paying the dealers 

to telemarket); FTC v. Global Mkting Group, Inc., 

594 F. Supp. 2d 1281, 1288 (M.D. Fla. 2008) 

(finding that defendant at a minimum consciously 

avoided knowing of TSR violations where it 

processed consumer payments to telemarketers; 

reviewed, edited, and approved telemarketers’ sales 

scripts; and handled complaints and law 

enforcement inquiries). 

381Federal courts have held that providing 

knowing substantial assistance to others who 

engaged in unlawful conduct is an unfair practice. 

See, e.g., FTC v. Neovi, Inc., 598 F. Supp. 2d 1104 

(S.D. Cal. 2008), aff’d, 604 F.3d 1150 (9th Cir. 2010) 

(holding that defendants engaged in unfair acts by 

creating checks they knew were often requested by 

unauthorized parties); FTC v. Accusearch, Inc., No. 

06–CV–105–D, 2007 WL 4356786 (D. Wyo. Sept. 28, 

2007) (holding that defendants engaged in unfair 

practices by selling phone records obtained by other 

parties through deception); FTC v. Windward Mktg., 

No. Civ.A. 1:96–CV–615F, 1997 WL 33642380 (N.D. 

Ga. Sept. 30, 1997) (holding that defendants 

engaged in unfair acts by depositing unauthorized 

bank drafts obtained by a deceptive telemarketing 

operation). 

382Lead generators may possess the contact 

information of thousands of consumers that 

otherwise might be unavailable to a small MARS 

provider. The MARS provider can use that 

information to target more consumers with 

deceptive advertisements, contact consumers less 

expensively, or both, than it could in the absence 

of such information. See, e.g., CUUS at 8, NY DCA 

at 9. 

383To the extent the substantial assistance and 

facilitation provision makes it more difficult or 

expensive for MARS providers to hire third-party 

service providers, the Commission concludes that 

any such costs are outweighed by the benefits of 

more effectively preventing deceptive or unfair 

conduct by MARS providers. 

website in response to advertisements 

disseminated either by the lead 

generators themselves,373 or through a 

network of Internet advertisers.374 Lead 

generators then sell the consumer 

information to MARS providers.375 In 

some instances, lead generators route 

consumers who run Internet searches 

for government foreclosure assistance 

programs directly to MARS providers’ 

websites.376

2. The Knowledge Standard 

Under the proposed rule, those who 

provided substantial assistance to 

MARS providers would be liable if they 

knew or consciously avoided knowing 

that the providers were violating the 

rule. Some commenters suggested 

modifications to this knowledge 

standard. Specifically, two commenters 

advocated changing the ‘‘knows or 

consciously avoids knowing’’ standard 

to a ‘‘knew or should have known’’ 

standard, claiming that the former 

standard would allow those who 

provide substantial assistance to escape 

liability by failing to monitor the 

conduct of the MARS providers they are 

assisting.377 Conversely, another 

commenter argued that the ‘‘knows or 

consciously avoids knowing’’ standard 

in the proposed rule was too strong, 

expressing concern that those who 

provide substantial assistance would be 

presumed to know of the rule violations 

of the MARS providers they are 

assisting.378

The Commission retains the ‘‘knows 

or consciously avoids knowing’’ 

standard in the Final Rule. As the 

Commission stated in including the 

same standard in the assisting and 

facilitating provision of the TSR: 

[t]he ‘conscious avoidance’ standard is 

intended to capture the situation where 

actual knowledge cannot be proven, but there 

are facts and evidence that support an 

inference of deliberate ignorance on the part 

of a person that [the wrongdoer] is engaged 

in an act or practice that violates [the 

Rule].’’ 379

The standard thus neither permits 

third parties providing substantial 

assistance and support to turn a ‘‘blind 

eye’’ to the Rule violations of MARS 

providers, nor presumes that such third 

parties have the requisite knowledge 

simply because they provided the 

assistance or support. If those who 

provide substantial assistance or 

support to MARS providers receive or 

become aware of information that 

reasonably calls into question the 

legality of the MARS provider’s 

practices, they will be liable if they 

continue to assist and support that 

provider.380 In general, the 

determination of whether a person had 

the requisite knowledge will depend on 

a variety of factors such as the person’s 

relationship to the MARS provider, the 

nature and extent of the person’s degree 

of involvement in the operations of the 

MARS provider, and the nature of the 

provider’s violations. 

3. Legal Basis 

a. Preventing Deception 

The Commission concludes that 

§ 322.6 is reasonably related to 

preventing deceptive conduct by MARS 

providers. As noted above, MARS 

providers frequently rely upon the 

assistance and support of other persons 

for essential tasks such as identifying 

potential customers, marketing, backroom operations, and payment 

processing. This support makes it 

possible for MARS providers engaged in 

deception to efficiently operate on a 

wide scale. Prohibiting such persons 

from providing substantial and knowing 

assistance or support to MARS 

providers is likely to make it more 

difficult for providers to engage in 

deceptive conduct. 

b. Unfairness 

Applying the three-prong test under 

Section 5(n) of the FTC Act, the 

Commission concludes that it is an 

unfair practice to knowingly, or with 

conscious avoidance of knowledge, 

provide substantial assistance to a 

MARS provider engaged in violations of 

the Rule.381 First, this practice causes or 

is likely to cause substantial consumer 

injury by enhancing and expanding the 

provider’s ability to engage in the 

harmful conduct. For example, using 

lead generators often allows MARS 

providers to promote their services more 

widely and effectively, leading to 

substantial injury to consumers if those 

providers engage in violations of the 

Rule.382 Second, no commenters 

submitted information suggesting that 

there were any benefits to consumers or 

competition from knowingly giving 

substantial assistance to MARS 

providers who are violating the Rule,383


jlentini on DSKJ8SOYB1PROD with RULES6
Federal Register / Vol. 75, No. 230 / Wednesday, December 1, 2010 / Rules and Regulations 75125 

384MARS NPRM, 75 FR at 10724–25. 

385NAAG at 3–4; MBA at 4 (The definition in the 

rule should retain the integrity of the licensed 

attorney within state laws and rules regulating the 

practice of law to remain effective and those outside 

that standard should be prosecuted.’’); NYC DCA at 

4 (recommending that the Commission prohibit 

collection of advance fees by attorneys ‘‘not directly 

involved with legal services in connection with 

either the preparation and filing of a bankruptcy 

petition or court proceedings to avoid a 

foreclosure’’); IL AG (ANPR) at 2; MA AG (ANPR) 

at 9 (recommending that the Commission adopt a 

provision similar to Massachusetts state law). One 

commenter argued that attorneys should not be 

exempted from the advance fee ban restrictions, 

even when performing legal services in connection 

with a bankruptcy petition or some other legal 

proceeding. CUUS at 8–9. 

386NCLC at 7 (‘‘[L]egitimate attorneys play a 

critical role in providing bona fide and valuable 

assistance to consumers seeking loan modifications 

and other forms of mortgage-related assistance.’’); 

LSFV at 4 (‘‘Those seeking advice, who are likely 

in or facing mortgage default, may need specific 

advice regarding the contractual and tax 

implications of a loan modification, which HUDapproved counselors may not be qualified to 

provide.’’); Lawyers’ Committee at 9 (‘‘[I]n many 

situations short of legal action, there is a legitimate 

need for attorneys to provide legal advice or 

transactional services to their clients.’’); CSBS at 4 

(‘‘[W]e believe that limiting the exemption to 

preparing and filing for bankruptcy petitions or 

other documents in a bankruptcy or other court or 

administrative proceeding, is unduly narrow and 

might interfere with the ability of attorneys to offer 

legitimate counsel and advice to their clients.’’). 

387ABA at 1 (‘‘[T]he ABA urges the FTC to modify 

the rule to expand its existing attorney exemption 

to exclude lawyers engaged in the practice of law 

from the entire proposed rule, not just certain 

narrow provisions of the rule.’’); Rogers at 15 

(‘‘Prohibit loan modification companies from taking 

up-front fees unless they are licensed attorneys 

regularly conducting business out of publicly 

accessible office space in the state in which they 

provide loan modification services.’’); IL RELA at 1. 

388As discussed in Section I.A, the Dodd-Frank 

Act will transfer rulemaking authority with respect 

to this Rule to a new Bureau of Consumer Financial 

Protection, effective as of the transfer date, DoddFrank Act, Public Law 111–203, 124 Stat. 1376, 

which is currently designated as July 21, 2011. 

BCFP; Designated Transfer Date, 75 FR 57252. The 

new Bureau will not have authority with respect to 

activities engaged in as part of the practice of law, 

but will retain authority over attorneys to the extent 

they offer consumer financial products or services 

outside the scope of an attorney-client relationship 

and to the extent they are subject to certain 

enumerated consumer laws or authorities 

transferred to the agency, including the Final Rule 

in this proceeding. Dodd-Frank Act § 1027(e)(3). 

The Commission will continue to have authority to 

enforce the Rule, including against attorneys. 

389See, e.g., Lawyers’ Committee at 9 (attorneys 

team up with MARS providers, or act 

independently to scam consumers); NAAG at 3 

(attorneys’ participation ranged from working as 

employees of MARS companies to operating their 

own companies); MBA at 4 (‘‘[W]e are aware of 

attorneys who have ‘rented’ their licenses to 

mortgage assistance relief providers.’’); see also IL 

AG (ANPR) (reporting that ‘‘33 percent of the 

[MARS] companies we have dealt with are owned 

by attorneys, while 38 percent have some link to 

the legal profession’’). 

390See, e.g., CSBS at 4 (‘‘[A]n increasing number 

of attorneys have engaged in deception and 

unfairness in connection with mortgage assistance 

relief services.’’); NAAG at 3 (by way of example 

reporting that attorneys participated in half of the 

mortgage foreclosure rescue companies for which 

the Illinois Attorney General received complaints 

on March 18 and 19, 2010); CUUS at 8 (commenter 

has ‘‘received many complaints about attorneys’ 

involvement in fraudulent MARS schemes’’); 

Lawyers’ Committee at 9 (‘‘The intersection between 

legal services and mortgage assistance relief 

services is well documented in the increasing 

number of reports of attorneys teaming up with 

MARS providers to scam consumers.’’); NCLC at 4 

(acknowledging that ‘‘attorneys have been among 

those perpetrating abusive MARS activities’’); see 

also NAAG (ANPR) at 13 (‘‘[W]e have received 

many complaints regarding attorneys who are 

offering loan modification business. These attorneys 

generally provide no legal services for consumers 

and present the same problems as mortgage 

consultants in general.’’). 

391 IL AG at 2. 

392NAAG at 3 (‘‘The exemption for attorneys has 

been particularly abused.’’); MN AG (ANPR) at 5 

(‘‘This Office is aware of several loan modification 

and foreclosure rescue companies that have 

affiliated with licensed attorneys in other states in 

an effort to circumvent state law.’’). 

393NAAG at 3. 

and the Commission is not aware of any 

such benefits. To the extent any such 

benefits exist, they clearly are 

outweighed by the substantial injury 

this conduct causes consumers. Finally, 

the consumer injury caused by Rule 

violations that are substantially 

facilitated by third parties is not 

reasonably avoidable by consumers, 

who have no way of knowing that the 

MARS providers with whom they 

contract are engaged in violations of the 

Rule. 

G. Section 322.7: Exemptions 

The proposed rule exempted 

attorneys licensed to practice law in the 

state where the consumer resides from: 

(1) The prohibition on instructing 

consumers not to contact or 

communicate with their lenders; and (2) 

the advance fee ban, but only if the 

attorney was providing legal counsel in 

connection with preparing or filing legal 

documents in a bankruptcy or other 

legal proceeding. As the Commission 

explained in the NPRM, this proposed 

exemption was intended to allow 

attorneys who provide MARS as part of 

the practice of law to perform without 

undue burden useful legal services for 

consumers, while still covering 

attorneys who might harm consumers in 

offering or providing MARS.384

The Commission received numerous 

comments on this proposed exemption 

from attorneys and attorney 

organizations, consumer groups, and 

others. Indeed, the proposed rule’s 

treatment of attorneys was the issue 

most addressed in the comments. 

Several commenters, including NAAG, 

an association of mortgage bankers, 

consumer groups, and others supported 

a limited exemption like that in the 

proposed rule.385 Other commenters, 

including several consumer groups, a 

public interest law firm, and a 

consortium of state banking regulators, 

supported a broader exemption 

(especially with regard to the 

prohibition on advance fees),386 or a 

complete exemption for attorneys.387

Based on the record, the Commission 

has determined to include a broader 

exemption for attorneys in the Final 

Rule. Generally speaking, attorneys who 

provide MARS are exempt from the 

Rule if they: (1) Provide MARS as part 

of the practice of law; (2) are licensed 

to practice law in the state where their 

clients or their clients’ dwellings are 

located; and (3) comply with all state 

laws and licensing regulations covering 

the same subjects as the Final Rule. 

Attorneys who meet these standards are 

exempt from all of the provisions of the 

Final Rule except its advance fee ban. 

Such attorneys will be exempt from the 

advance fee ban in § 322.5, but only if 

they deposit advance fees received from 

their clients into a ‘‘client trust account’’ 

(as defined in a new provision, 

§ 322.2(b)) and comply with all state 

laws and licensing regulations 

governing these accounts.388

1. Comments in Support of a Limited 

Exemption 

In support of a limited attorney 

exemption, several commenters cited 

significant (and increasing) attorney 

involvement in MARS, both in 

affiliation with non-attorney providers 

or as providers themselves.389

According to these commenters, 

attorneys frequently have engaged in the 

same deceptive or unfair conduct as that 

of other MARS providers.390 For 

example, the Illinois Attorney General 

asserted that, since approximately 

December 2009, attorneys played some 

role (including participating in or 

assisting others in the conduct at issue) 

in 40% of the MARS companies 

reviewed by that agency in response to 

complaints.391

In addition, NAAG asserted that 

attorneys, and MARS providers who 

affiliate with them, have been successful 

in circumventing state MARS laws by 

invoking attorney exemptions in these 

laws.392 NAAG’s comment also 

discussed the propensity of attorneys to 

act as fronts for MARS companies and 

the recent trend of national MARS 

providers to retain ‘‘local counsel’’ to 

attempt to take advantage of attorney 

exemptions in state MARS laws.393

Other commenters, echoing the 

concerns of state law enforcers, 

contended that unscrupulous MARS 

providers would evade the Rule if its 


jlentini on DSKJ8SOYB1PROD with RULES6
75126 Federal Register / Vol. 75, No. 230 / Wednesday, December 1, 2010 / Rules and Regulations 

394NCLC at 2–3; Lawyers’ Committee at 9; LSFV 

at 4. 

395NCLC at 7 (‘‘[L]egitimate attorneys play a 

critical role in providing bona fide and valuable 

assistance to consumers seeking loan modifications 

and other forms of mortgage-related assistance.’’); 

LSFV at 4 (‘‘Those seeking advice, who are likely 

in or facing mortgage default, may need specific 

advice regarding the contractual and tax 

implications of a loan modification, which HUDapproved counselors may not be qualified to 

provide.’’); Lawyers’ Committee at 9 (‘‘[I]n many 

situations short of legal action, there is a legitimate 

need for attorneys to provide legal advice or 

transactional services to their clients.’’). 

396See supra note 395. Attorney commenters also 

asserted that they provide useful legal services to 

consumers facing the possible loss of their homes. 

See, e.g., ABA at 1 (‘‘[T]he rule would make it 

difficult or impossible for many consumer debtors 

to obtain the legal services that they desperately 

need to help negotiate changes to their residential 

mortgages with their lenders and keep their 

homes’’); Mobley at 1 (‘‘It is essential to have 

competent legal representation when negotiating a 

loan modification. While the government and 

servicers continually advise homeowners that loan 

modifications can be done without a third party’s 

help and that free help is available, statistics show 

that this advice has done nothing to help 

homeowners.’’); Carr at 2 (‘‘[M]any lawyers also offer 

their client a defense against foreclosure, mitigation 

or diversionary representation (where available) 

and ultimately (if necessary) a bankruptcy petition 

filing to protect their homes if the negotiation 

attempt should fail. Further, lawyers are uniquely 

qualified to assist the homeowner to understand the 

legal implications of and determine which of the 

bewildering panoply of alternatives facing them 

will be the most effective in their unique 

circumstances.’’); E. Davidson at 1 (‘‘Involvement of 

an attorneys at the earliest possible time, is an 

important vehicle for borrowers in either litigating 

or settling with the servicer or holder of the loan.’’); 

Legalprise at 1 (adversarial system works best if 

both lender and consumer have legal counsel); 

Greenfield at 3 (distressed homeowners have a 

‘‘significant need for legal services’’); Dargon at 3 

(‘‘But don’t strangle legitimate attorneys in your 

efforts to regulate hucksters and scam artists. 

Putting us out of business would harm our clients 

greatly, and will only make the foreclosure crisis 

worse and punish the very people who most need 

the services.’’); Giles at 1–2 (discussing 

representation of clients in foreclosure mediation 

with lenders). 

397See supra note 43. 

398See supra notes 396–97; see also NCLC 

(ANPR) at 14 (noting that ‘‘an attorney’s more 

beneficial and traditional role of analyzing a client’s 

paperwork and advising the client of potential 

claims and options may also fit within the 

definition of mortgage assistance relief’’). 

399 In its survey of NACA and NABCA members, 

see supra note 44, NCLC reported that 38% of the 

298 attorneys who responded claimed that they 

perform MARS ‘‘not in connection with a court or 

administrative proceeding or bankruptcy petition.’’ 

NCLC at 6. 

400LFSV at 4 (‘‘Licensed attorneys and public 

accountants in our community are prepared and 

capable of providing this important and potentially 

useful advice, but may choose to avoid contracting 

with consumers to address these questions for fear 

that they may run afoul of the Commission’s 

proposed Rule.’’); NCLC at 6 (‘‘Attorneys are likely 

to cease representing homeowners because of the 

risk that clients with unreasonable expectations 

would not pay.’’); see also CSBS at 4. 

401See, e.g., CSBS at 4 (‘‘[W]e believe that limiting 

the exemption to preparing and filing for 

bankruptcy petitions or other documents in a 

bankruptcy or other court or administrative 

proceeding, is unduly narrow and might interfere 

with the ability of attorneys to offer legitimate 

counsel and advice to their clients.’’). 

402See, e.g., NCLC at 8 (‘‘The [proposed rule] 

overlooks circumstances in which a homeowner 

would need to retain an attorney in another state. 

This is most likely to occur with second homes and 

rental properties. When a mortgage holder or 

servicer initiates a foreclosure action, the 

foreclosure process will take place where the 

dwelling is located and the homeowner will need 

an attorney licensed in that jurisdiction, even if it 

is not where the homeowner resides.’’). 

403See, e.g., NCLC at 15; see also Mobley at 2; 

Rogers at 20–21; Carr at 10; Bronson at 9. A 

coalition of consumer groups cautioned that 

attorneys should be allowed to collect fees in client 

trust accounts only if they offer MARS as part of 

the authorized practice of law and do not split fees 

with non-attorneys. NCLC at 15. 

404CSBS at 5; see also NCLC at 13 (suggesting 

that the Commission should consider allowing the 

states to adopt alternative methods of regulating 

attorney conduct). But see NAAG at 3 (‘‘It is 

important that exemptions to the rule’s coverage be 

limited and narrow. As detailed in our earlier 

submission, companies are now exploiting 

exemptions in state mortgage rescue statutes in 

order to evade compliance with state laws. The 

exemption for attorneys has been particularly 

abused.’’). 

405See, e.g., Deal; Greenfield; Rogers; Carr, 

Davidson, Dix, Holler, Shaw, Peters, Dargon; Giles. 406See, e.g., IL RELA. 407ABA at 11. 408 IL St. Bar Assoc.; ME St. Bar Assoc., MO Bar, 

WI St. Bar, MI St. Bar., GA St. Bar, OR St. Bar. 409See, e.g., ABA at 1 (‘‘[T]he ABA urges the FTC 

to modify the rule to expand its existing attorney 

exemption to exclude lawyers engaged in the 

practice of law from the entire proposed rule, not 

just certain narrow provisions of the rule.’’); Rogers 

at 15 (‘‘Prohibit loan modification companies from 

taking up-front fees unless they are licensed 

attorneys regularly conducting business out of 

publicly accessible office space in the state in 

which they provide loan modification services.’’); IL 

RELA at 1. 

410ABA at 11. The issue of the jurisdiction in 

which an attorney must be licensed to qualify for 

the exemption is discussed infra § III.G.3.c.(2). 

The ABA also urged the Commission to reconcile 

the exemption in the Final Rule with the attorney 

exemption in HUD’s proposed rule under the SAFE 

Act. See supra notes 99–103 and accompanying 

text. As discussed in Section II.C., HUD’s proposed 

rule imposes standards for the licensing and 

registration of loan originators, which HUD intends 

to encompass third-party loan modification 

specialists. The HUD proposed rule would exempt 

licensed attorneys who provide covered services ‘‘as 

an ancillary matter to the attorney’s representation 

of the client,’’ unless the attorney is compensated 

by a mortgage loan originator. Safe Mortgage 

Licensing Act, 24 CFR 3400.103(e)(6). The 

Commission declines to adopt the exemption 

proposed by HUD. As a matter of law, the 

Commission in this proceeding would not be bound 

by a decision on the part of HUD to adopt a certain 

exemption for licensed attorneys based on a 

rulemaking record in a different proceeding to 

implement a different statute. In any event, 

reconciliation of two rules is premature given that 

the HUD Rule is only at the proposal stage. As 

discussed below, the FTC has concluded that the 

record in this proceeding warrants a different 

treatment of attorneys than the exemption in the 

proposed HUD Rule. 

attorney exemption were not 

sufficiently limited.394

2. Comments in Support of a Broader 

Exemption 

Despite their recognition that some 

attorneys have engaged in unfair or 

deceptive practices in connection with 

MARS, several commenters argued that 

broadening the attorney exemption was 

necessary to preserve consumers’ access 

to valuable legal services.395 These 

commenters contended that many 

consumers who are having difficulty 

paying their mortgages may benefit from 

legal services, but that such assistance 

may be considered MARS and thus 

subject to the Rule.396 The commenters 

claimed the proposed rule would cover 

legal services such as advising 

consumers on bankruptcy laws, 

unwinding sale-leaseback 

transactions,397 resolving violations of 

fair lending laws, disputing charges that 

servicers had assessed improperly, and 

counseling on the tax implications of 

short sales.398 The commenters asserted 

that a significant portion of the MARS 

work attorneys perform does not involve 

litigation and thus would not be eligible 

for the proposed rule’s exemption from 

the advance fee ban.399 Absent a broader 

exemption from the advance fee ban, 

according to these commenters, many 

attorneys would stop performing legal 

services for consumers seeking to avoid 

foreclosure.400

The comments favoring a broader 

attorney exemption suggested a number 

of changes to the proposed rule. A few 

commenters asserted that the exemption 

from the advance fee ban should apply 

to all legal services, not just legal 

services related to litigation 401 or those 

provided by attorneys in the same state 

where the consumer resides.402 Several 

commenters recommended that, in lieu 

of an advance fee ban, attorneys be 

permitted to place fees in a client trust 

account and draw on them as legal work 

is completed.403 State banking 

regulators asked the Commission to 

consider creating an exemption based 

on state law attorney exemptions, noting 

that the Michigan Credit Services Act 

exempts attorneys who do not provide 

covered credit services on a regular and 

continuing basis.404

Many commenters, nearly all of 

whom are attorneys who provide 

MARS 405 or organizations that 

represent them,406 including the 

American Bar Association (ABA) 407 and 

some state bars,408 recommended that 

the Commission completely exempt 

attorneys engaged in the practice of 

law.409 In particular, the ABA proposed 

that the Commission exempt any 

‘‘licensed attorney engaged in the 

practice of law and those individuals 

acting under the direction of the 

attorney.’’ 410


jlentini on DSKJ8SOYB1PROD with RULES6
Federal Register / Vol. 75, No. 230 / Wednesday, December 1, 2010 / Rules and Regulations 75127 

411See ABA at 8 (‘‘The primary reason to regulate 

those providing mortgage assistance relief services 

to consumers is to keep them honest and ensure 

proper government oversight over them. But 

because lawyers already have substantial fiduciary 

duties to their clients that are strictly enforced by 

the state supreme courts and state bars that license 

and oversee the lawyers, this rationale for 

regulating MARS providers simply does not apply 

to lawyers who are already licensed by their state 

courts and bars.’’); Lawson at 1 (‘‘Attorneys are 

regulated by the bar associations, they do not need 

to be regulated on another level.’’); Mobley at 2 (‘‘In 

deciding to provide broader attorney exemptions in 

the rule, the FTC should consider that attorneys 

already are regulated by the states, are subject to 

strict ethical standards, and misconduct leads to 

severe sanctions. In fact, the Rules of Professional 

Conduct implemented in most states already 

provide for the investigation and discipline of the 

majority of the dishonest and unfair acts this rule 

is written to prevent.’’); Carr at 5 (‘‘In addition 

lawyers are licensed professionals bound to follow 

a code of ethics promulgated by the bar associations 

in the states in which they practice and hence the 

activities described in the rule are already in effect 

‘policed’ at the state level, when in my opinion all 

regulation of this type more properly resides.’’). 

412See ABA at 3–5; Deal at 8 (‘‘Attorneys are well 

regulated by their bar associations.’’); Carr at 5. 

413See ABA at 8 (‘‘As a result of these 

burdensome mandates, many lawyers who 

currently help consumers renegotiate their 

mortgages or avoid foreclosure as a part of their 

practice might stop handling these types of cases 

altogether rather than comply with these new 

regulations.’’); Greenfield at 3–4 (reporting that 

many attorneys, including herself, discontinued 

providing MARS after California passed a law that 

prohibited attorneys from collecting advance fees); 

Mobley at 2 (‘‘Reputable attorneys experienced in 

loan modifications and other mortgage law issues 

would not be able to continue to practice. * * *’’); 

Carr at 5 (‘‘I and many others in the profession 

predict that lawyers will henceforth shun this field 

if the rule is adopted in its present form. * * *’’); 

Deal at 4 (‘‘The practical effect of [the Rule] is that 

attorneys will not be willing to work for clients 

needing these services, and people who need legal 

services will not be able to obtain them.’’); Giles at 

4 (‘‘If you pass this rule, it will drive lawyers like 

myself out of the market, and the number of 

permanent HAMPs that are executed will drop 

precipitously.’’); Rogers at 1 (‘‘The proposed FTC 

rules, as they stand, will result in the wholesale 

elimination of reputable and capable attorneys who 

help desperate homeowners.’’). 

414See, e.g., Deal at 1 (‘‘[The FTC] proposes to 

regulate the relationship between the attorney and 

client, which up until now has been the jurisdiction 

of state bar associations and state supreme courts.’’). 

The ABA also emphasized that the agents and 

employees of attorneys must comply with the same 

ethical rules. ABA at 8. 

415See, e.g., ABA at 8. 416See, e.g., ABA at 6–9; Mobley at 2; Rogers at 

16; Bronson at 5. 417ABA at 9; see also NCLC at 11 (‘‘Attorneys in 

many states have long been required to escrow 

unearned fees, and client trust accounts are 

recognized as an appropriate method of protecting 

money that remains the property of the client until 

earned by the attorney.’’). 

418ABA at 9; Mobley at 2; Rogers at 16, 20–21 

(‘‘Violation of the rules of an IOLTA account, which 

is often audited, can easily result in the disbarment 

of an attorney. Therefore, it is unlikely attorneys 

would often violate the escrow requirements.’’); Carr 

at 10; see also NCLC (‘‘A client who is injured by 

an attorney removing funds from a trust account 

will have recourse to the jurisdiction’s attorney 

discipline system, many of which include client 

recovery funds to provide redress in exactly this 

situation.’’); Deal at 1 (‘‘If I fail to behave ethically 

and fairly towards my clients I can be disciplined 

and ordered to refund fees.’’). 

419See, e.g., ABA at 9; Mobley at 2. 

420See, e.g., ABA at 3–7; IL RELA at 1–2; IL St. 

Bar Assoc. at 1; Carr at 4–5; Bronson at 9. 

421See, e.g., ABA at 6–7; see also Bronson at 2 

(‘‘Historically, attorneys have billed either on an 

hourly basis, a flat rate basis or on a contingency 

basis. All of these methods are legal and within the 

boundaries of the rules of ethics governing 

attorneys as long as they are clearly described in a 

written retainer agreement provided to the client.’’); 

Dargon at 2 (charges clients a flat fee of $2500; 

clients value a ‘‘predictable, definitive fee that 

includes representation throughout the process 

regardless of the complexity or duration’’). 

422ABA at 7; see also Bronson at 2 (‘‘Without the 

ability to take a retainer and charge for their time 

and effort regardless of whether they are successful, 

most attorneys will not be able to offer expert loan 

modification advice and services.’’); Greenfield at 5 

(‘‘An attorney who attempts to negotiate but is 

unable to achieve a mortgage loan modification for 

her client is still entitled to be paid for legal 

services actually rendered.’’); Dargon at 2 (‘‘If the 

FTC removes the up-front fee, it will effectively 

create a contingency area of law akin to personal 

injury—only without an insurance company or 

solvent defendant at the end of the case to absorb 

the attorneys’ fees.’’). 

423See, e.g., Mobley at 2 (‘‘Attorneys simply 

cannot operate a firm without collecting upfront 

fees.’’); Greenfield at 5 (‘‘Requiring an attorney to 

wait to be paid until a permanent modification is 

approved by the servicer is unreasonable when the 

actual time that elapses could be six months to one 

year.’’); Rogers at 9–10; Giles at 3; Dargon at 1, 3; 

Carr at 5; Deal at 4. 

424See, e.g., ABA at 8 (‘‘[L]awyers who try to help 

their consumer clients to renegotiate their 

mortgages or avoid foreclosure * * * would be 

prohibited from charging an advance fee, thereby 

greatly increasing the risk that the lawyer would not 

receive payment for the legal services provided.’’); 

Continued 

a. General Objections to Covering 

Attorneys 

Comments advocating for a broader or 

complete attorney exemption made the 

following main points: (1) It is 

unnecessary to cover attorneys because 

strict state laws and licensing 

regulations governing attorney behavior 

already provide adequate protection for 

consumers; 411 (2) the proposed rule’s 

requirements conflict with the manner 

in which attorneys traditionally have 

offered and charged for their legal 

services; 412 and (3) the proposed rule 

would cause attorneys to stop providing 

legal services to financially distressed 

consumers.413

Attorney commenters contended that 

federal regulation of attorneys who 

provide MARS is unnecessary, because 

existing state laws and licensing 

regulations impose extensive 

restrictions and duties on attorneys.414

For example, according to commenters, 

these laws and regulations obligate 

attorneys to work diligently and 

competently on behalf of their clients 

and to charge only reasonable fees.415

Several commenters also argued that 

state laws and regulations offer unique 

protections when attorneys collect fees 

and expenses in advance of providing 

services.416 According to the ABA, 

nearly every state court system has 

adopted laws and regulations requiring 

attorneys to deposit advance payments 

of fees and expenses into a client trust 

account that must comply with certain 

requirements.417 Violations of state laws 

and regulations governing attorney 

conduct can result in sanctions and 

other disciplinary action, including 

disbarment.418 Accordingly, these 

commenters urged the Commission to 

exempt attorneys entirely from the Final 

Rule and defer entirely to state 

enforcement against attorneys who 

violate applicable state laws or licensing 

regulations.419

b. Objections to Specific Provisions 

Covering Attorneys 

In addition to their general objections 

to the proposed rule applying to 

attorneys, the commenters objected to 

applying some of its provisions to 

attorneys. These comments, submitted 

by attorneys and organizations 

representing them, contended that a 

number of the proposed rule’s 

provisions were inconsistent with the 

practice of law and the state laws and 

regulations that govern it.420 In some 

instances, according to these 

commenters, the requirements would 

undermine attorneys’ ethical obligations 

to their clients. In other instances, the 

requirements would be cumbersome or 

excessive in light of comprehensive 

state laws governing how attorneys 

promote and charge for their services. In 

particular, they raised concerns about 

subjecting attorneys to the advance fee 

ban, the prohibition on instructing 

consumers not to communicate with 

their lenders or servicers, the required 

disclosures, and recordkeeping and 

compliance requirements. 

First, several commenters urged the 

FTC to exempt attorneys entirely from 

the advance fee ban. According to the 

ABA, the advance fee ban in the 

proposed rule, which conditioned the 

receipt of payment on achieving the 

promised result, conflicted with wellestablished state laws and regulations 

permitting attorneys and clients to agree 

to a variety of fee arrangements, 

including flat fees, contingency fees, or 

hourly fees.421 According to the ABA, 

the advance fee ban effectively would 

restrict attorneys to charging 

contingency fees for MARS.422

Attorney commenters contended that 

an advance fee ban would render them 

unable to pay their operating costs 423

and expose them to a high risk of nonpayment,424 thereby causing many 


jlentini on DSKJ8SOYB1PROD with RULES6
75128 Federal Register / Vol. 75, No. 230 / Wednesday, December 1, 2010 / Rules and Regulations 

Mobley at 2 (‘‘It is unreasonable for anyone to 

believe that clients are just as likely to pay their 

attorney bill after their legal matter is resolved as 

before.’’); Greenfield at 5 (‘‘The Commission’s 

position that attorneys who represent that they will 

‘negotiate’ a mortgage loan modification cannot be 

compensated until a permanent modification is 

offered to the borrower is unreasonable and 

unrealistic.’’); Rogers at 8, 10 (‘‘[The proposal] will 

virtually eradicate the practical ability of ethical, 

law abiding loan modification attorneys to ever get 

paid.’’); Carr at 4 (‘‘[T]he attorneys is relegated to 

filing a multitude of small claims cases against 

clients who are largely ‘judgment proof.’’’); GLS at 

1 (‘‘You are telling attorneys, many of them younger 

(like myself), newly out of law school (like myself), 

and with little to no ability to carry the overhead 

costs of providing assistance absent receipt of some 

fees, that they can’t collect a fee from clients who 

are the very definition of a credit risk until the very 

close of the matter. These matters typically take 

over 6 months to as long as a year. Statistically 

something like only 10% of these are ‘successful’. 

* * * As a result, your attorneys are under 

mountains of debt from student loans and 

struggling to stay out of foreclosure themselves have 

only a 10% chance of getting paid after 6 months 

to a year of work.’’). 

425See, e.g., Greenfield at 4; Giles at 3 (‘‘If the FTC 

says I can’t collect a fee in advance, I will have to 

exit this field of practice.’’); Lawson at 2 (‘‘Without 

the ability to take a retainer and charge for their 

time and effort regardless of whether they are 

successful, most attorneys will not be able to offer 

expert loan modification advice and services.’’); 

Dargon at 3 (‘‘Attorneys will be loathe to take 

modification cases if they have no assurance of 

being paid for their time and effort’’); IL RELA at 

1; WI St. Bar at 1. 

426See, e.g., Greenfield at 5; ABA at 6–7. 

Alternatively, some commenters argued that the 

proposed rule would create incentives for attorneys 

to file a lawsuit or a petition for bankruptcy on 

behalf of their client instead of finding another 

potentially appropriate solution. See, e.g., Mobley 

at 2; FL Bar at 1; OR St. Bar at 1; IL RELA at 2. 

427See, e.g., Greenfield at 4–6 (arguing that 

‘‘attorneys should be permitted to request a client 

retainer to be held in a regulated account, and to 

bill a client for legal work performed on an interim 

basis’’); Rogers at 20–21; Mobley at 2; Carr at 10; 

Bronson at 9. 

428ABA at 4. 

429See, e.g., ABA at 4–5 (‘‘Section 322.3 of the 

Proposed Rule would seriously undermine the 

confidential attorney-client relationship by 

prohibiting lawyers from giving certain proper legal 

advice to their consumer clients who live in another 

state, including advice to ‘not contact or 

communicate with his or her lender or servicer’.’’); 

IL St. Bar at 1 (arguing that proposed rule ‘‘prohibits 

lawyers from giving their clients who live in 

another state appropriate legal advice by 

prohibiting them from advising these clients not to 

communicate directly with the lenders’’); IL RELA 

at 2 (same); CCRL at 10 (arguing that it is unclear 

why rule should cover attorneys engaged in the 

‘‘ethical practice of law’’); Bronson at 9 (arguing that 

it is ‘‘dangerous to pass a rule that supercedes the 

judgment of attorneys as to whether their clients 

should talk to the lender or servicer’’); MI St. Bar 

at 1; Rogers at 10–12. 

430See ABA at 5; Bronson at 5. 

431See supra note 430. A consortium of consumer 

groups also argued that the proposed exemption 

would not permit attorneys to represent consumers 

who own property in a state other than where they 

reside, for example, members of the military who 

commonly rent property in one state but reside in 

another. See NCLC at 8. 

432See ABA at 4, 8 ; MO Bar at 1; OR St. Bar at 

1; IL St. Bar Assoc. at 1; IL RELA at 2; MI St. Bar 

at 1; FL Bar at 1; ME St. Bar Assoc. at 1; GA St. 

Bar at 1; WI St. Bar at 1. 

433ABA at 3. A consumer group also opposed 

requiring attorneys to make this disclosure, 

contending that there is little evidence that the 

misimpression that the disclosure is designed to 

cure—that the provider is affiliated with the 

government or the consumer’s lender or servicer— 

actually exists with respect to attorneys. NCLC at 

9. 

434ABA at 7. 

435See, e.g., ABA at 4; IL St. Bar Assoc. at 1; OR 

St. Bar at 1; FL Bar at 1; NCLC at 9; Rogers at 22. 

436As discussed above, both attorney 

practitioners, see, e.g., ABA at 7, and consumer 

advocates, see, e.g., NCLC at 7; LFSV at 4, have 

argued that the Final Rule should not curtail 

consumer access to legal help. 

437As discussed above, consumer groups, law 

enforcers, and regulators have argued that the Final 

Rule should protect consumers from harm by 

attorneys. See NCLC at 8; CSBS at 4; LSFV at 4; 

Lawyers’ Committee at 9; see also NAAG at 3–4; 

MBA at 4; NYC DCA at 4; IL AG (ANPR) at 2; MA 

AG (ANPR) at 9; CUUS at 8–9. 

attorneys to discontinue providing these 

types of services.425 According to the 

commenters, the proposed rule’s 

limitation of the exemption to attorneys 

engaged in bankruptcy or other legal 

proceedings would exclude many forms 

of legal work for which attorneys 

regularly collect fees in advance.426

Therefore, these commenters 

recommended that a final rule should 

allow them to place advance fees in a 

client trust account and withdraw them 

as they perform services.427

Second, some attorney commenters 

recommended exempting attorneys from 

the prohibition on instructing 

consumers not to contact their lenders 

or servicers. According to the ABA, 

clients typically expect attorneys they 

retain to act as their representative in 

dealing with other parties, such as 

lenders and servicers.428 In general, the 

commenters argued that imposing this 

prohibition would undermine attorneys’ 

effectiveness as legal counsel and 

possibly jeopardize the attorney-client 

privilege.429 Some commenters also 

recommended that the exemption from 

this prohibition apply to attorneys who 

are lawfully licensed in any state,430

noting that the exemption in the 

proposed rule would prevent attorneys 

from giving such an instruction to their 

out-of-state clients.431

Third, some commenters argued that 

attorneys should not be subject to the 

proposed rule’s disclosure 

requirements.432 The ABA criticized 

two disclosures in particular: (1) The 

disclosure that providers are for-profit 

businesses not affiliated with the 

government or the consumer’s lender or 

servicer, because in the attorney context 

this non-affiliation disclosure is 

unnecessary and potentially confusing 

to consumers;433 and (2) the total cost 

disclosure, because it would mandate 

that attorneys charge a flat fee for their 

services even though they commonly 

charge fees on an hourly or other 

basis.434

Finally, several commenters argued 

that attorneys should be exempt from 

the proposed rule’s record keeping and 

compliance requirements. The ABA and 

other attorney organizations claimed 

that requiring attorneys to comply with 

the requirements to maintain records of 

their interactions and transactions with 

clients and to produce them for FTC 

inspection during an investigation or 

law enforcement action would 

undermine attorney-client 

confidentiality and the attorney-client 

relationship.435

3. The Attorney Exemption in the Final 

Rule 

In the Final Rule, the Commission has 

broadened the attorney exemption. An 

attorney is exempt from the Rule, except 

the advance fee ban, if he or she: 

(1) Provides MARS as part of the 

practice of law; (2) is licensed to 

practice law in the state where the client 

or the client’s dwelling is located; and 

(3) complies with applicable state laws 

and regulations relating to the same 

general types of conduct the Rule 

addresses, namely, the competent and 

diligent provision of legal services, 

communication with clients, charging 

and receipt of fees, promotion of 

services, and not engaging in fraudulent 

or deceitful conduct. In addition, an 

attorney that meets these criteria is 

exempt from the advance fee ban if the 

attorney deposits any advance fees in a 

client trust account and complies with 

all state laws and licensing regulations 

relating to the use of those accounts. 

The attorney exemption in the Final 

Rule strikes a balance between allowing 

consumers to continue to have access to 

bona fide legal assistance,436 while at 

the same time preventing or deterring 

unfair or deceptive practices by 

attorneys.437

a. The Commission’s Determination Not 

To Exempt All Attorneys 

As discussed above, some 

commenters advocated exempting from 

the Rule all attorneys, regardless of their 

activities. The Commission declines 

such a blanket exemption to attorneys. 

The record shows that a substantial 

number of attorneys have engaged in the 

types of deceptive and unfair conduct 

the Rule prohibits. For example, 

approximately 22% of the complaints 

that a coalition of government agencies, 

nonprofits, and service providers has 

received from consumers about loan 

modification fraud involve some form of 


jlentini on DSKJ8SOYB1PROD with RULES6
Federal Register / Vol. 75, No. 230 / Wednesday, December 1, 2010 / Rules and Regulations 75129 

438Of the 6,473 total complaints in the LMSPN 

database as of August 25, 2010, see supra note 75, 

the Network determined that 1,510 involved legal 

representation. This level of reported attorney 

involvement has remained consistent over the past 

several months. See Loan Modification Scam 

Prevention Network June 2010 National Loan 

Modification Scam Database Report, at 1 (‘‘(LMSPN, 

June 2010 Report),’’), available at http:// 

www.preventloanscams.org/tools/assets/files/JuneLMSPN–Report-Final.pdf. (noting that 33% percent 

of persons aged 51 and older reported attorney 

involvement in the loan modification scam); Loan 

Modification Scam Prevention Network May 2010 

National Loan Modification Scam Database Report, 

at 1 (‘‘LMSPN, May 2010 Report), available at 

http://www.preventloanscams.org/tools/assets/files/ 

May-LMSPN–Report-Final.pdf. (‘‘At the end of May, 

almost one-third of our reports indicated that legal 

representation was a part of the reported scam.’’); 

Loan Modification Scam Prevention Network April 

2010 National Loan Modification Scam Database 

Report, at 2 (‘‘LMSPN, April 2010 Report), available 

at http://www.preventloanscams.org/tools/assets/ 

files/April-LMSPN–Report-Final.pdf. (noting that 

20% of complaints involve attorney representation). 

A May 2010 LMSPN Report also found that the 

names of more than 20 law firms or attorneys had 

appeared in multiple complaints. See LMSPN, May 

2010 Report at 1. 

439See IL AG (June 30, 2010) at 2. More 

specifically, this comment stated that 17.5% of 

these companies were owned, at least in part, by 

attorneys; 15% had affiliations with attorneys; and 

6% showed evidence of attorneys on their staffs. 

440See, e.g., FTC v. Washington Data Res., Inc., 

No. 8:09-cv-02309–SDM–TBM (M.D. Fla. filed Nov. 

12, 2009); FTC v. LucasLawCenter ‘‘Inc.’’, No. 

SACV09–770 DOC (ANX) (C.D. Cal. filed July 7, 

2009); FTC v. US Foreclosure Relief Corp., No. 

SACV09–768 JVS (MGX) (C.D. Cal., Amd. Compl. 

filed Mar. 8, 2010); FTC v. Fed. Loan Modification 

Law Ctr., LLP, Case No. SACV09–401 CJC (MLGx) 

(C.D. Cal., Am. Compl. filed Oct. 1, 2010). 

441See, e.g., Florida v. Kirkland Young, No. 09– 

90945–CA–03 (Fla. Cir. Ct. Dade-County Dec. 17, 

2009); North Carolina v. Campbell Law Firm, P.A., 

No. 09cv023738 (N.C. Super. Ct.—Wake filed Nov. 

11, 2009); Assurance of Voluntary Compliance & 

Discontinuance In re Airan2 (Nov. 9, 2009), 

available at http:// 

www.coloradoattorneygeneral.gov/sites/default/ 

files/uploads/Airan2.pdf; Press Release, Conn. Att’y 

Gen., Attorney General Warns Consumers About 

Foreclosure Rescue Company Masquerading As Law 

Firm (Aug. 10, 2009), available at http:// 

www.ct.gov/ag/cwp/view.asp?Q=444786&A=3673; 

California v. United First, Inc., No. BC 417194 (Cal 

Super. Ct. Los Angeles filed July 6, 2009) (alleging 

attorney Mitchell Roth and his law firm MW Roth, 

PLC falsely promised to eliminate mortgages on 

consumers’ homes and improve their credit); 

Assurance of Voluntary Compliance & 

Discontinuance In re Law Office of Eugene S. 

Alkana (Jun. 12, 2009), available at http:// 

www.coloradoattorneygeneral.gov/sites/default/ 

files/uploads/Legal%20Home%20Solutions.pdf; 

Assurance of Voluntary Compliance & 

Discontinuance In re Traut Law Group (Jun. 11, 

2009), available at http:// 

www.coloradoattorneygeneral.gov/sites/default/ 

files/uploads/Traut%20Law%20Group.pdf; see also 

Press Release, Office of the Cal. Att’y Gen., Brown 

Sues 21 Companies and 14 Individuals Who Ripped 

Off Consumers Desperate For Mortgage Relief (July 

15, 2009), available at http://ag.ca.gov/newsalerts/ 

release.php?id=1767 (among the defendants that the 

California Attorney General sued were 4 attorneys 

and three law firms); Cincinnati Bar Ass’n. v. 

Mullaney, 119 Ohio St. 3d 412 (2008). Federal and 

state criminal authorities also have prosecuted 

attorneys who have engaged in foreclosure rescue 

fraud. See, e.g., Amanda Bronstad, Crackdown on 

California Attorneys For Mortgage Fraud a StateFederal Joint Effort, Nat’l L.J., Oct. 12, 2010 (Orange 

County district attorney’s office brought criminal 

charges against an attorney in connection with his 

defrauding more than 400 homeowners with 

promises to modify mortgage loans in exchange for 

advance fees); Ameet Sachdev, Lawyer Convicted of 

Mortgage-Rescue Fraud, Chi. Trib., July 13, 2010 

(Attorney radio personality found guilty of federal 

criminal charges in connection with bilking 

homeowners in fraudulent foreclosure rescue 

scheme), available at http:// 

www.chicagotribune.com/business/ct-biz-0713- 

chicago-law-20100713,0,3981512.column; Press 

Release, Dist, Att’y Queens Cnty., Seventeen 

Individuals—Including Two Attorneys—Charged in 

Massive Multi-Million Dollar Real Estate Fraud: 

Ringleaders Allegedly Targeted Distressed 

Homeowners in Mortgage Rescue Scams (May 13, 

2010), available at http://www.queensda.org/ 

newpressreleases/2010/may/ 

huggins_sookraj_et%20al_05_13_2010_cmp.pdf. 

442See supra notes 55–61 and accompanying text; 

see also FTC v. Truman Foreclosure Assistance, 

LLC, No. 09–23543 (S.D. Fla. filed Nov. 23, 2009) 

(alleging that defendants told consumers that they 

were affiliated with law firm or attorneys); FTC v. 

Fed. Housing Modification Dep’t, No. 09–CV–01753 

(D.D.C. filed Sept. 16, 2009) (alleging that 

defendants falsely claim to have attorneys or 

forensic accountants on staff); FTC v. Loan 

Modification Shop, Inc., No. 3:09-cv-00798 (JAP), 

Mem. Supp. TRO at 14 (D.N.J. filed Aug. 4, 2009) 

(alleging that defendants misrepresent ‘‘that it is an 

attorney-based company’’). 

443See, e.g., NAAG at 3 (‘‘As detailed in our 

earlier submission, companies are now exploiting 

exemptions in state mortgage rescue statutes in 

order to evade compliance with state laws. The 

exemption for attorneys has been particularly 

abused.’’); IL AG (ANPR) at 2 (‘‘Attorneys are using 

the [state] exemption to market and sell the same 

mortgage consulting services provided by nonattorneys.’’); see also NAAG at 3–4 (arguing that it 

is a ‘‘difficult and fact-intensive inquiry’’ to prove 

attorneys are not engaged in the practice of law, and 

thus they are not exempted from state laws 

exempting those activities). 

In addition, some state consumer fraud statutes 

explicitly exempt attorneys, further impeding state 

enforcers from prosecuting attorney MARS 

providers for unfair or deceptive practices. See D.C. 

Code Ann. § 28–3903(c)(2)(C) (prohibiting the 

Department of Consumer Protection from applying 

the statute to the ‘‘professional services of 

clergymen, lawyers [and others]’’); Md. Code Ann., 

Com. Law § 13–104(1) (the statute ‘‘does not apply 

to * * * [t]he professional services of a * * * 

lawyer’’); N.C. Gen. Stat. § 75–1.1 (2005) (exempting 

‘‘member[s] of a learned profession’’); see also Sharp 

v. Gailor, 510 S.E.2d 702, 704 (N.C. App. 1999) 

(holding that unfair and deceptive trade practice 

claims against attorney are barred by a statutory 

exemption for ‘‘member[s] of learned profession’’); 

Ohio Rev. Code Ann. § 1345.01(A) (consumer 

transactions under the Ohio Consumer Sales 

Practices Act do not include ‘‘transactions between 

attorneys, physicians, or dentists and their clients 

or patients’’). 

444NAAG at 4 (‘‘We expect the trend of using 

attorneys as fronts for mortgage rescue companies 

to continue. We have noticed that national 

companies are recruiting for attorney ‘partners’ or 

‘local counsel’ in all of the states they work in to 

evade states’ mortgage rescue fraud statutes * * * 

Based on the continued—and increasing—number 

of complaints we are receiving against companies 

exploiting the attorney exemption, we support only 

a narrowly-crafted exemption for attorney 

services.’’); IL AG (ANPR) at 2 (‘‘Attorneys are using 

the exemption to market and sell the same mortgage 

consulting services provided by non-attorneys.’’). 

445See supra notes 58–60, 98; see also, e.g., Colo. 

Rev. Stat. § 6–1–1103(4)(b)(I) (exempts Colorado 

attorneys ‘‘while performing any activity related to 

the person’s attorney-client relationship with a 

homeowner’’); 765 Il. Comp. Stat. Ann. 940/5 

(exempts Illinois attorneys engaged in the practice 

of law); Mo. Rev. Stat. § 407.935(2)(b)a9 (exempts 

Missouri attorneys rendering service in the course 

of practice); see also NAAG (ANPR) at 13 

(‘‘Currently, most states exempt attorneys from their 

mortgage rescue consultant laws.’’); CMC (ANPR) at 

9–10. In California, the state legislature eliminated 

the attorney exemption from its law regulating 

foreclosure consultants because of concerns about 

evasion. See supra note 61. 

446See, e.g., CSBS (ANPR) at 2 (noting ‘‘attorneys 

who lend their name to a loan modification 

company, but play, little, if any direct role, in 

helping consumers obtain actual loan 

modifications’’); MN AG (ANPR) at 5 (‘‘The Office 

is aware of several loan modification and 

foreclosure rescue companies that have affiliated 

with licensed attorneys in other states in an effort 

to circumvent state law.’’); CRC (ANPR) at 2 (‘‘An 

increasing number of attorneys are involving 

themselves in these unethical practices without 

providing any legal (or other) services, sometimes 

engaging in fee-splitting or even simply acting as 

fronts for loan modification companies who are 

seeking to avoid state laws that prohibit some of the 

practices described above but exempt attorneys.’’); 

Cal. State Bar Ethics Alert at 2 (‘‘There is evidence 

that some foreclosure consultants may be 

attempting to avoid the statutory prohibition on 

collecting a fee before any services have been 

rendered by having a lawyer work with them in 

foreclosure consultations.’’). 

attorney participation.438 Similarly, of 

the 342 MARS companies investigated 

by the Illinois Attorney General’s Office, 

over 38% appeared to have had some 

attorney involvement, and attorneys 

owned—at least in part—over 17% of 

those companies.439 This data is 

consistent with the many FTC440 and 

state 441 law enforcement actions in 

which attorneys were found or alleged 

to have engaged in unfair or deceptive 

practices in offering or providing MARS 

to consumers. 

Additionally, the record, including 

FTC and state law enforcement 

actions,442 demonstrates that MARS 

providers have used state law 

exemptions for attorneys to circumvent 

the law and harm consumers.443 The 

NAAG comment, for example, 

explained that the attorney exemptions 

in many state MARS laws have created 

loopholes that MARS providers have 

exploited to harm consumers.444 As 

discussed above, these state MARS laws 

often exempt attorneys if they have 

attorney-client relationships with the 

consumers for whom they are providing 

services.445 An attorney-client 

relationship by itself, however, provides 

no guarantee that the attorney will act 

in a fair and honest fashion. Not only 

have MARS attorneys engaged in unfair 

and deceptive acts and practices and 

used such exemptions to circumvent 

state law requirements, but many nonattorney MARS providers have 

employed or affiliated with attorneys for 

that same purpose.446 MARS providers 


jlentini on DSKJ8SOYB1PROD with RULES6
75130 Federal Register / Vol. 75, No. 230 / Wednesday, December 1, 2010 / Rules and Regulations 

447The FTC’s review of the information produced 

by a media monitoring company, see supra note 66, 

showed that 25 of the 140 companies advertising 

MARS made reference to being attorneys or 

providing some form of legal assistance. 

448See, e.g., FTC v. Loss Mitigation Servs., Inc., 

No. SACV09–800 DOC (ANX), Mem. Supp. Pls. Ex 

Parte App. at 3 (C.D. Cal. filed Aug. 3, 2009) 

(alleging that ‘‘Walker Law Group’’ was ‘‘a sham 

legal operation designed to evade state law 

restrictions on the collection of up-front fees for 

loan modification and foreclosure relief’’); FTC v. 

US Foreclosure Relief Corp., No. SACV09–768 JVS 

(MGX), Prelim. Rep. Temp. Receiver at 2–3 (C.D. 

Cal. filed July 7, 2009) (stating that defendants’ 

‘‘relationship with two different lawyers was 

nominal at best and served primarily as a cover to 

dignify the business and invoke the attorney 

exception to advance fee prohibitions’’); FTC v. 

LucasLawCenter ‘‘Inc.’’, No. SACV–09–770 DOC 

(ANX), Mem. Supp. TRO at 19 (C.D. Cal. filed July 

7, 2009) (alleging that ‘‘[d]espite promises to the 

contrary, consumers have no contact with the 

purported attorneys who are supposed to be 

negotiating with their lenders’’); FTC v. Fed. Loan 

Modification Law Ctr., LLP, No. SACV09–401 CJC 

(MLGx), Mem. Supp. Ex Parte TRO at 6 & n.2; (C.D. 

Cal. filed Apr. 6, 2009) (alleging non-attorney 

defendants partnered with a California-licensed 

attorney to exploit attorney exemption in state law); 

see also Drexel Testimony at 6 (‘‘In exchange for the 

use of the attorney’s name and his or her ability to 

charge and receive advance fees, the foreclosure 

consultant typically offers to perform most or all of 

the loan modification services. * * *’’); Press 

Release, State Bar of Cal., State Bar Takes Action 

to Aid Homeowners in Foreclosure Crisis (Nov. 25, 

2009) (‘‘[T]he attorneys work with untrained nonattorney staff engaging in the unlawful practice of 

law by offering legal advice to prospective clients. 

[The Office of Trial Counsel] also is investigating 

the non-attorney staff for possible referral to law 

enforcement.’’), available at http:// 

www.calbar.ca.gov/state/calbar/ 

calbar_generic.jsp?cid=10144&n=96395; CMC 

(ANPR) at 10 (‘‘[The attorneys’] communications 

[with the consumer] are generally ‘boilerplate’ that 

does not appear to reflect any considered review by 

an attorney.’’); OH AG (ANPR) at 5 (‘‘[O]ur office 

sees foreclosure rescue companies advertise that 

they will provide a lawyer or legal help to that 

consumer. The lawyer’s client, however, is actually 

the company, not the consumer, and at most the 

lawyer will file a brief template response on behalf 

of the consumers.’’); IL AG (ANPR) at 2. Similarly, 

financial service companies report receiving letters 

from attorneys who do no work but lend their 

names to out-of-state attorneys. AFSA at 5. 

449 IL AG (ANPR) at 2 (‘‘While attorney mortgage 

consultants charge a premium for their services and 

aggressively market their status as legal 

professionals, they generally exclude—either 

expressly or in practice—actual legal representation 

or legal work from the scope of provided services.’’). 

Some MARS providers advertise the provision of 

legal services to consumers but then later disclaim, 

in fine print contracts, that they will actually 

provide such services. See id. at 2–4, 7. 

450See, e.g., FTC v. US Foreclosure Relief Corp., 

No. SACV09–768 JVS (MGX) (C.D. Cal., Amd. 

Compl. filed Mar. 8, 2010) (alleging defendants 

falsely claimed a lawyer would negotiate the terms 

of consumers’ home loans); FTC v. FTC v. Fed. Loan 

Modification Law Ctr., LLP, No. SACV09–401 CJC 

(MLGx), Mem. Supp. Ex Parte TRO at 6 & n.2 (C.D. 

Cal. filed Apr. 6, 2009) (alleging ‘‘despite promises 

to the contrary, consumers have no contact with 

purported attorneys who are supposed to be 

negotiating with their lenders’’); see also Chase 

(ANPR) at 5 (‘‘Many MARS providers claim to be 

affiliated with attorneys, but typically the people 

performing the services are not attorneys, and the 

connection with the attorney is very tenuous. Calls 

to the MARS provider do not go to the attorney’s 

office and addresses used by the providers are not 

the same as the attorney’s.’’); OH AG (ANPR) at 5 

(‘‘[A]t most the lawyer [advertised to consumers by 

foreclosure rescue companies] will file a brief 

template response on behalf of the consumers.’’). 

451 In today’s financial crisis, many consumers 

have turned to attorneys for help with their 

mortgages. See, e.g., LFSV at 1 (‘‘During the recent 

mortgage crisis, we have been dealing with a flood 

of borrowers whose mortgages are distressed and 

who have been subject to abuses by companies and 

individuals promising assistance with obtaining 

modification of those loans.’’); Central California 

Legal Services: State Bar’s First Foreclosure Forum 

in Fresno, available at http:// 

www.centralcallegal.org/ 

ccls/index.php (call for volunteer assistance to 

handle the sheer number of clients who need 

assistance to avoid foreclosure). Many consumers at 

risk of losing their homes must rely on for-profit 

attorneys to receive legal assistance because their 

income levels disqualify them for non-profit legal 

aid. See Income Levels for Individuals Eligible for 

Assistance, 45 CFR part 1611 (2010) (publishing 

2010 maximum income levels for individuals who 

are permitted to receive free or low cost legal help 

from programs funded by the Legal Services 

Corporation). 

452As one example, in several states borrowers 

have the right to participate in supervised 

mediation with lenders before the home goes into 

judicial foreclosure. See, e.g., Conn. Gen. Stat. Ann. 

§ 8–265ee (2009) (providing for court-sponsored 

mediation prior to foreclosure); Nev. Rev. Stat. Ann. 

§ 107.086 (2009) (providing for court-supervised 

mediation prior to foreclosure). Attorneys often 

represent clients in these mediation proceedings 

and may in some states file a petition for review on 

behalf of consumers if the mediation fails because 

lenders have acted in bad faith. See, e.g., Giles at 

1–2; see also Nev. Rev. Stat. Ann. § 107.086(5) 

(requiring loan holder to participate in mediation in 

good faith and to bring all necessary documents). 

453See, e.g., NCLC (ANPR) at 14 (noting that ‘‘an 

attorney’s more beneficial and traditional role of 

analyzing a client’s paperwork and advising the 

client of potential claims and options may also fit 

within the definition of mortgage assistance relief’’); 

LSFV at 4 (‘‘Those seeking advice, who are likely 

in or facing mortgage default, may need specific 

advice regarding the contractual and tax 

implications of a loan modification, which HUDapproved counselors may not be qualified to 

provide.’’). 

increasingly have induced consumers to 

purchase their services by making 

claims that their services include 

specialized legal assistance from 

attorneys,447 with some attorneys 

lending their names and credentials to 

these operations.448 In these 

arrangements, however, the attorneys 

often do little or no work on behalf of 

consumers,449 with non-attorneys 

handling most functions, including 

communicating with the lender or 

servicer.450

Given the prevalence of attorneys 

engaged in unfair and deceptive 

practices in providing MARS and the 

experience of the states with categorical 

exemptions for all attorneys, the 

Commission has decided not to exempt 

attorneys across-the-board from the 

Final Rule. The record demonstrates 

that such a categorical exemption would 

open a large loophole to the Rule that 

MARS providers would exploit to the 

detriment of consumers. 

b. The Rationale for the Attorney 

Exemption in the Final Rule 

As discussed above, attorneys’ 

activities related to mortgage assistance 

relief run the gamut. At one end of the 

spectrum, attorneys may provide a host 

of valuable services for consumers 

unable to pay their mortgages.451 For 

instance, some attorneys represent in 

legal proceedings consumers who are in 

or at risk of foreclosure,452 or provide 

such consumers with non-litigation 

legal services, such as advising them on 

bankruptcy laws, unwinding saleleaseback transactions, resolving 

violations of fair lending laws, disputing 

charges that servicers had assessed 

improperly, and counseling on the tax 

implications of short sales.453 The 

Commission concludes that some 

attorneys might cease providing such 

beneficial services if they were required 

to comply with the provisions of the 

Rule. 

At the other end of the spectrum, 

individuals with law licenses frequently 

engage in deceptive or unfair MARS 

practices or assist others who do. As 

with other services sold routinely 

through deceptive or unfair means, a 

broad attorney exemption can become 

an easy way for fraud artists to ply their 

trade without fear of law enforcement. 

Thus, the Commission concludes that 

merely possessing a law degree or a 

license to practice law is not an 

adequate basis for an exemption from 

the Rule. 

The Commission’s goal is to craft an 

exemption that enables attorneys to 

engage in the bona fide practice of law, 

but does not create a loophole for 

unscrupulous attorneys who themselves 

engage in unfair or deceptive acts and 

practices in selling MARS or lend their 

credentials to others who do so. The 

attorney exemption described below is 

designed to achieve that goal. 

c. Requirements for the Exemption 

(1) Practice of Law 

As described above, the services that 

attorneys may deliver to consumers 

with mortgage problems can be legal or 

non-legal in nature. Limiting the 

exemption to attorneys engaged in the 

‘‘practice of law’’ is intended to draw the 

distinction between legal and non-legal 

services, even though performed or 

supervised by an attorney. The ‘‘practice 

of law’’ generally encompasses 

providing advice or counsel that 

requires knowledge of the law and 

preparing documents, including court 


jlentini on DSKJ8SOYB1PROD with RULES6
Federal Register / Vol. 75, No. 230 / Wednesday, December 1, 2010 / Rules and Regulations 75131 

454See, e.g., Baron v. Los Angeles, 469 P.2d 353, 

357 (Cal. 1970) (adopting the definition articulated 

in In re Eley v. Miller, 34 N. E. 836, 837–38 (Ind. 

App. 1893), that the practice of law ‘‘includes legal 

advice and counsel, and the preparation of legal 

instruments and contracts by which legal rights are 

secured although such matter may or may not be 

pending in a court.’’); State Bar Ass’n of Conn. v. 

Conn. Bank & Trust Co., 140 A.2d 863, 870 (Conn. 

1958) (The practice of law ‘‘embraces the giving of 

legal advice on a large variety of subjects and the 

preparation of legal instruments covering an 

extensive field.’’); Ga. Code Ann. § 5–19–50 

(defining practice of law as ‘‘(1) Representing 

litigants in court and preparing pleadings and other 

papers incident to any action or special proceedings 

in any court or other judicial body; (2) 

Conveyancing; (3) The preparation of legal 

instruments of all kinds whereby a legal right is 

secured; (4) The rendering of opinions as to the 

validity or invalidity of titles to real or personal 

property; (5) The giving of any legal advice; and (6) 

Any action taken for others in any matter connected 

with the law.’’). 

455See, e.g., FTC v. Fed. Loan Modification Law 

Ctr., LLP, No. SACV09–401 CJC (MLGx) (law firm 

advertised MARS nationally while attorneys who 

purportedly worked for company were only 

licensed to practice law in California); Assurance of 

Voluntary Compliance & Discontinuance In re: 

Airan2, (Nov. 9, 2009) (out-of-state attorney 

provided MARS to Colorado consumers), available 

at http://www.coloradoattorneygeneral. 

gov/sites/default/files/uploads/Airan2.pdf; see also 

CMC at 9–10 (‘‘These attorneys are often not 

licensed to practice in either the borrower’s or 

servicer’s state * * *.’’); CSBS at 2 (‘‘This [increase 

of involvement by attorneys] includes out-of-state 

attorneys, many of whom are not licensed to 

practice law in the state where the homeowner lives 

* * *.’’). 

456See, e.g., Greenfield at 5; NCLC at 10. 

457See NCLC at 4. 

458See ABA at 5; Bronson at 5. 

459See, e.g., FTC Case List, supra note 28; 

Assurance of Voluntary Compliance & 

Discontinuance In re Airan2 (Nov. 9, 2009), 

available at http:// 

www.coloradoattorneygeneral.gov/sites/default/ 

files/uploads/Airan2.pdf (alleging out-of-state 

attorney sold MARS without proper licenses to 

Colorado residents); Assurance of Voluntary 

Compliance & Discontinuance In re Law Office of 

Eugene S. Alkana (Jun. 12, 2009) (same), available 

at http://www.coloradoattorneygeneral.gov/sites/ 

default/files/uploads/ 

Legal%20Home%20Solutions.pdf; Assurance of 

Voluntary Compliance & Discontinuance In re 

Traut Law Group (Jun. 11, 2009) (same), available 

at http://www.coloradoattorneygeneral.gov/sites/ 

default/files/uploads/Traut%20Law%20Group.pdf; 

cf. Model Rules of Prof’l. Conduct R. 5.5 

(prescribing that an attorney may practice law in a 

jurisdiction other than the one in which she is 

admitted only under limited circumstances, and 

even then only on a temporary basis). 

460See, e.g., Press Release State Bar of Cal., State 

Bar Takes Action to Aid Homeowners in 

Foreclosure Crisis (Sept. 18, 2009) (alleging that 

attorneys took ‘‘fees for promised services and then 

failed to perform those services, communicate with 

their clients or return the unearned fees’’), available 

at http://www.calbar.ca.gov/AboutUs/News/ 

200934.aspx; see also Helen Hierschbiel, Working 

with Loan Modification Agencies, Or. St. Bar Bull. 

(Aug./Sept. 2009) (warning Oregon attorneys of 

potential ethical violations associated with working 

with loan modification companies), available at 

http://www.osbar.org/publications/bulletin/ 

09augsep/barcounsel.html; Bob Lipson & David 

Huey, Lawyers and Buyers Beware, Was. St. Bar J. 

(Aug. 2009) (warning attorneys of the ‘‘potential 

ethical pitfalls’’ of ‘‘working with a loan 

modification company in conjunction with your 

practice’’), available at http://www.wsba.org/media/ 

publications/barnews/aug09-lawyersbeware.htm; N. 

J. Sup. Ct. Adv. Comm. On Prof. Ethics, Op. 716, 

Lawyers Performing Loan or Mortgage Modification 

Services for Homeowners, 197 N.J.L.J. 59 (Jun. 26, 

2009) (citing two ethics opinions in holding that 

attorneys cannot pay fees to loan modification 

companies for referring clients, act as in-house 

counsel to a for-profit loan modification company, 

or engage in prohibited fee sharing with loan 

modification companies), available at http:// 

www.state.nj.us/dobi/bulletins/ACPE_716_UPL_

45_loanmod.pdf; Diane Karpman, Beware the 

Meltdown’s Temptations, Cal. Bar J. (Dec. 2008) 

(warning the legal community about the potential 

ethical violations that could occur if attorneys were 

to go into business with non-attorneys in the loan 

modification market) available at http:// 

calbar.ca.gov/state/calbar/calbar_

cbj.jsp?sCategoryPath=/Home/ 

Attorney%20Resources/ 

California%20Bar%20Journal/

December2008&MONTH=

December&YEAR=2008&sCat

HtmlTitle=Discipline&sJournalCategory=YES&sCat

HtmlPath=cbj/2008-12_Discipline_EthicsByte.html&sSubCatHtmlTitle=Ethics%20Byte; 

Florida Bar, Ethics Alert: Providing Legal Services 

to Distressed Homeowners (cautioning attorneys 

against entering into arrangements with nonlawyers to provide services associated with loan 

modifications, short sales, and other forms of 

foreclosure-related rescue), available at http:// 

www.floridabar.org/TFB/TFBResources.nsf/

Attachments/

872C2A9D7B71F05785257569005795DE/$FILE/ 

loanModification20092.pdf. Additionally, the Ohio 

Supreme Court has sanctioned attorneys hired by a 

foreclosure rescue company for, inter alia, failing to 

engage in adequate preparation and failing to 

properly pursue clients’ individual objectives. See 

Cincinnati Bar Ass’n v. Mullaney, 894 N.E. 2d 1210 

(Ohio 2008). 

pleadings and contracts, to secure 

clients’ legal rights.454 The activities 

that constitute the ‘‘practice of law,’’ 

however, may vary based on state laws 

and licensing regulations, as interpreted 

by state courts and state bars. The Final 

Rule only allows an exemption for 

attorneys who are engaged in the 

‘‘practice of law,’’ as interpreted by the 

jurisdiction where the consumer or the 

consumer’s dwelling is located. 

(2) Licensing Jurisdiction 

To qualify for the exemption in the 

Final Rule, attorneys must be licensed 

to practice law in the state where their 

clients reside or where their clients’ 

dwellings that are the subject of the 

MARS are located. State attorney 

licensing regulations can provide an 

important check on the conduct of 

attorneys. The record shows, however, 

that in many cases attorneys have 

provided MARS in jurisdictions in 

which they are not licensed.455 To 

ensure that exempt attorneys would be 

subject to the oversight and regulation 

of state officials, the proposed rule 

limited the exemption to those attorneys 

who were licensed to practice in the 

state where the consumer resides. 

Some commenters, including several 

consumer groups, argued that the 

exemption in the proposed rule was too 

narrow because it did not include 

attorneys who represent clients who live 

in one state, but whose dwelling that is 

the subject of the MARS is located in 

another state.456 The Commission 

recognizes that some consumers who 

are in or at risk of foreclosure may need 

legal assistance concerning dwellings 

located in a state other than the one 

where they reside. As an example, older 

persons who live in assisted living 

facilities located close to family may 

continue to own homes in other 

states.457 Therefore, the Final Rule 

expands the attorney exemption to 

encompass attorneys who are licensed 

in the state where the consumer resides 

or where the dwelling is located. 

The Commission declines to expand 

the exemption to attorneys licensed in 

any state, as recommended by some 

commenters.458 The record, including 

state and FTC law enforcement, 

consumer complaints, and comments, 

demonstrates that many attorneys who 

have engaged in deceptive and unfair 

conduct that harms consumers operated 

on an interstate basis, including in 

states where they were not licensed.459

Requiring that attorneys be licensed 

where the consumer or the property is 

located makes it more likely that state 

bar officials will be a ‘‘cop on the beat,’’ 

deterring and preventing unlawful 

conduct by attorneys. 

(3) Compliance With State Laws and 

Licensing Regulations 

In addition to being licensed, 

attorneys must comply with all relevant 

state laws and licensing regulations 

governing their conduct for the state in 

which the client or the client’s dwelling 

is located to qualify for the exemption. 

Specifically, these attorneys must abide 

by all such laws and regulations relating 

to the following subject matters: (1) 

Competent and diligent representation 

of clients; (2) disclosure of material 

information regarding their services to 

clients; (3) the accuracy of 

representations of material aspects of 

their legal services; (4) the request, 

receipt, handling, and distribution of 

fees from clients; and (5) prohibitions 

on fee-splitting with non-attorneys or 

aiding others in the unauthorized 

practice of law. 

The record in this proceeding 

demonstrates that many attorneys 

involved in the provision of MARS have 

engaged in practices that violate one or 

more aspects of the applicable state laws 

or licensing regulations.460 To protect 

consumers and avoid duplicative or 

inconsistent standards, the Commission 

has determined that it is appropriate to 


jlentini on DSKJ8SOYB1PROD with RULES6
75132 Federal Register / Vol. 75, No. 230 / Wednesday, December 1, 2010 / Rules and Regulations 

461See, e.g., Model Rules of Prof’l Conduct R. 1.1 

& 1.3 (requiring attorneys to provide competent and 

diligent legal services). 

462See, e.g., Model Rules of Prof’l Conduct R. 1.4 

(governing attorney communications with clients 

about their cases); see also Model Rules of Prof’l 

Conduct R. 2.1 (calling for attorneys to exercise 

independent professional judgment and render 

candid advice). 

463See, e.g., Model Rules of Prof’l Conduct R. 7.1 

(general prohibition on making ‘‘false or misleading 

communications about the lawyer or the lawyer’s 

services’’). Attorneys also cannot engage in conduct 

that is dishonest, fraudulent, or deceitful. See 

Model Rules of Prof’l Conduct R. 8.4. 

464 Id. In some cases, state laws and regulations 

would prohibit attorneys from promising that they 

will obtain any particular mortgage relief for their 

clients. See, e.g., FL. Rules of Prof’l Conduct R. 4– 

7.2(c)(F) & (G) (2010) (prohibits any communication 

that ‘‘contains any reference to past successes or 

results obtained’’ or ‘‘promises results’’). 

465 Id.; see also Model Rules of Prof’l Conduct R. 

7.5 (generally prohibits use of firm name, 

letterhead, or other professional designation that is 

misleading, and specifies that attorneys in private 

practice cannot use a trade name that implies a 

connection with a government agency). 

466See Model Rules of Prof’l Conduct R. 7.1, 7.2, 

& 8.4; see also Model Rules of Prof’l Conduct R. 1.5 

(must communicate to clients the scope of 

representation and the basis and rate for fees, 

preferably in writing, before or within a reasonable 

time after commencing the representation). 

467See Model Rules of Prof’l Conduct R. 5.4 (only 

under certain circumstances can lawyers or law 

firms share legal fees with non-lawyers). 

468 Id. (lawyers cannot form business partnerships 

with non-lawyers if any of the activities involve the 

practice of law). State bars have warned attorneys 

about the ethical problems of partnering with nonattorneys to perform MARS. See, e.g., Helen 

Hierschbiel, Working with Loan Modification 

Agencies, Or. St. Bar Bull. (Aug./Sept. 2009) 

(warning Oregon attorneys of potential ethical 

violations associated with working with loan 

modification companies), available at http:// 

www.osbar.org/publications/bulletin/09augsep/ 

barcounsel.html; Bob Lipson & David Huey, 

Lawyers and Buyers Beware, Wash. St. Bar J. (Aug. 

2009) (warning attorneys of the ‘‘potential ethical 

pitfalls’’ of ‘‘working with a loan modification 

company in conjunction with your practice’’), 

available at http://www.wsba.org/media/ 

publications/barnews/aug09-lawyersbeware.htm; N. 

J. S. Ct. Adv. Comm. Prof. in Ethics & Comm. on 

Unauthorized Practice of Law, Lawyers Performing 

Loan or Mortgage Modification Services for 

Homeowners, (Jun. 26, 2009) (citing two ethics 

opinions in holding that attorneys cannot pay fees 

to loan modification companies for referring clients, 

act as in-house counsel to a for-profit loan 

modification company, or engage in prohibited feesharing with loan modification companies), 

available at http://www.state.nj.us/dobi/bulletins/

ACPE_716_UPL_45_loanmod.pdf. 

469See Model Rules of Prof’l Conduct R. 5.5 

(lawyer is not permitted to practice law in violation 

of the laws that regulate the legal profession in that 

state, nor assist another to do so). In addition, 

attorneys who operate what have come to be known 

as ‘‘loan modification mills’’ may violate state law 

if they provide MARS as part of their legal services, 

but delegate most of the work to non-attorneys 

without properly supervising the delegated work or 

retaining control over it. See Model Rules of Prof’l 

Conduct R. 5.3. 

470See, e.g., Press Release, State Bar of Cal., State 

Bar Continues Pursuit of Attorney Modification 

Fraud (Aug. 12, 2009), available at http:// 

www.calbar.ca.gov/state/calbar/calbar_generic.

jsp?cid=10144&n=96096; Fl. Bar, Ethics Alert: 

Providing Legal Services to Distressed Homeowners, 

available at http://www.floridabar.org/TFB/

TFBResources.nsf/Attachments/ 

872C2A9D7B71F05785257569005795DE/$FILE/ 

loanModification20092.pdf?; see also Cincinnati 

Bar Assoc. v. Mullaney, 119 Ohio St. 3d 412 (2008) 

(disciplining attorneys involved in mortgage 

assistance relief services). 

471FL Bar (July 1, 2010) at 1. In the past year, 

Florida has brought 32 cases alleging neglect by 

attorneys in providing loan modification services, 

which resulted in disciplinary action against four 

attorneys. During that time, the Florida Bar 

disciplined another four attorneys in connection 

with their advertising of MARS. Id. 

472Press Release, State Bar of Cal., Two More 

Loan Foreclosure Lawyers Placed on Involuntary 

Inactive Enrollment (June 2, 2010), available at 

http://www.calbar.ca.gov/AboutUs/News/ 

201012.aspx. 

473See, e.g., Deborah L. Rhode, Institutionalizing 

Ethics, 44 Case W. Res. L. Rev. 665, 694 (1994) 

(discussing funding constraints of bar disciplinary 

system). 

474See ABA, Ctr. For Prof’l Responsibility. 

Lawyer Regulation for A new Century: Report of the 

Commission on the Evaluation of Disciplinary 

Enforcement vi–vii, 9–11, 75 (1992); see also Fred 

C. Zacharias, The Future Structure and Regulation 

of Law Practice: Confronting Lies, Fictions, and 

False Paradigms in Legal Ethics Regulation, 44 Ariz. 

L. Rev. 829, 871 (2002) (‘‘[State bars] have tended 

to focus exclusively on cases that come to their 

attention easily, through complaints by allegedly 

aggrieved persons.’’); Julie Rose O’Sullivan, 

Professional Discipline For Law Firms? A Response 

to Professor Scheneyer’s Proposal, 16 Geo. J. Legal 

Ethics 1, 51–52 (2002) (‘‘[O]verwhelming majority of 

[bar disciplinary] proceedings continue to be 

founded upon complaints rather than proactive 

investigations’’). 

The Commission, in contrast, frequently initiates 

investigations based on its own monitoring of 

industry practices or information from third party 

sources, even in the absence of a consumer or 

competitor complaint. The Commission also has a 

number of important remedial powers that bar 

associations may lack, including the ability to file 

an immediate action in Federal court for a 

temporary restraining order to halt ongoing 

violations and freeze the defendant’s assets for 

ultimate return to injured consumers. See 15 U.S.C 

53(b). 

generally exempt from the Final Rule 

attorneys who comply with the 

applicable state laws and regulations. 

Attorneys not in compliance with those 

laws and regulations, however, remain 

subject to the Rule. Examples of 

activities that may be in violation of 

state laws and regulations, and thus 

would render attorneys ineligible for the 

exemption, include: (1) Failing to work 

diligently and competently on behalf of 

clients, i.e., not taking reasonable efforts 

to obtain mortgage assistance relief; 461

(2) neglecting to keep clients reasonably 

informed as to the status of their 

matters, including the potential for 

adverse outcomes; 462 (3) 

misrepresenting any material aspect of 

the legal services,463 including the 

likelihood they will achieve a favorable 

result,464 an affiliation with a 

government agency,465 or the cost of 

their services; 466 (4) sharing legal fees 

for MARS-related services with nonattorneys; 467 (5) forming partnerships 

with non-attorneys in connection with 

offering MARS; 468 and (6) aiding MARS 

providers in engaging in the 

unauthorized practice of law, i.e., 

providing legal services without a 

license to do so.469 If attorneys do not 

comply with all of these state 

requirements, they must comply with 

all of the requirements in the Final Rule. 

Some state bars have initiated an 

increasing number of investigations of 

attorneys who provide MARS and, in 

many instances, have brought 

misconduct cases against them.470 For 

example, the Florida Bar submitted a 

comment stating that it is investigating 

155 pending complaints against 42 

lawyers engaged in providing MARS.471

The California Bar is currently 

conducting roughly 2,000 investigations 

related to MARS providers.472 Vigorous 

state monitoring and enforcement play a 

vital role in reducing the incidence of 

unfair or deceptive conduct by attorneys 

involved in the provision of MARS. 

Nevertheless, many state bars have 

limited resources for investigating and 

taking action against unethical attorneys 

involved in providing MARS.473 State 

bars also typically respond only to 

client and competitor complaints rather 

than actively monitoring and 

investigating possible violations on their 

own initiative.474 As a result, as the 

record demonstrates, numerous 

attorneys have engaged and continue to 

engage in unfair or deceptive practices 

in the provision of MARS without states 

taking action against them. The 

Commission encourages all state courts 

and bars to follow the example of states 

like Florida and California and 

aggressively enforce their laws and 

regulations covering attorneys who 

provide MARS as part of the practice of 

law. The record demonstrates, however, 

that the threat of bar sanctions has not 

been a sufficient deterrent to attorney 

misconduct in the sale or provision of 

MARS, and thus it is necessary to cover 

certain conduct of attorneys under the 

Final Rule. 

d. Exemption From the Advance Fee 

Ban 

The practices of attorneys who meet 

the conditions listed in 322.7(a) are 

entitled to a general exemption from the 

Final Rule. The one exception relates to 

the prohibition on advance fees. Under 

§ 322.7(b) of the Final Rule, attorneys 

are exempt from the advance fee ban 

only if they: (1) Meet all of the 

conditions required for the general 

exemption; (2) deposit any advance fees 

they receive into a client trust account; 

and (3) comply with all state laws and 

licensing regulations governing the use 

of such accounts. 


jlentini on DSKJ8SOYB1PROD with RULES6
Federal Register / Vol. 75, No. 230 / Wednesday, December 1, 2010 / Rules and Regulations 75133 

475The Final Rule defines ‘‘client trust account’’ 

to mean a ‘‘separate account created by a licensed 

attorney for the purpose of holding client funds, 

which is: (1) [m]aintained in compliance with all 

applicable state laws and regulations, including 

licensing regulations; and (2) [l]ocated in the state 

where the attorney’s office is located, or elsewhere 

in the United States with the consent of the 

consumer on whose behalf the funds are held.’’ 

§ 322.2(b). This definition is consistent with the 

requirements of the Model Rules of Professional 

Conduct. See Model Rules of Prof’l Conduct R. 1.15. 

476 Indeed, some state laws and licensing 

regulations mandate that attorneys deposit flat fees, 

also known as fixed fees, collected in advance of 

performing legal services into client trust accounts, 

unless the client provides informed consent to a 

contrary fee arrangement. See, e.g., In re Mance, 980 

A.2d 1196 (DC 2009); DC Bar, Formal Op. 355 

(2010) (providing guidance to attorneys on Mance 

opinion); Minn. Lawyers Prof’l. Responsibility Bd., 

Formal Op. 15 (1991) (advising that attorneys must 

deposit advance payments into lawyer trust 

accounts); see also Colo. Rules of Prof’l Conduct R. 

1.15. 

477See, e.g., Model Rules of Prof’l Conduct R. 

1.15 (restrictions on the safekeeping of client 

property that is ‘‘in a lawyer’s possession in 

connection with a representation’’); see also Cal. 

Rules of Prof’l Conduct R. 4–100 (Preserving 

Identity of Funds and Property of a Client); Fla. 

Rules of Prof’l Conduct R. 4–1.15 (Safekeeping of 

Property); Ill. Rules of Prof’l Conduct R. 1.15 

(same); Nev. Rules of Prof’l Conduct R. 169 (same). 

478Model Rules of Prof’l Conduct R. 1.15(a) 

(funds shall be held ‘‘separate from the lawyers’ 

own property and in a separate account where the 

lawyer’s office is situated, or elsewhere with the 

consent of the client or third person’’). 

479See Model Rules of Prof’l Conduct R. 1.15(c) 

(‘‘A lawyer shall deposit into a client trust account 

legal fees and expenses that have been paid in 

advance, to be withdrawn by the lawyer only as fees 

are earned or expenses incurred.’’); see also, e.g., 

Cal. Rules of Prof’l Conduct R. 3–700 (when client 

representation terminates, attorneys must promptly 

return any part of a fee paid in advance that has 

not been earned); Fla. Rules of Prof’l Conduct R. 

4–1.16 (same); Ill. Rules of Prof’l Conduct R. 116 

(same); Nev. Rules of Prof’l Conduct R. 166 (same). 

480Attorneys must retain complete records as to 

transactional activity on the accounts. See Model 

Rules of Prof’l Conduct R. 1.15(a) (‘‘Complete 

records of such account funds and other property 

shall be kept by the lawyer and shall be preserved 

for a period of [five years] after termination of the 

representation.’’); see also Cal. Rules of Prof’l 

Conduct R. 4–100; Fla. Rules of Prof’l Conduct R. 

4–1.15; Ill. Rules of Prof’l Conduct R. 1.15; Nev. 

Rules of Prof’l Conduct R. 169. 

481See, e.g. Mance, 980 A. 2d at 1204 (attorney 

should notify client of any withdrawal so that she 

has an opportunity to review the amount 

withdrawn and, if warranted, contest it). 

482Model Rules of Prof’l Conduct R. at 1.15(e) 

(‘‘When in the course of representation a lawyer is 

in possession of property in which two or more 

persons (one of whom may be the lawyer) claims 

interests, the property shall be kept separate by the 

lawyer until the dispute is resolved. The lawyer 

shall promptly distribute all portions of the 

property as to which the interests are not in 

dispute.’’). 

483State courts have advised that attorneys 

should avoid excessive ‘‘front-loading’’ of fees. See, 

e.g., Mance, 980 A. 2d at 1204–05. Fees are 

withdrawn from client trust accounts pursuant to a 

mutual agreement between the attorney and client, 

which allows for withdrawals once attorneys 

achieve certain milestones. See, e.g., id. at 1202; see 

also Model Rules of Prof’l Conduct R. 1.15(a). 

484See, e.g. State Bar of California: Client Security 

Funds, available at http://www.calbar.ca.gov/ 

Attorneys/LawyerRegulation.aspx (‘‘client security 

fund’’ hyperlink) (fund set up to reimburse losses 

resulting from attorney dishonesty); Florida State 

Bar: Clients’ Security Fund, available at http:// 

www.floridabar.org/tfb/flabarwe.nsf (follow ‘‘pubic 

information’’ hyperlink, then follow ‘‘clients’ 

security fund’’ hyperlink) (fund created to help 

compensate losses of money or property due to 

attorney misappropriation or embezzlement); 

Attorney Registration and Disciplinary Commission 

of the Supreme Court of Illinois: Client Protection 

Program, available at https://www.iardc.org/ 

index.html (‘‘client protection program’’ hyperlink) 

(fund provided to reimburse losses resulting from 

dishonest conduct by attorneys); State Bar of 

Nevada: Clients’ Security Fund, available at http:// 

www.nvbar.org/clientsecurityfund.htm (fund 

reimburses losses to clients when attorney ‘‘betrays 

client’s trust or misappropriates the client’s funds’’). 

There is no guarantee that consumer losses will be 

reimbursed from these funds. In some cases, the 

amount in dues collected from attorneys may be 

insufficient to cover reported losses from attorney 

misconduct. See, e.g., Valerie Miller, New President 

Points State Bar Toward Future, Las Vegas Business 

Press, July 12, 2010 available at http:// 

www.lvbusinesspress.com/articles/2010/07/12/ 

news/iq_36736725.txt (reporting that in 2009, 

claims against the State Bar of Nevada’s clientsecurity account exceeded the amount in dues 

collected from attorneys). In addition, state bars 

often impose strict limitations on what types of 

losses qualify for reimbursement. For example, the 

Illinois client security fund limits reimbursement to 

losses that result from ‘‘intentional dishonesty’’ by 

the attorney. See Attorney Registration and 

Disciplinary Commission of the Supreme Court of 

Illinois: Client Protection Program, available at 

https://www.iardc.org/index.html (‘‘client 

protection program’’ hyperlink). 

485As noted in § III.E.5. of this SBP, the advance 

fee ban does not take effect until 60 days after 

issuance of the Final Rule. However, given that 

some states’ attorney regulations require the use of 

client trust accounts, many lawyers who have 

accepted advance fees from consumers for MARS 

should have already placed them in trust accounts 

to comply with these regulations. 

486A public interest law firm recommended that 

the Commission also allow state-licensed 

accountants to collect fees for preliminary mortgage 

default counseling to consumers. LFSV at 4. The 

comment did not elaborate on this 

recommendation. The Commission declines to 

exempt accountants from the advance fee ban. 

Apart from this one comment, nothing submitted on 

the record indicates that accountants regularly 

perform MARS. No accountant or organization 

representing that profession submitted comments in 

this proceeding. Moreover, accountants typically do 

not receive payment prior to completing their 

services, nor do laws or licensing regulations 

governing the accounting profession address this 

issue. See, e.g., Va. Code Ann. § 54.1–4400, et seq. 

Given the frequency with which 

attorneys, and those affiliated with 

attorneys, have engaged in unfair and 

deceptive practices in connection with 

MARS, the Commission believes that a 

blanket exemption from the advance fee 

ban for attorneys is unwarranted and 

would not adequately protect 

consumers. At the same time, the 

Commission is mindful of the possible 

adverse consequences from imposing 

unnecessary fee restrictions on attorneys 

that would reduce the availability of 

beneficial legal services. On balance, the 

Commission has concluded that a 

modified, broader attorney exemption 

with regard to the advance fee ban is 

appropriate. The Final Rule therefore 

permits attorneys who provide MARS as 

part of their provision of legal services 

to collect advance fees if, in compliance 

with applicable state laws and licensing 

regulations, the attorney deposits such 

payments into a client trust account 475

and draws on them as work is 

performed. 

Unlike other MARS providers, 

attorneys commonly deposit advance 

fees in client trust accounts and, in 

some jurisdictions, are legally required 

to do so.476 State laws and licensing 

regulations strictly limit attorneys’ use 

of funds in these accounts.477 For 

example, state laws and licensing 

regulations mandate that attorneys keep 

fees deposited in the client trust 

accounts separate from their own 

funds,478 only withdraw funds as fees 

are earned or expenses are incurred,479

maintain complete records as to 

transactions,480 notify clients of any 

withdrawals,481 and keep the client’s 

funds separate from other clients’ funds 

if a dispute as to ownership of the funds 

is pending.482 In some cases, attorneys 

also are prohibited from ‘‘front-loading’’ 

fees to expedite their withdrawal of 

funds from client trust accounts.483 In 

addition, as discussed above, in the 

event attorneys misappropriate funds, 

state court systems and bars can take, 

and have taken, disciplinary action, 

including license revocation. Finally, 

state bars typically maintain clientsecurity funds, which are capitalized by 

licensing fees that attorneys pay, for the 

purpose of compensating injured 

clients.484

To qualify for the exemption from the 

requirements of the advance fee ban, the 

Commission concludes that attorneys 

not only must deposit advance fees in 

a client trust account, but also must 

comply with all state laws and licensing 

regulations governing their use of client 

trust accounts for these funds.485 The 

Rule does not restrict attorneys as to the 

type of fees they charge clients, 

including flat fees, contingency fees, or 

hourly fees, but requires that they 

withdraw their fees from the client trust 

accounts consistent with state laws and 

licensing regulations. These conditions 

are appropriate for ensuring that such 

attorneys do not collect and handle fees 

in a manner harmful to consumers. 

Attorneys who do not comply with all 

of these state requirements must comply 

with the advance fee ban in the Final 

Rule.486

H. Section 322.8: Waiver Not Permitted 

Section 322.8 of the Final Rule, which 

includes only non-substantive 


jlentini on DSKJ8SOYB1PROD with RULES6
75134 Federal Register / Vol. 75, No. 230 / Wednesday, December 1, 2010 / Rules and Regulations 

487The Commission merely modified this 

provision to make it clearer and easier to 

understand. The proposed provision stated that 

‘‘[a]ny attempt by any person to obtain a waiver 

from any consumer of any protection provided by 

or any right of the consumer under this rule 

constitutes a violation of the rule.’’ MARS NPRM, 

75 FR at 10737. 

488See supra note 98. 

489The Commission also made minor, nonsubstantive changes to the language of § 322.9 in the 

proposed rule, to make the Final Rule provisions 

clearer and easier to understand. 

490See, e.g., NAAG at 2,5; OH AG at 1; MA AG 

at 1; MN AG at 1, 3; NY DCA at 2; CSBS at 1; CUUS 

at 9; LOLLAF at 1; Lawyer’s Committee at 11; LFSV 

at 1. 

491CUUS at 9. 

492OPLC at 3–4; NYC DCA at 9–10; CUUS at 9; 

LFSV at 4. 

493OPLC at 3–4 (provide documents in a timely 

manner upon written request); LFSV at 4 (provide 

documents within 10 days of a consumer’s 

requests). 

494NYC DCA at 9. 

495 Id. at 9–10. 

496CUUS at 9. 

497 Id. 

498See LFSV at 4; CUUS at 9 (recommending a 

retention period of five years, the statute of 

limitations for FTC civil penalty actions). 

499See ABA at 4, 8 ; MO Bar at 1; OR Bar at 1; 

IL BA at 1; IRELA at 2; MI Bar at 1; FL Bar at 1; 

ME BA at 1; GA Bar at 1; WI Bar at 1; Shaw at 1; 

GLS at 1. 

500The recordkeeping requirements in the Final 

Rule are similar to those imposed in the TSR, 16 

CFR part 310; The Franchise Rule, 16 CFR part 436; 

modifications to the proposal, provides 

that ‘‘[i]t is a violation of this rule for 

any person to obtain, or attempt to 

obtain, a waiver from any consumer of 

any protection provided by or any right 

of the consumer under this rule.’’ 487 No 

comments were received addressing this 

provision. Several states include similar 

provisions in their statutes restricting 

MARS.488 The Commission concludes 

that this provision is necessary to 

prevent MARS providers from 

attempting to circumvent the Rule, and, 

therefore, adopts this prohibition. 

I. Section 322.9: Recordkeeping and 

Compliance Requirements 

Section 322.9 of the proposed rule set 

forth specific categories of records 

MARS providers were required to 

retain. It also contained four compliance 

requirements. The Final Rule is very 

similar to the proposed rule, except that 

MARS providers no longer are required 

to record telephone communications 

with consumers unless they telemarket 

their services.489

1. Proposed Recordkeeping and 

Compliance Requirements 

Section 322.9(a) of the proposed rule 

set forth specific categories of records 

MARS providers would be required to 

keep and contained a time period for 

retention. Specifically, for a period of 24 

months from the date records are 

produced, the proposed rule required 

MARS providers to keep: 

(1) All contracts or other agreements 

between the provider and any consumer 

for any mortgage assistance relief 

service; 

(2) Copies of all written 

communications between the provider 

and any consumer occurring prior to the 

date on which the consumer enters into 

a contract or other agreement with the 

provider for any mortgage assistance 

relief service; 

(3) Copies of all documents or 

telephone recordings created in 

connection with § 322.9 (b), which sets 

forth compliance requirements; 

(4) All consumer files containing the 

names, phone numbers, dollar amounts 

paid, quantity of items or services 

purchased, and descriptions of items or 

services purchased, to the extent MARS 

providers obtain such information in the 

ordinary course of business; 

(5) Copies of all materially different 

sales scripts, training materials, 

commercial communications, or other 

marketing materials, including websites 

and weblogs; and 

(6) Copies of the documentation 

provided to the consumer in order to 

comply with the advance fee ban in 

§ 322.5. 

In addition, §§ 322.9(b)(1)–(4) of the 

proposed rule contained four 

compliance requirements. To monitor 

whether their employees and 

contractors are complying with the 

Rule, § 322.9(b)(1) required providers to: 

• Conduct random, blind recording 

and testing of the oral representations 

made by persons in sales or other 

customer service functions; 

• Establish a procedure for receiving 

and responding to consumer 

complaints; and 

• Ascertain the number and nature of 

consumer complaints regarding 

transactions handled by individual 

employees or independent contractors. 

Proposed §§ 322.9(b)(2) and (3) required 

that MARS providers investigate 

promptly and fully any consumer 

complaints they receive and take 

corrective action with respect to any 

employee or contractor whom the 

provider determines is not complying 

with the Rule. Finally, proposed 

§ 322.9(b)(4) required MARS providers 

to create and retain documentation of 

their compliance with proposed 

§ 322.9(b)(1)–(3). 

2. Comments Regarding Proposed 

Recordkeeping and Compliance 

Requirements 

State attorneys general and other state 

regulators, legal aid groups, and 

consumer advocates, while not 

addressing these recordkeeping and 

compliance requirements specifically, 

endorsed the proposed rule generally.490

One commenter expressly stated that it 

supported the recordkeeping and 

compliance provisions.491 Several 

comments proposed additional or 

modified compliance or recordkeeping 

requirements,492 including mandating 

that MARS providers: (1) Upon request, 

provide consumers with copies of any 

contracts or other documents in the 

providers’ files related to the services 

provided to them; 493 (2) maintain 

records in a form in which searches can 

be conducted electronically based on 

the name, address, and zip code of the 

consumer; 494 (3) keep comprehensive 

records of all consumers contacted, as 

well as the employees, independent 

contractors, and subcontractors of the 

provider; 495 (4) make available to the 

FTC all data, records, and other 

information collected in processing a 

consumer’s case; 496 and (5) respond to 

consumer complaints within 14 days of 

receipt, resolve complaints within 30 

days, and submit records of complaints 

and their resolution to the FTC.497 Two 

commenters also recommended that the 

Rule require a longer recordkeeping 

retention period.498

A number of commenters—in 

particular, members of the legal 

profession—objected to the 

recordkeeping and compliance 

requirements.499 Those commenters 

generally argued that the recordkeeping 

and compliance requirements in the 

proposed rule were ill-suited to 

attorneys and would interfere with their 

client relationships. These comments 

and the Commission’s response to them 

are discussed above in § III.G. of this 

SBP. 

3. Final Recordkeeping and Compliance 

Provisions 

With one exception, the Commission 

adopts in the Final Rule recordkeeping 

and compliance requirements that are 

very similar to those set forth in the 

proposed rule. As discussed throughout 

this SBP, the rulemaking record, 

including the Commission’s law 

enforcement experience, indicates that 

MARS providers frequently engage in 

unfair and deceptive acts and practices. 

The recordkeeping and compliance 

requirements in the Final Rule will 

assist the Commission in investigating 

and prosecuting law violations, 

including identifying injured consumers 

for purposes of paying consumer 

redress. Both the recordkeeping 500 and 


jlentini on DSKJ8SOYB1PROD with RULES6
Federal Register / Vol. 75, No. 230 / Wednesday, December 1, 2010 / Rules and Regulations 75135 

and the Funeral Industry Practices Rule, 16 CFR 

part 453. 

501The compliance requirements in the Final 

Rule are similar to those imposed in the Standards 

for Safeguarding Customer Information, 16 CFR part 

314; the TSR, 16 CFR part 310; and the Trade 

Regulation Pursuant to the Telephone Disclosure 

and Dispute Resolution Act of 1992 (900 Number 

Rule), 16 CFR part 308. 

502The Commission notes, however, that MARS 

providers who do not telemarket their services 

remain subject to the other recordkeeping and 

compliance requirements in the Final Rule. 

503Section 322.2(m). This definition was not 

included in the proposed rule. 

The Final Rule also clarifies, in § 322.9(b)(4), that 

providers must ‘‘maintain any information and 

material necessary to demonstrate [their] 

compliance’’—as opposed, merely, to ‘‘maintain[ing] 

documentation’’ of compliance—as the proposal 

required. This modification makes it clear that the 

information providers must maintain to 

demonstrate compliance is not limited to paper 

documents, but instead includes other media such 

as audio or computer files. 

504Unlike the TSR, the definition of 

telemarketing in the MARS Rule does not cover the 

purchase of goods or a charitable contribution. 

505See 15 U.S.C. 46, 49, 57b–1; 19 CFR 2.7. 

506See LFSV at 4; CUUS at 9 (recommending a 

retention period of five years because it is similar 

to the FTC statute of limitation for civil penalties). 

507NYC DCA at 9. 

508OPLC at 3–4 (provide documents in a timely 

manner upon written request); LFSV at 4 (provide 

documents within 10 days of a consumer’s 

requests). 

509Another comment suggested that the 

Commission mandate that MARS providers respond 

to consumer complaints within 14 days of receipt 

and resolve complaints within 30 days of receipt. 

LFSV at 4. Prompt resolution of consumer 

complaints certainly is good business practice, but 

in the absence of information as to the costs and 

the benefits of such requirements, as well as 

information as to whether they prevent unfairness 

or deception or are reasonably related to the 

prevention of such conduct, the Commission 

declines to specify such requirements in the Final 

Rule. 

510Credit CARD Act § 511(b). 

511NAAG stated that the Rule ‘‘would work 

harmoniously with existing state laws.’’ NAAG at 5. 

512See 16 CFR 310.9. 

513The Final Rule does not apply retroactively; 

thus, the advance fee ban does not apply to 

contracts with consumers executed prior to the 

effective date. 

compliance 501 requirements are similar 

to those imposed in other FTC 

consumer protection rules. In addition, 

MARS providers would likely retain 

these records in the ordinary course of 

business even in the absence of the 

Rule. The Commission adopts these 

recordkeeping and compliance 

requirements to promote effective and 

efficient enforcement of the Rule, 

thereby deterring and preventing 

deception and unfairness. 

The Commission has decided to make 

one substantive modification to the 

compliance requirements in the 

proposed rule. The proposed rule 

required all MARS providers to conduct 

random blind recording of their sales 

and customer service calls. Some MARS 

providers who do not telemarket their 

services, including many attorneys, 

argued that it would be unduly costly 

for them to record such calls. 

To foster compliance with the Rule 

without imposing undue burdens, the 

Commission has decided to modify the 

telephone call recording requirement so 

that it applies to MARS providers only 

if they telemarket their services.502

Specifically, § 332.9(b)(1)(i) of the Final 

Rule states: 

If the mortgage assistance relief service 

provider is engaged in the telemarketing of 

mortgage assistance relief services, [it must 

perform] random, blind recording and testing 

of the oral representations made by 

individuals engaged in sales or other 

customer service functions 

Further, in order to effectuate this 

provision, the Final Rule defines 

‘‘telemarketing’’ as ‘‘a plan, program, or 

campaign which is conducted to induce 

the purchase of any service, by use of 

one or more telephones and which 

involves more than one interstate 

telephone call.’’ 503 This is similar to the 

definition of this term used in the 

TSR.504

The Commission declines to make the 

other changes in the recordkeeping and 

compliance requirements advocated in 

the comments. With respect to 

suggestions that the Rule require the 

retention of additional records, the FTC 

concludes that the records specified in 

§ 322.9(a) are sufficient for the 

Commission to make an initial 

determination about whether a 

provider’s practices merit further 

investigation. If its practices do, the 

Commission has substantial authority 

under the FTC Act 505 to compel MARS 

providers and others to produce 

additional information and records. 

With regard to comments suggesting 

that the recordkeeping retention period 

be extended, the Commission 

concludes,506 based on its law 

enforcement experience, that a two-year 

retention period is sufficient to 

investigate violations of the Rule. 

Extending the retention period beyond 

two years also might impose additional 

costs on MARS providers. 

Finally, comments suggested that the 

Final Rule should include provisions 

intended to make it easier for consumers 

to obtain information about the conduct 

of the MARS providers with whom they 

contract. In particular, comments 

recommended that the Commission 

require that MARS providers create and 

maintain electronically searchable 

records 507 and give consumers copies of 

any documents related to the services 

they provided or promised to 

provide.508 Although having such 

information or having access to it may 

make the conduct of MARS providers 

more transparent to their customers, it 

is not clear to what extent these 

requirements prevent unfairness or 

deception, or are reasonably related to 

the prevention of such conduct. In 

addition, there is no information in the 

rulemaking record assessing possible 

benefits to consumers that might result 

from such requirements, nor is there 

anything addressing the costs to MARS 

providers of creating, maintaining, and 

providing access to information in their 

files and databases. The Commission 

therefore declines to impose these 

suggested recordkeeping and 

compliance requirements.509

J. Section 322.10: Actions by States 

The Omnibus Appropriations Act, as 

clarified by the Credit CARD Act, 

permits states to enforce the Rules 

issued in connection with the MARS 

rulemaking.510 States may enforce the 

Rules, subject to the notice requirements 

of the Omnibus Appropriations Act, by 

bringing civil actions in federal district 

court or another court of competent 

jurisdiction. Section 322.10 tracks the 

statute, stating that states have the 

authority to file actions against those 

who violate the Rule.511

K. Section 322.11: Severability 

Section 322.11 states that the 

provisions of the Rule are separate and 

severable from one another. This 

provision, which is modeled after a 

similar provision in the TSR,512 also 

states that if a court stays or invalidates 

any provisions in the proposed rule, the 

Commission intends the remaining 

provisions to continue in effect. This 

provision was included in the proposed 

rule and no comments were received 

addressing it. The Commission has 

determined to adopt the proposed 

provision as the Final Rule. 

L. Effective Dates 

The Final Rule, with the exception of 

the advance fee ban in § 322.5, becomes 

effective on December 29, 2010. Given 

the widespread deceptive and unfair 

conduct of MARS providers, and the 

urgency of protecting consumers of 

these services, the Commission 

concludes that this effective date is 

appropriate. 

The advance fee ban provision, 

§ 322.5 of the Final Rule, takes effect on 

January 31, 2011.513 The Commission is 

providing MARS providers an 

additional month after the effective date 

of the other provisions of the Rule 

because compliance with the advance 


jlentini on DSKJ8SOYB1PROD with RULES6
75136 Federal Register / Vol. 75, No. 230 / Wednesday, December 1, 2010 / Rules and Regulations 

514See 44 U.S.C. 3502(3)(A). 

515See, e.g., NAAG at 4; MA AG at 3; CUUS at 

4–5; LOLLAF at 3; CSBS at 2–3; AFSA at 4–5. 

516See supra § III.D.2. 

517Section 322.4 sets forth the format and content 

of the notice, which varies depending upon the 

medium used. 

518See supra § III.H.2 and accompanying text and 

§ III.G. 

519See 5 CFR 1320.3(b)(2). 

520According to OMB, the public disclosure of 

information originally supplied by the Federal 

government to a recipient for the purpose of 

disclosure to the public is excluded from the 

definition of a ‘‘collection of information.’’ See 5 

CFR 1320.3(c)(2). 

521This estimate is based on an averaging of the 

mean hourly wages for sales and financial managers 

provided by the Bureau of Labor Statistics. Bur. of 

Labor Statistics, National Compensation Survey: 

Occupational Earnings in the United States, 2009, 

tbl. 3, at 3–1 (2010), available at http:// 

www.bls.gov/ncs/ncswage2009.htm (‘‘Occupational 

Earnings Survey’’). 

fee ban may entail substantial 

adjustments to many providers’ 

operations. 

IV. Paperwork Reduction Act 

The Commission is submitting this 

Final Rule and a Supplemental 

Supporting Statement to the Office of 

Management and Budget for review 

under the Paperwork Reduction Act 

(PRA), 44 U.S.C. 3501–21. The 

disclosure and recordkeeping 

requirements of the Rule constitute 

‘‘collection[s] of information’’ for 

purposes of the PRA.514 The associated 

PRA burden analysis follows. 

A. Disclosure Requirements 

As discussed above, the Rule requires 

several disclosures that MARS providers 

must place in commercial 

communications for MARS and must 

state to specific consumers who seek 

such services. Generally, commenters 

strongly supported the disclosures.515

In each general commercial 

communication and consumer-specific 

communication, providers must state 

that: (1) ‘‘(Name of company) is not 

associated with the government, and our 

service is not approved by the 

government or your lender;’’ and (2) 

‘‘Even if you accept this offer and use 

our service, your lender may not agree 

to change your loan.’’ In consumerspecific communications, providers also 

must disclose the total cost of MARS. 

Based on the rulemaking record,516

the Final Rule adds two new disclosures 

to consumers seeking MARS, and it 

modifies one existing disclosure 

substantially. First, if MARS providers 

advise consumers, expressly or by 

implication, to stop making mortgage 

payments, they must warn consumers in 

all communications that: ‘‘If you stop 

paying your mortgage, you could lose 

your home and damage your credit 

rating.’’ 517 Second, at the time providers 

furnish the consumer with a written 

agreement from the lender or servicer 

memorializing the result the providers 

have obtained, they must disclose: ‘‘This 

is an offer of mortgage assistance we 

obtained from your lender [or servicer]. 

You may accept or reject the offer. If you 

reject the offer, you do not have to pay 

us. If you accept the offer, you will have 

to pay us [same amount as disclosed 

pursuant to § 322.4(b)(1)] for our 

services.’’ At the same time, providers 

also must provide consumer’s with a 

notice from the consumer’s loan holder 

or servicer that describes material 

differences between the terms, 

conditions, and limitations associated 

with the consumer’s current mortgage 

and the terms, conditions, and 

limitations associated with the 

consumer’s mortgage if he or she 

accepts the loan holder’s or servicer’s 

offer. 

The Final Rule also expands the 

proposed disclosure of total cost in 

§ 322.4(b)(1), such that the provider 

must now disclose: ‘‘You may stop 

doing business with us at any time. You 

may accept or reject the offer of 

mortgage assistance we obtain from your 

lender [or servicer]. If you reject the 

offer, you do not have to pay us. If you 

accept the offer, you will have to pay us 

(insert amount or method for calculating 

the amount) for our services.’’ The Rule 

also broadens when the required 

disclosures must be made in 

commercial communications, such that 

all of the disclosures—with the 

exception of the disclosures regarding 

total cost and the obligation to pay 

fees—must be made in every general 

and consumer-specific commercial 

communication. 

B. Recordkeeping Requirements 

The Rule also imposes several 

recordkeeping requirements. Several 

commenters argued generally that the 

proposed recordkeeping requirements 

were burdensome, in particular for 

attorney providers.518 To address those 

concerns, the Final Rule exempts 

attorney providers from the 

recordkeeping provision. Most record 

retention requirements, however, 

pertain to records customarily kept in 

the ordinary course of business. This 

includes copies of contracts and 

consumer files containing the name and 

address of the borrower, telephone 

correspondence and written 

communications, and materially 

different versions of sales scripts and 

related promotional materials. As such, 

their retention does not constitute a 

‘‘collection of information,’’ as defined 

by OMB’s regulations that implement 

the PRA.519

In other instances, the Rule requires 

MARS providers to create as well as 

retain documents demonstrating their 

compliance with specific Rule 

requirements. These include the 

requirement that providers document 

the following activities: (1) The 

mortgage relief obtained by the provider 

from the lender or servicer before 

seeking payment from a consumer; (2) 

monitoring of sales presentations by 

recording and testing of oral 

representations if they engage in the 

telemarketing of their services; (3) 

establishing a procedure for receiving 

and responding to consumer 

complaints; (4) ascertaining, in some 

instances, the number and nature of 

consumer complaints; and (5) taking 

corrective action if sales persons fail to 

comply with the Rule, including 

training and disciplining sales persons. 

To lessen the burden of providers who 

do not telemarket their services, the 

Commission streamlined the 

compliance requirements by limiting 

the need to record communications to 

providers who telemarket their services. 

C. Estimated Hours Burden and 

Associated Labor Costs 

Commission staff believes that the 

above noted disclosure and 

recordkeeping requirements will impact 

approximately 500 MARS providers. No 

comments specifically addressed and 

refuted this estimate nor staff’s 

associated PRA burden assumptions and 

calculations. Apart from more recent 

available data to update staff’s labor cost 

estimates, the FTC retains its previously 

published estimates without 

modification. The related PRA burden 

assumptions and calculations follow. 

(1) Disclosure Requirements 

The Final Rule calls for the disclosure 

of specific items of information to 

consumers and adds two additional 

disclosures for MARS providers. 

Largely, the content of the disclosures is 

prescribed. Thus, the PRA burden on 

providers is greatly reduced.520 Staff 

conservatively estimates, however, that 

the incremental burden to prepare these 

documents will be approximately 2 

hours. Staff assumes that management 

personnel will implement the disclosure 

requirements, at an hourly rate of 

$46.65.521 Based upon these estimates 

and assumptions, total labor cost for 500 

MARS providers to prepare the required 

documents is $46,650 (500 providers × 

2 hours each × $46.65 per hour). 


jlentini on DSKJ8SOYB1PROD with RULES6
Federal Register / Vol. 75, No. 230 / Wednesday, December 1, 2010 / Rules and Regulations 75137 

522 Id. 523This estimate is based on mean hourly wages 

for office file clerks found at Occupational Earnings 

Survey, supra note 521, tbl. 3, at 3–23. 

524Associated costs would be reduced if the 

disclosures are made electronically. 

525 5 U.S.C. 601–612. 

526The RFA definition of ‘‘small entity’’ refers to 

the definition provided in the Small Business Act, 

which defines a ‘‘small-business concern’’ as a 

business that is ‘‘independently owned and 

operated and which is not dominant in its field of 

operation.’’ 15 U.S.C. 632(a)(1). 

527 5 U.S.C. 603. 

528 5 U.S.C. 604. 

529 5 U.S.C. 605. 

530CUUS at 9–10. 531NCLC at 4. The commenter does not indicate 

how many attorney MARS providers are small 

business or solo practitioners. 532See, e.g., SJMA at 2; Rogers at 1; GLS at 1; LCL 

at 8; Holler at 1. 

(2) Recordkeeping Requirements 

As noted above, the Rule 

contemplates that MARS providers will 

create and retain records demonstrating 

their compliance with several 

obligations set forth in the Rule. Staff 

estimates that each of the estimated 500 

providers will spend approximately 25 

hours to institute procedures to monitor 

sales presentations. Although 

Commission staff cannot estimate with 

precision the time required to document 

compliance with the Rule provisions, it 

is reasonable to assume that providers 

will each spend approximately 100 

hours to do so. This includes preparing 

records demonstrating steps taken to 

seek payment for services performed, 

handling consumer complaints, and 

conducting training. Additionally, staff 

estimates that retention and filing of 

these records will require approximately 

3 hours per year per provider. 

Commission staff assumes that 

management personnel will prepare the 

required disclosures at an hourly rate of 

$46.65.522 Based upon the above 

estimates and assumptions, the total 

labor cost to prepare the required 

documents to demonstrate compliance 

is $2,915,625 (500 providers × 125 hours 

each × $46.65 per hour). 

Commission staff further assumes that 

office support file clerks will handle the 

Rule’s record retention requirements at 

an hourly rate of $13.63.523 Based upon 

the above estimates and assumptions, 

the total labor cost to retain and file 

documents is $20,445 (500 providers × 

3 hours each × $13.63 per hour). 

D. Estimated Capital/Other Non-Labor 

Cost Burden 

The Rule should impose no more than 

minimal non-labor costs. Staff assumes 

that each of the estimated 500 MARS 

providers will make required 

disclosures in writing to approximately 

1,000 consumers annually.524 Under 

these assumptions, non-labor costs will 

be limited mostly to printing and 

distribution costs. At an estimated $1 

per disclosure, total non-labor costs 

would be $1,000 per provider or, 

cumulatively for all providers, 

$500,000. 

V. Regulatory Analysis and Regulatory 

Flexibility Act Requirements 

The Regulatory Flexibility Act of 1980 

(‘‘RFA’’) 525 requires a description and 

analysis of proposed and Final Rule that 

will have a significant economic impact 

on a substantial number of small 

entities.526 The RFA requires an agency 

to provide an Initial Regulatory 

Flexibility Analysis (‘‘IRFA’’) 527 with 

the proposed rule and a Final 

Regulatory Flexibility Analysis 

(‘‘FRFA’’) 528 with the Final Rule, if any. 

The Commission is not required to make 

such analyses if a Rule would not have 

such an economic effect.529

As of the date of the NPRM, the 

Commission did not have sufficient 

empirical data regarding the MARS 

industry to determine whether the Rule 

would impact a substantial number of 

small entities as defined in the RFA. It 

was also unclear whether the Rule 

would have a significant economic 

impact on small entities. Thus, to obtain 

more information about the impact of 

the proposed rule on small entities, the 

Commission decided to publish an IRFA 

pursuant to the RFA and to request 

public comment on the impact on small 

businesses of its proposed amended 

Rule. In response to questions in the 

NPRM, the Commission did not receive 

any comprehensive empirical data 

regarding the revenues of MARS 

providers or the impact on small 

businesses of the Rule. 

A. Need for and Objectives of the Rule 

The objective of the proposed rule is 

to curb deceptive and unfair practices 

occurring in the MARS industry. As 

described in Sections II and III, above, 

the Rule is intended to address 

consumer protection concerns regarding 

MARS and is based on evidence in the 

record that deceptive and unfair acts are 

common in the provision of MARS to 

consumers. 

B. Significant Issues Raised by Public 

Comment, Summary of the Agency’s 

Assessment of These Issues, and 

Changes, If Any, Made in Response to 

Such Comments 

As discussed in Section III above, 

commenters raised concerns about the 

burden of the proposed rule. One 

consumer advocacy group stated that 

the Rule would ‘‘not eliminate 

competition; it will simply get rid of bad 

actors who take consumers money while 

failing to deliver results. MARS 

providers who are engaged in legitimate 

practices should have no added 

burden.’’ 530 In contrast, another 

consumer advocacy group stated that 

complying with the disclosure and 

compliance requirements would be 

‘‘prohibitively expensive’’ for consumer 

protection attorneys with small 

practices and impossible for sole 

practicioners.531 However, commenters 

raised more significant concerns about 

the potential costs and burdens of the 

advance fee ban, as discussed in 

Sections III.E.1.b. Several small firms 

and sole practitioners owned by 

attorneys asserted that they would go 

out of business if the Commission 

imposed an advance fee ban.532 Many of 

the commenters did not focus 

specifically on the costs faced by small 

businesses relative to those that would 

be borne by other firms. Rather, they 

argued that the costs to be borne by all 

firms—including small firms—would be 

excessive. 

The Commission concludes that the 

Final Rule’s modifications to the 

recordkeeping and compliance 

requirements and the advance fee ban 

reduce the economic impact of 

compliance on all MARS providers, 

including small businesses. For 

example, attorney providers who meet 

certain conditions are exempt from the 

recordkeeping and compliance 

requirements and only providers who 

engage in telemarketing must comply 

with the telephone call taping 

requirement. Moreover, the Final Rule 

permits attorney providers who are 

exempt to receive payments from a 

client trust account, provided certain 

conditions are met. 

As noted above, the Rule will prevent 

unfair and deceptive conduct by MARS 

providers through a combination of 

conduct prohibitions, disclosures, 

affirmative compliance obligations, and 

recordkeeping provisions. As discussed 

in detail in the NPRM, the Rule’s reach 

is limited. First, the Rule will only cover 

entities that are within the FTC’s 

jurisdiction under the FTC Act. The 

FTC Act specifically excludes banks, 

thrifts, and federal credit unions from 

the agency’s jurisdiction. Further, the 

definition of ‘‘mortgage assistance relief 

service provider’’ is limited to third 

parties offering for-fee services and does 

not extend to free services provided by 

lenders or mortgage servicers and their 

agents. In addition, the Rule would give 

attorney providers who meet certain 

conditions with a limited exemption 

from the advance fee ban, as well as 


jlentini on DSKJ8SOYB1PROD with RULES6
75138 Federal Register / Vol. 75, No. 230 / Wednesday, December 1, 2010 / Rules and Regulations 

533See, e.g., MN AG at 1; CRL at 2–3; CUUS at 

2. 

534NAAG (ANPR) at 4. 

535Covered entities under the proposed rule are 

classified as small businesses under the Small 

Business Size Standards component of the North 

American Industry Classification System (‘‘NAICS’’) 

as follows: All Other Professional, Scientific and 

Technical Services (NAICS code 541990) with no 

more than $7.0 million dollars in average annual 

receipts (no employee size limit is listed). See SBA, 

Table of Small Business Size Standards Matched to 

North American Industry Classification System 

codes (Aug. 22, 2008), available at http:// 

www.sba.gov/idc/groups/public/documents/ 

sba_homepage/serv_sstd_tablepdf.pdf. 

536See supra § V.C. 

537See supra § IV. 

with an exemption from the conduct 

prohibitions, disclosures, substantial 

assistance or support prohibition, and 

recordkeeping and compliance 

provisions of the Rule. 

C. Description and Estimate of the 

Number of Small Entities Subject to the 

Final Rule or Explanation Why No 

Estimate Is Available 

The Rule will apply to MARS 

providers. Based upon its knowledge of 

the industry, the Commission believes 

that a variety of individuals and 

companies provide or purport to 

provide such services, including 

telemarketers, mortgage brokers, lead 

generators, payment processors, 

contractors that provide back-room 

services, and attorneys. 

Comments in response to the NPRM 

suggest that the number of MARS 

providers purporting to assist distressed 

homeowners is growing in response to 

the crisis in the home mortgage 

industry, but do not offer empirical data 

on the number of such entities.533 The 

available data suggest that there are a 

few hundred such providers. For 

example, FTC staff sent warning letters 

to 71 MARS providers in the course of 

its investigation of the industry. In its 

comments to the ANPR, NAAG stated 

that its members have investigated 450 

companies and brought suits against 130 

under state law.534 Accordingly, 

Commission staff has taken a 

conservative approach and estimates 

that there are approximately 500 MARS 

providers. Determining a precise 

estimate of how many of these are small 

entities, or describing those entities 

further, is not readily feasible because 

the staff is not aware of published data 

that reports annual revenue figures for 

MARS providers.535 Further, the 

Commission’s requests for information 

about the number and size of MARS 

providers yielded virtually no 

information. Based on the absence of 

available data, the Commission believes 

that a precise estimate of the number of 

small entities that fall under the Rule is 

not currently feasible. 

D. Description of the Projected 

Reporting, Recordkeeping and Other 

Compliance Requirements of the 

Proposed Rule, Including an Estimate of 

the Classes of Small Entities Which Will 

Be Subject to the Rule and the Type of 

Professional Skills That Will Be 

Necessary to Comply 

The Final Rule sets forth specific 

recordkeeping requirements to ensure 

efficient and effective law enforcement, 

to identify individual wrongdoers, and 

to identify potential injured consumers. 

In large measure, the recordkeeping 

provisions require MARS providers to 

retain documents—consumer files and 

documentation of consumer 

transactions—that are kept in the 

ordinary course of business. Other 

recordkeeping requirements would 

ensure covered entities can demonstrate 

compliance with specific Rule 

provisions, which are discussed below. 

The Rule has three other kinds of 

compliance requirements: (1) Prohibited 

acts and practices that are deceptive or 

unfair; (2) disclosures to ensure that 

consumers receive the truthful and 

accurate information they need to make 

an informed decision whether to 

purchase MARS; and (3) compliance 

obligations to monitor sales promotions 

and consumer complaints. As discussed 

above, these requirements are necessary 

to prevent unfair or deceptive acts and 

practices, to ensure compliance with the 

Rule, and to achieve effective law 

enforcement. 

The classes of small entities, if any, 

covered by the rule have been discussed 

in the preceding section of this 

analysis.536 The professional or other 

skills necessary for compliance with the 

Rule are discussed in the Paperwork 

Reduction Act analysis elsewhere in 

this document.537

E. Steps the Agency Has Taken To 

Minimize Any Significant Economic 

Impact on Small Entities, Consistent 

With the Stated Objectives of the 

Applicable Statutes 

As previously noted, the Final Rule is 

intended to prevent deceptive and 

unfair acts and practices in the MARS 

industry. In drafting the Rule, the 

Commission has made every effort to 

avoid unduly burdensome requirements 

for entities. The Commission believes 

that the Rule—including the conduct 

prohibitions, disclosures, advance fee 

ban, affirmative compliance obligations 

and recordkeeping provisions—are 

necessary in order to protect consumers 

considering the purchase of MARS. For 

each of these provisions, the 

Commission has attempted to tailor the 

provision to the concerns evidenced by 

the record to date. For example, to 

reduce the burden on business, 

including small entities, the 

Commission limited the compliance 

requirement to record telephone calls to 

MARS providers who telemarket. On 

balance, the Commission believes that 

the benefits to consumers of each of the 

Rule’s requirements outweighs the costs 

to industry of implementation. 

The Commission considered, but 

decided against, providing an 

exemption for small entities in the Rule. 

The protections afforded to consumers 

are equally important regardless of the 

size of the MARS provider with whom 

they transact. Indeed, small MARS 

providers have no unique attributes that 

would warrant exempting them from 

provisions, such as the required 

disclosures or conduct prohibitions. The 

information provided in the disclosures 

is material to the consumer regardless of 

the size of the entity offering the 

services. Similarly, the protections 

afforded to consumers by the advance 

fee ban are equally necessary regardless 

of the size of the entity providing the 

services. Thus, the Commission believes 

that creating an exemption for small 

businesses from compliance with the 

Rule would be contrary to the goals of 

the Rule because it would arbitrarily 

limit its reach to the detriment of 

consumers. 

Nonetheless, the Commission has 

taken care in developing the Rule to set 

performance standards, which establish 

the objective results that must be 

achieved by regulated entities, but do 

not establish a particular technology 

that must be employed in achieving 

those objectives. For example, the 

Commission does not specify the form 

in which records required by the Rule 

must be kept. Moreover, the Rule’s 

disclosure requirements are formatneutral; they would not preclude the 

use of electronic methods that might 

reduce compliance burdens. In sum, the 

agency has worked to minimize any 

significant economic impact on small 

entities. 


jlentini on DSKJ8SOYB1PROD with RULES6
Federal Register / Vol. 75, No. 230 / Wednesday, December 1, 2010 / Rules and Regulations 75139 

LIST OF COMMENTERS AND SHORT-NAMES/ACRONYMS

Short-name/Acronym Commenter 

1st ALC ............................................................... 1st American Law Center, Inc. 

ABA ..................................................................... American Bar Association 

Am. Bankers Assoc. ........................................... American Bankers Association 

AFSA ................................................................... American Financial Services Association 

ALMSC ................................................................ American Loss Mitigation Solutions Corp. 

ARS ..................................................................... ARS Financial Group (Rob Peters) 

Baker ................................................................... David Baker, Esq. 

Baughman ........................................................... Derek Baughman 

Carr ..................................................................... Christopher C. Carr, Esq. 

Casey .................................................................. Catherine Casey 

CRC .................................................................... California Reinvestment Coalition, et al. 

CRL ..................................................................... Center for Responsible Lending 

CMC .................................................................... Consumer Mortgage Coalition 

CUUS .................................................................. Consumers Union of United States, Inc. 

CSBS .................................................................. Conference of State Bank Supervisors 

CUNA .................................................................. Credit Union National Association 

Chase .................................................................. Chase Home Finance, LLC 

Chucales ............................................................. Nick Chucales 

CJI ....................................................................... Civil Justice, Inc. (Phillip Robinson) 

Dargon ................................................................ Dargon Law Firm PLLC 

Davidson ............................................................. [Unidentified] Davidson 

E. Davidson ........................................................ EDLAW (Edward Davidson) 

Deal ..................................................................... James Robert Deal, Esq. 

Dix ....................................................................... Chris Dix 

FL Bar ................................................................. The Florida Bar 

Francis ................................................................ Crystal Francis 

Franzen ............................................................... Terry Franzen and Michael Pierce 

GLS ..................................................................... Gabel Legal Services, L.L.C. (John Gabel) 

Giles .................................................................... Geoffrey Lynn Giles 

GA ....................................................................... Bar Georgia State Bar 

Goldberg ............................................................. [Unidentified] Goldberg 

Greenfield ........................................................... Julia Leah Greenfield, Esq. 

Gutner ................................................................. John Gutner 

HPC .................................................................... Housing Policy Counsel 

Hirsch .................................................................. Ian Hirsch 

Holler ................................................................... George Holler 

Hunter ................................................................. Josiah Hunter 

IL AG ................................................................... Illinois Office of the Attorney General 

IL RELA .............................................................. Illinois Real Estate Lawyers Association 

IL BA ................................................................... Illinois State Bar Association 

Lawson ................................................................ Carol Lawson 

Lawyer’s Committee ........................................... The Lawyers Committee for Civil Rights Under Law 

LAF ..................................................................... The Legal Assistance Foundation of Metropolitan Chicago

Legalprise ........................................................... Legalprise, Inc. 

LCL ..................................................................... Liberty Credit Law (H. Bruce Bronson, Jr.) 

LOLLAF ............................................................... Land of Lincoln Legal Assistance Foundation, Inc. 

LFSV ................................................................... Law Foundation of Silicon Valley 

ME BA ................................................................. Maine State Bar Association 

MA AG ................................................................ Massachusetts Office of the Attorney General 

Matejcek .............................................................. Karen Matejcek 

McLaughlin .......................................................... Heidi McLaughlin 

Metropolis ........................................................... Metropolis Loans (Camerin Hawthorne) 

MBA .................................................................... Mortgage Bankers Association 

MI Bar ................................................................. Michigan State Bar 

MN AG ................................................................ Office of the Minnesota Attorney General 

MO Bar ............................................................... The Missouri Bar 

NAAG .................................................................. National Association of Attorneys General 

NAR .................................................................... National Association of Relators 

NCRC .................................................................. National Community Reinvestment Coalition 

NCLC .................................................................. National Consumer Law Center, et al. 

NCLR .................................................................. National Council of La Raza 

NV DML .............................................................. Nevada Division of Mortgage Lending 

NYC DCA ............................................................ New York City Department of Consumer Affairs 

OTS ..................................................................... Office of Thrift Supervision 

OH AG ................................................................ Ohio Attorney General 

OPLC .................................................................. Ohio Poverty Law Center 

OR Bar ................................................................ Oregon State Bar 

Parkey ................................................................. Aaron Parkey 

Peters .................................................................. Michele Peters 

RMI ..................................................................... Rate Modifications, Inc. (David Deal) 

Rodriguez ............................................................ Jesse Rodriguez 

Rogers ................................................................ The Rogers Law Group (Rick Rogers) 


jlentini on DSKJ8SOYB1PROD with RULES6
75140 Federal Register / Vol. 75, No. 230 / Wednesday, December 1, 2010 / Rules and Regulations 

LIST OF COMMENTERS AND SHORT-NAMES/ACRONYMS—Continued 

Short-name/Acronym Commenter 

SJMA .................................................................. S.J. Mobley & Associates, LLC (Sara Mobley) 

Schertzing ........................................................... Eric Schertzing, Treasurer, Ingham County, MI 

Seise ................................................................... Char Seise 

Shriver ................................................................. Sargent Shriver National Center on Poverty Law 

Shaw ................................................................... Ann Shaw, Esq. 

Smith ................................................................... Stewart Smith 

Sygit .................................................................... Drew Sygit 

TNLMA ................................................................ The National Loss Mitigation Association 

USHLA ................................................................ US Home Loan Advocates 

USHS .................................................................. U.S. HomeSupport (Thomas Kim) 

Wallace ............................................................... Lawrence Wallace 

WMC ................................................................... Westside Ministers Coalition 

WI Bar ................................................................. Wisconsin State Bar 

List of FTC MARS Law Enforcement 

Actions 

• FTC v. Residential Relief Found., 

Inc., No. 1:10-cv-3214–JFM (D. Md. filed 

Nov. 15, 2010) 

• FTC v. U.S. Homeowners Relief, 

Inc., No. SA–CV–10–1452 JST (PJWx) 

(C. D. Cal. filed Sept. 27, 2010) 

• FTC v. Nat’l Hometeam Solutions, 

LLC, No. 4:08-cv-067 (E.D. Tex. filed 

Aug. 30, 2010) (contempt action) 

• FTC v. Dominant Leads, LLC, No. 

1:10-cv-00997–PLF (D. D.C filed June 

15, 2010) 

• FTC v. First Universal Lending, 

LLC, No. 09–CV–82322 (S.D. Fla. filed 

Nov. 18, 2009) 

• FTC v. Truman Foreclosure 

Assistance, LLC, No. 09–23543 (S.D. Fla. 

filed Nov. 23, 2009) 

• FTC v. Debt Advocacy Ctr, LLC, No. 

1:09CV2712 (N.D. Ohio filed Nov. 19, 

2009) 

• FTC v. Kirkland Young, LLC, No. 

09–23507 (S.D. Fla. filed Nov. 18, 2009) 

• FTC v. 1st Guar. Mortgage Corp., 

No. 09–CV–61840 (S.D. Fla. filed Nov. 

17, 2009) 

• FTC v. Washington Data Res., Inc., 

No. 8:09-cv-02309–SDM–TBM (M.D. 

Fla. filed Nov. 12, 2009) 

• FTC v. Fed. Housing Modification 

Dep’t, Inc, No. 09–CV–01753 (D.D.C. 

filed Sept. 16, 2009) 

• FTC v. Infinity Group Servs., No. 

SACV09–00977 DOC (MLGx) (C.D. Cal. 

filed Aug. 26, 2009) 

• FTC v. United Credit Adjusters, 

Inc., No. 3:09-cv-00798 (JAP) (D.N.J., 

Amend. Compl. filed Aug. 4, 2009) 

• FTC v. Apply2Save, Inc., No. 2:09- 

cv-00345–EJL–CWD (D. Idaho filed July 

14, 2009) 

• FTC v. Loss Mitigation Servs., Inc., 

No. SACV09–800 DOC (ANX) (C.D. Cal. 

filed July 13, 2009) 

• FTC v. Cantkier, No. 1:09-cv-00894 

(D.D.C., Amend. Compl. filed June 18, 

2009) 

• FTC v. LucasLawCenter ‘‘Inc.’’, No. 

SACV09–770 DOC (ANX) (C.D. Cal. 

filed July 7, 2009) 

• FTC v. US Foreclosure Relief Corp., 

No. SACV09–768 JVS (MGX) (C.D. Cal. 

filed July 7, 2009) 

• FTC v. Freedom Foreclosure 

Prevention Specialists, LLC, No. 2:09-cv01167–FJM (D. Ariz. filed June 1, 2009) 

• FTC v. Data Med. Capital, Inc., No. 

SACV–99–1266 AHS (Eex) (C.D. Cal., 

App. Contempt filed May 27, 2009) 

• FTC v. Dinamica Financiera LLC, 

No. 09–CV–03554 CAS PJWx (C.D. Cal. 

filed May 19, 2009) 

• FTC v. Fed. Loan Modification Law 

Ctr., LLP, No. SACV09–401 CJC (MLGx) 

(C.D. Cal. filed Apr. 3, 2009) 

• FTC v. Ryan, No. 1:09–00535 (HHK) 

(D.D.C., Amend. Compl. filed Mar. 25, 

2009) 

• FTC v. Home Assure, LLC, No. 

8:09–CV–00547–T–23T–Sm (M.D. Fla. 

filed Mar. 24, 2009) 

• FTC v. New Hope Prop. LLC, No. 

1:09-cv-01203–JBS–JS (D.N.J. filed Mar. 

17, 2009) 

• FTC v. Hope Now Modifications, 

LLC, No. 1:09-cv-01204–JBS–JS (D.N.J. 

filed Mar. 17, 2009) 

• FTC v. Nat’l Foreclosure Relief, Inc., 

No. SACV09–117 DOC (MLGx) (C.D. 

Cal. filed Feb. 2, 2009) 

• FTC v. United Home Savers, LLP, 

No. 8:08-cv-01735–VMC–TBM (M.D. 

Fla. filed Sept. 3, 2008) 

• FTC v. Foreclosure Solutions, LLC, 

No. 1:08-cv-01075 (N.D. Ohio filed Apr. 

28, 2008) 

• FTC v. Mortgage Foreclosure 

Solutions, Inc., No. 8:08-cv-388–T– 

23EAJ (M.D. Fla. filed Feb. 26, 2008) 

• FTC v. Nat’l Hometeam Solutions, 

LLC., No. 4:08-cv-067 (E.D. Tex. filed 

Feb. 26, 2008) 

• FTC v. Safe Harbour Found. of 

Florida, Inc., No. 08–C–1185 (N.D. Ill. 

filed Feb. 27, 2008). 

VI. Final Rule 

List of Subjects in 16 CFR Part 322 

Consumer protection, Trade practices, 

Telemarketing. 

■ For the reasons set forth in the 

preamble, the Federal Trade 

Commission amends title 16, Code of 

Federal Regulations, by adding a new 

part 322, to read as follows: 

PART 322—MORTGAGE ASSISTANCE 

RELIEF SERVICES 

Sec. 

322.1 Scope of regulations in this part. 

322.2 Definitions. 

322.3 Prohibited representations. 

322.4 Disclosures required in commercial 

communications. 

322.5 Prohibition on collection of advance 

payments and related disclosures. 

322.6 Assisting and facilitating. 

322.7 Exemptions. 

322.8 Waiver not permitted. 

322.9 Recordkeeping and compliance 

requirements. 

322.10 Actions by states. 

322.11 Severability. 

Authority: Public Law 111–8, section 626, 

123 Stat. 524, as amended by Public Law 

111–24, section 511, 123 Stat. 1734. 

§ 322.1 Scope of regulations in this part. 

This part implements the 2009 

Omnibus Appropriations Act, Public 

Law 111–8, section 626, 123 Stat. 524 

(Mar. 11, 2009), as clarified by the 

Credit Card Accountability 

Responsibility and Disclosure Act of 

2009, Public Law 111–24, section 511, 

123 Stat. 1734 (May 22, 2009). 

§ 322.2 Definitions. 

For the purposes of this part: 

(a) ‘‘Clear and prominent’’ means: 

(1) In textual communications, the 

required disclosures shall be easily 

readable; in a high degree of contrast 

from the immediate background on 

which it appears; in the same languages 

that are substantially used in the 

commercial communication; in a format 


jlentini on DSKJ8SOYB1PROD with RULES6
Federal Register / Vol. 75, No. 230 / Wednesday, December 1, 2010 / Rules and Regulations 75141 

so that the disclosure is distinct from 

other text, such as inside a border; in a 

distinct type style, such as bold; parallel 

to the base of the commercial 

communication, and, except as 

otherwise provided in this rule, each 

letter of the disclosure shall be, at a 

minimum, the larger of 12-point type or 

one-half the size of the largest letter or 

numeral used in the name of the 

advertised website or telephone number 

to which consumers are referred to 

receive information relating to any 

mortgage assistance relief service. 

Textual communications include any 

communications in a written or printed 

form such as print publications or 

words displayed on the screen of a 

computer; 

(2) In communications disseminated 

orally or through audible means, such as 

radio or streaming audio, the required 

disclosures shall be delivered in a slow 

and deliberate manner and in a 

reasonably understandable volume and 

pitch; 

(3) In communications disseminated 

through video means, such as television 

or streaming video, the required 

disclosures shall appear simultaneously 

in the audio and visual parts of the 

commercial communication and be 

delivered in a manner consistent with 

paragraphs (a)(1) and (2) of this section. 

The visual disclosure shall be at least 

four percent of the vertical picture or 

screen height and appear for the 

duration of the oral disclosure; 

(4) In communications made through 

interactive media, such as the Internet, 

online services, and software, the 

required disclosures shall: 

(i) Be consistent with paragraphs 

(a)(1) through (3) of this section; 

(ii) Be made on, or immediately prior 

to, the page on which the consumer 

takes any action to incur any financial 

obligation; 

(iii) Be unavoidable, i.e., visible to 

consumers without requiring them to 

scroll down a webpage; and 

(iv) Appear in type at least the same 

size as the largest character of the 

advertisement; 

(5) In all instances, the required 

disclosures shall be presented in an 

understandable language and syntax, 

and with nothing contrary to, 

inconsistent with, or in mitigation of the 

disclosures used in any communication 

of them; and 

(6) For program-length television, 

radio, or Internet-based multi-media 

commercial communications, the 

required disclosures shall be made at 

the beginning, near the middle, and at 

the end of the commercial 

communication. 

(b) ‘‘Client trust account’’ means a 

separate account created by a licensed 

attorney for the purpose of holding 

client funds, which is: 

(1) Maintained in compliance with all 

applicable state laws and regulations, 

including licensing regulations; and 

(2) Located in the state where the 

attorney’s office is located, or elsewhere 

in the United States with the consent of 

the consumer on whose behalf the funds 

are held. 

(c) ‘‘Commercial communication’’ 

means any written or oral statement, 

illustration, or depiction, whether in 

English or any other language, that is 

designed to effect a sale or create 

interest in purchasing any service, plan, 

or program, whether it appears on or in 

a label, package, package insert, radio, 

television, cable television, brochure, 

newspaper, magazine, pamphlet, leaflet, 

circular, mailer, book insert, free 

standing insert, letter, catalogue, poster, 

chart, billboard, public transit card, 

point of purchase display, film, slide, 

audio program transmitted over a 

telephone system, telemarketing script, 

onhold script, upsell script, training 

materials provided to telemarketing 

firms, program-length commercial 

(‘‘infomercial’’), the Internet, cellular 

network, or any other medium. 

Promotional materials and items and 

Web pages are included in the term 

‘‘commercial communication.’’ 

(1) ‘‘General Commercial 

Communication’’ means a commercial 

communication that occurs prior to the 

consumer agreeing to permit the 

provider to seek offers of mortgage 

assistance relief on behalf of the 

consumer, or otherwise agreeing to use 

the mortgage assistance relief service, 

and that is not directed at a specific 

consumer. 

(2) ‘‘Consumer-Specific Commercial 

Communication’’ means a commercial 

communication that occurs prior to the 

consumer agreeing to permit the 

provider to seek offers of mortgage 

assistance relief on behalf of the 

consumer, or otherwise agreeing to use 

the mortgage assistance relief service, 

and that is directed at a specific 

consumer. 

(d) ‘‘Consumer’’ means any natural 

person who is obligated under any loan 

secured by a dwelling. 

(e) ‘‘Dwelling’’ means a residential 

structure containing four or fewer units, 

whether or not that structure is attached 

to real property, that is primarily for 

personal, family, or household 

purposes. The term includes any of the 

following if used as a residence: an 

individual condominium unit, 

cooperative unit, mobile home, 

manufactured home, or trailer. 

(f) ‘‘Dwelling loan’’ means any loan 

secured by a dwelling, and any 

associated deed of trust or mortgage. 

(g) ‘‘Dwelling Loan Holder’’ means any 

individual or entity who holds the 

dwelling loan that is the subject of the 

offer to provide mortgage assistance 

relief services. 

(h) ‘‘Material’’ means likely to affect a 

consumer’s choice of, or conduct 

regarding, any mortgage assistance relief 

service. 

(i) ‘‘Mortgage Assistance Relief 

Service’’ means any service, plan, or 

program, offered or provided to the 

consumer in exchange for consideration, 

that is represented, expressly or by 

implication, to assist or attempt to assist 

the consumer with any of the following: 

(1) Stopping, preventing, or 

postponing any mortgage or deed of 

trust foreclosure sale for the consumer’s 

dwelling, any repossession of the 

consumer’s dwelling, or otherwise 

saving the consumer’s dwelling from 

foreclosure or repossession; 

(2) Negotiating, obtaining, or 

arranging a modification of any term of 

a dwelling loan, including a reduction 

in the amount of interest, principal 

balance, monthly payments, or fees; 

(3) Obtaining any forbearance or 

modification in the timing of payments 

from any dwelling loan holder or 

servicer on any dwelling loan; 

(4) Negotiating, obtaining, or 

arranging any extension of the period of 

time within which the consumer may: 

(i) Cure his or her default on a 

dwelling loan, 

(ii) Reinstate his or her dwelling loan, 

(iii) Redeem a dwelling, or 

(iv) Exercise any right to reinstate a 

dwelling loan or redeem a dwelling; 

(5) Obtaining any waiver of an 

acceleration clause or balloon payment 

contained in any promissory note or 

contract secured by any dwelling; or 

(6) Negotiating, obtaining or 

arranging: 

(i) A short sale of a dwelling, 

(ii) A deed-in-lieu of foreclosure, or 

(iii) Any other disposition of a 

dwelling other than a sale to a third 

party who is not the dwelling loan 

holder. 

(j) ‘‘Mortgage Assistance Relief Service 

Provider’’ or ‘‘Provider’’ means any 

person that provides, offers to provide, 

or arranges for others to provide, any 

mortgage assistance relief service. This 

term does not include: 

(1) The dwelling loan holder, or any 

agent or contractor of such individual or 

entity. 

(2) The servicer of a dwelling loan, or 

any agent or contractor of such 

individual or entity. 

(k) ‘‘Person’’ means any individual, 

group, unincorporated association, 


jlentini on DSKJ8SOYB1PROD with RULES6
75142 Federal Register / Vol. 75, No. 230 / Wednesday, December 1, 2010 / Rules and Regulations 

limited or general partnership, 

corporation, or other business entity, 

except to the extent that any person is 

specifically excluded from the Federal 

Trade Commission’s jurisdiction 

pursuant to 15 U.S.C. 44 and 45(a)(2). 

(l) ‘‘Servicer’’ means the individual or 

entity responsible for: 

(1) Receiving any scheduled periodic 

payments from a consumer pursuant to 

the terms of the dwelling loan that is the 

subject of the offer to provide mortgage 

assistance relief services, including 

amounts for escrow accounts under 

section 10 of the Real Estate Settlement 

Procedures Act (12 U.S.C. 2609); and 

(2) Making the payments of principal 

and interest and such other payments 

with respect to the amounts received 

from the consumer as may be required 

pursuant to the terms of the mortgage 

servicing loan documents or servicing 

contract. 

(m) ‘‘Telemarketing’’ means a plan, 

program, or campaign which is 

conducted to induce the purchase of 

any service, by use of one or more 

telephones and which involves more 

than one interstate telephone call. 

§ 322.3 Prohibited representations. 

It is a violation of this rule for any 

mortgage assistance relief service 

provider to engage in the following 

conduct: 

(a) Representing, expressly or by 

implication, in connection with the 

advertising, marketing, promotion, 

offering for sale, sale, or performance of 

any mortgage assistance relief service, 

that a consumer cannot or should not 

contact or communicate with his or her 

lender or servicer. 

(b) Misrepresenting, expressly or by 

implication, any material aspect of any 

mortgage assistance relief service, 

including but not limited to: 

(1) The likelihood of negotiating, 

obtaining, or arranging any represented 

service or result, such as those set forth 

in § 322.2(i); 

(2) The amount of time it will take the 

mortgage assistance relief service 

provider to accomplish any represented 

service or result, such as those set forth 

in § 322.2(i); 

(3) That a mortgage assistance relief 

service is affiliated with, endorsed or 

approved by, or otherwise associated 

with: 

(i) The United States government, 

(ii) Any governmental homeowner 

assistance plan, 

(iii) Any Federal, State, or local 

government agency, unit, or department, 

(iv) Any nonprofit housing counselor 

agency or program, 

(v) The maker, holder, or servicer of 

the consumer’s dwelling loan, or 

(vi) Any other individual, entity, or 

program; 

(4) The consumer’s obligation to make 

scheduled periodic payments or any 

other payments pursuant to the terms of 

the consumer’s dwelling loan; 

(5) The terms or conditions of the 

consumer’s dwelling loan, including but 

not limited to the amount of debt owed; 

(6) The terms or conditions of any 

refund, cancellation, exchange, or 

repurchase policy for a mortgage 

assistance relief service, including but 

not limited to the likelihood of 

obtaining a full or partial refund, or the 

circumstances in which a full or partial 

refund will be granted, for a mortgage 

assistance relief service; 

(7) That the mortgage assistance relief 

service provider has completed the 

represented services or has a right to 

claim, demand, charge, collect, or 

receive payment or other consideration; 

(8) That the consumer will receive 

legal representation; 

(9) The availability, performance, 

cost, or characteristics of any alternative 

to for-profit mortgage assistance relief 

services through which the consumer 

can obtain mortgage assistance relief, 

including negotiating directly with the 

dwelling loan holder or servicer, or 

using any nonprofit housing counselor 

agency or program; 

(10) The amount of money or the 

percentage of the debt amount that a 

consumer may save by using the 

mortgage assistance relief service; 

(11) The total cost to purchase the 

mortgage assistance relief service; or 

(12) The terms, conditions, or 

limitations of any offer of mortgage 

assistance relief the provider obtains 

from the consumer’s dwelling loan 

holder or servicer, including the time 

period in which the consumer must 

decide to accept the offer; 

(c) Making a representation, expressly 

or by implication, about the benefits, 

performance, or efficacy of any mortgage 

assistance relief service unless, at the 

time such representation is made, the 

provider possesses and relies upon 

competent and reliable evidence that 

substantiates that the representation is 

true. For the purposes of this paragraph, 

‘‘competent and reliable evidence’’ 

means tests, analyses, research, studies, 

or other evidence based on the expertise 

of professionals in the relevant area, that 

have been conducted and evaluated in 

an objective manner by individuals 

qualified to do so, using procedures 

generally accepted in the profession to 

yield accurate and reliable results. 

§ 322.4 Disclosures required in 

commercial communications. 

It is a violation of this rule for any 

mortgage assistance relief service 

provider to engage in the following 

conduct: 

(a) Disclosures in All General 

Commercial Communications—Failing 

to place the following statements in 

every general commercial 

communication for any mortgage 

assistance relief service: 

(1) ‘‘(Name of company) is not 

associated with the government, and our 

service is not approved by the 

government or your lender.’’ 

(2) In cases where the mortgage 

assistance relief service provider has 

represented, expressly or by 

implication, that consumers will receive 

any service or result set forth in 

§ 322.2(i)(2) through (6), ‘‘Even if you 

accept this offer and use our service, 

your lender may not agree to change 

your loan.’’ 

(3) The disclosures required by this 

paragraph must be made in a clear and 

prominent manner, and— 

(i) In textual communications the 

disclosures must appear together and be 

preceded by the heading ‘‘IMPORTANT 

NOTICE,’’ which must be in bold face 

font that is two point-type larger than 

the font size of the required disclosures; 

and 

(ii) In communications disseminated 

orally or through audible means, wholly 

or in part, the audio component of the 

required disclosures must be preceded 

by the statement ‘‘Before using this 

service, consider the following 

information.’’ 

(b) Disclosures in All ConsumerSpecific Commercial Communications— 

Failing to disclose the following 

information in every consumer-specific 

commercial communication for any 

mortgage assistance relief service: 

(1) ‘‘You may stop doing business 

with us at any time. You may accept or 

reject the offer of mortgage assistance 

we obtain from your lender [or servicer]. 

If you reject the offer, you do not have 

to pay us. If you accept the offer, you 

will have to pay us (insert amount or 

method for calculating the amount) for 

our services.’’ For the purposes of this 

paragraph, the amount ‘‘you will have to 

pay’’ shall consist of the total amount 

the consumer must pay to purchase, 

receive, and use all of the mortgage 

assistance relief services that are the 

subject of the sales offer, including, but 

not limited to, all fees and charges. 

(2) ‘‘(Name of company) is not 

associated with the government, and our 

service is not approved by the 

government or your lender.’’ 


jlentini on DSKJ8SOYB1PROD with RULES6
Federal Register / Vol. 75, No. 230 / Wednesday, December 1, 2010 / Rules and Regulations 75143 

(3) In cases where the mortgage 

assistance relief service provider has 

represented, expressly or by 

implication, that consumers will receive 

any service or result set forth in 

§ 322.2(i)(2) through (6), ‘‘Even if you 

accept this offer and use our service, 

your lender may not agree to change 

your loan.’’ 

(4) The disclosures required by this 

paragraph must be made in a clear and 

prominent manner, and— 

(i) In textual communications the 

disclosures must appear together and be 

preceded by the heading ‘‘IMPORTANT 

NOTICE,’’ which must be in bold face 

font that is two point-type larger than 

the font size of the required disclosures; 

and 

(ii) In communications disseminated 

orally or through audible means, wholly 

or in part, the audio component of the 

required disclosures must be preceded 

by the statement ‘‘Before using this 

service, consider the following 

information’’ and, in telephone 

communications, must be made at the 

beginning of the call. 

(c) Disclosures in All General 

Commercial Communications, 

Consumer-Specific Commercial 

Communications, and Other 

Communications—In cases where the 

mortgage assistance relief service 

provider has represented, expressly or 

by implication, in connection with the 

advertising, marketing, promotion, 

offering for sale, sale, or performance of 

any mortgage assistance relief service, 

that the consumer should temporarily or 

permanently discontinue payments, in 

whole or in part, on a dwelling loan, 

failing to disclose, clearly and 

prominently, and in close proximity to 

any such representation that ‘‘If you stop 

paying your mortgage, you could lose 

your home and damage your credit 

rating.’’ 

§ 322.5 Prohibition on collection of 

advance payments and related disclosures. 

It is a violation of this rule for any 

mortgage assistance relief service 

provider to: 

(a) Request or receive payment of any 

fee or other consideration until the 

consumer has executed a written 

agreement between the consumer and 

the consumer’s dwelling loan holder or 

servicer incorporating the offer of 

mortgage assistance relief the provider 

obtained from the consumer’s dwelling 

loan holder or servicer; 

(b) Fail to disclose, at the time the 

mortgage assistance relief service 

provider furnishes the consumer with 

the written agreement specified in 

paragraph (a) of this section, the 

following information: ‘‘This is an offer 

of mortgage assistance we obtained from 

your lender [or servicer]. You may 

accept or reject the offer. If you reject 

the offer, you do not have to pay us. If 

you accept the offer, you will have to 

pay us [same amount as disclosed 

pursuant to § 322.4(b)(1)] for our 

services.’’ The disclosure required by 

this paragraph must be made in a clear 

and prominent manner, on a separate 

written page, and preceded by the 

heading: ‘‘IMPORTANT NOTICE: Before 

buying this service, consider the 

following information.’’ The heading 

must be in bold face font that is two 

point-type larger than the font size of 

the required disclosure; or 

(c)(1) Fail to provide, at the time the 

mortgage assistance relief service 

provider furnishes the consumer with 

the written agreement specified in 

paragraph (a) of this section, a notice 

from the consumer’s dwelling loan 

holder or servicer that describes all 

material differences between the terms, 

conditions, and limitations associated 

with the consumer’s current mortgage 

loan and the terms, conditions, and 

limitations associated with the 

consumer’s mortgage loan if he or she 

accepts the dwelling loan holder’s or 

servicer’s offer, including but not 

limited to differences in the loan’s: 

(i) Principal balance; 

(ii) Contract interest rate, including 

the maximum rate and any adjustable 

rates, if applicable; 

(iii) Amount and number of the 

consumer’s scheduled periodic 

payments on the loan; 

(iv) Monthly amounts owed for 

principal, interest, taxes, and any 

mortgage insurance on the loan; 

(v) Amount of any delinquent 

payments owing or outstanding; 

(vi) Assessed fees or penalties; and 

(vii) Term 

(2) The notice must be made in a clear 

and prominent manner, on a separate 

written page, and preceded by heading: 

‘‘IMPORTANT INFORMATION FROM 

YOUR [name of lender or servicer] 

ABOUT THIS OFFER.’’ The heading 

must be in bold face font that is twopoint-type larger than the font size of 

the required disclosure. 

(d) Fail to disclose in the notice 

specified in paragraph (c) of this 

section, in cases where the offer of 

mortgage assistance relief the provider 

obtained from the consumer’s dwelling 

loan holder or servicer is a trial 

mortgage loan modification, the terms, 

conditions, and limitations of this offer, 

including but not limited to: 

(1) The fact that the consumer may 

not qualify for a permanent mortgage 

loan modification; and 

(2) The likely amount of the 

scheduled periodic payments and any 

arrears, payments, or fees that the 

consumer would owe in failing to 

qualify. 

§ 322.6 Assisting and facilitating. 

It is a violation of this rule for a 

person to provide substantial assistance 

or support to any mortgage assistance 

relief service provider when that person 

knows or consciously avoids knowing 

that the provider is engaged in any act 

or practice that violates this rule. 

§ 322.7 Exemptions. 

(a) An attorney is exempt from this 

part, with the exception of § 322.5, if the 

attorney: 

(1) Provides mortgage assistance relief 

services as part of the practice of law; 

(2) Is licensed to practice law in the 

state in which the consumer for whom 

the attorney is providing mortgage 

assistance relief services resides or in 

which the consumer’s dwelling is 

located; and 

(3) Complies with state laws and 

regulations that cover the same type of 

conduct the rule requires. 

(b) An attorney who is exempt 

pursuant to paragraph (a) of this section 

is also exempt from § 322.5 if the 

attorney: 

(1) Deposits any funds received from 

the consumer prior to performing legal 

services in a client trust account; and 

(2) Complies with all state laws and 

regulations, including licensing 

regulations, applicable to client trust 

accounts. 

§ 322.8 Waiver not permitted. 

It is a violation of this rule for any 

person to obtain, or attempt to obtain, a 

waiver from any consumer of any 

protection provided by or any right of 

the consumer under this rule. 

§ 322.9 Recordkeeping and compliance 

requirements. 

(a) Any mortgage assistance relief 

provider must keep, for a period of 

twenty-four (24) months from the date 

the record is created, the following 

records: 

(1) All contracts or other agreements 

between the provider and any consumer 

for any mortgage assistance relief 

service; 

(2) Copies of all written 

communications between the provider 

and any consumer occurring prior to the 

date on which the consumer entered 

into an agreement with the provider for 

any mortgage assistance relief service; 

(3) Copies of all documents or 

telephone recordings created in 

connection with compliance with 

paragraph (b) of this section; 


jlentini on DSKJ8SOYB1PROD with RULES6
75144 Federal Register / Vol. 75, No. 230 / Wednesday, December 1, 2010 / Rules and Regulations 

1My opinion as to the record in the debt relief 

services TSR rulemaking proceeding is limited to 

that rulemaking proceeding alone. Any individual 

case, alleging either violations of Section 5 or 

violations of the debt relief services amendments to 

the TSR, would have to be judged on the particular 

facts of that case. 

(4) All consumer files containing the 

names, phone numbers, dollar amounts 

paid, and descriptions of mortgage 

assistance relief services purchased, to 

the extent the mortgage assistance relief 

service provider keeps such information 

in the ordinary course of business; 

(5) Copies of all materially different 

sales scripts, training materials, 

commercial communications, or other 

marketing materials, including websites 

and weblogs, for any mortgage 

assistance relief service; and 

(6) Copies of the documentation 

provided to the consumer as specified 

in § 322.5 of this rule; 

(b) A mortgage assistance relief 

service provider also must: 

(1) Take reasonable steps sufficient to 

monitor and ensure that all employees 

and independent contractors comply 

with this rule. Such steps shall include 

the monitoring of communications 

directed at specific consumers, and 

shall also include, at a minimum, the 

following: 

(i) If the mortgage assistance relief 

service provider is engaged in the 

telemarketing of mortgage assistance 

relief services, performing random, 

blind recording and testing of the oral 

representations made by individuals 

engaged in sales or other customer 

service functions; 

(ii) Establishing a procedure for 

receiving and responding to all 

consumer complaints; and 

(iii) Ascertaining the number and 

nature of consumer complaints 

regarding transactions in which all 

employees and independent contractors 

are involved; 

(2) Investigate promptly and fully 

each consumer complaint received; 

(3) Take corrective action with respect 

to any employee or contractor whom the 

mortgage assistance relief service 

provider determines is not complying 

with this rule, which may include 

training, disciplining, or terminating 

such individual; and 

(4) Maintain any information and 

material necessary to demonstrate its 

compliance with paragraphs (b)(1) 

through (3) of this section. 

(c) A mortgage assistance relief 

provider may keep the records required 

by § 322.10(a) through this section in 

any form, and in the same manner, 

format, or place as it keeps such records 

in the ordinary course of business. 

(d) It is a violation of this rule for a 

mortgage assistance relief service 

provider not to comply with this 

section. 

§ 322.10 Actions by states. 

Any attorney general or other officer 

of a state authorized by the state to bring 

an action under this part may do so 

pursuant to Section 626(b) of the 2009 

Omnibus Appropriations Act, Public 

Law 111–8, section 626, 123 Stat. 524 

(Mar. 11, 2009), as amended by Public 

Law 111–24, section 511, 123 Stat. 1734 

(May 22, 2009). 

§ 322.11 Severability. 

The provisions of this rule are 

separate and severable from one 

another. If any provision is stayed or 

determined to be invalid, it is the 

Commission’s intention that the 

remaining provisions shall continue in 

effect. 

By direction of the Commission. 

Donald S. Clark, 

Secretary. 

The following statement will not 

appear in the Code of Federal 

Regulations. 

Statement of Commissioner J. Thomas 

Rosch 

Mortgage Assistance Relief Services 

Rule, File No. R911003 

I support the Commission’s adoption 

today of the final Mortgage Relief 

Services Rule (‘‘MARS Rule’’) and its 

accompanying Statement of Basis and 

Purpose. I write this separate statement 

to explain my decision to vote in favor 

of the MARS Rule in light of my 

dissenting vote against the issuance of 

the debt relief services amendments to 

the Telemarketing Sales Rule (‘‘the 

TSR’’).1

Although I had concerns about certain 

aspects of the record in the TSR 

rulemaking proceeding relating to the 

need for an advance fee ban, I believe 

that the record in the MARS rulemaking 

proceeding supports a ban. In coming to 

this conclusion, I draw two distinctions. 

First, the business model for the 

provision of mortgage assistance relief 

services differs from debt relief services 

in that it does not require consumer 

participation in order to achieve a 

successful result. Rather, the likelihood 

of attaining a particular, promised result 

rests solely on the MARS provider’s 

own efforts. Second, the length of time 

it takes to attain a mortgage assistance 

relief result (and hence the duration of 

the advance fee ban) is much shorter 

than the time it typically takes to obtain 

settlements of a consumer’s debts. 

[FR Doc. 2010–29694 Filed 11–30–10; 8:45 am] 

BILLING CODE 6750–01–P 


jlentini on DSKJ8SOYB1PROD with RULES6