[Federal Register Volume 75, Number 45 (Tuesday, March 9, 2010)]
[Proposed Rules]
[Pages 10707-10738]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-4651]


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FEDERAL TRADE COMMISSION

16 CFR Part 322

RIN 3084-AB18


MORTGAGE ASSISTANCE RELIEF SERVICES

AGENCY: Federal Trade Commission (FTC or Commission).

ACTION: Notice of Proposed Rulemaking; request for public comment.

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SUMMARY: Pursuant to the 2009 Omnibus Appropriations Act (Omnibus 
Appropriations Act), which was later clarified by the Credit Card 
Accountability and Responsibility and Disclosure Act of 2009 (Credit 
CARD Act), the Commission issues a Notice of Proposed Rulemaking (NPRM) 
concerning the practices of for-profit companies that, in exchange for 
a fee, offer to work with lenders and servicers on behalf of consumers 
to modify the terms of mortgage loans or to avoid foreclosure on those 
loans. The proposed Rule published for comment, among other things, 
would: prohibit providers of these 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 persons from providing substantial assistance or 
support to an entity they know or consciously avoid knowing is engaged 
in a violation of these Rules; and impose recordkeeping and compliance 
requirements.

DATES: Comments must be received by March 29, 2010.

ADDRESSES: Interested parties are invited to submit written comments 
electronically or in paper form by following the instructions in the 
Request for Comment part of the SUPPLEMENTARY INFORMATION section 
below. Comments in electronic form should be submitted at (http://public.commentworks.com/ftc/MARS-NPRM) (and following the instructions 
on the web-based form). Comments in paper form should be mailed or 
delivered to the following address: Federal Trade Commission, Office of 
the Secretary, Room H-135 (Annex W), 600 Pennsylvania Avenue, NW, 
Washington, DC 20580, in the manner detailed in the SUPPLEMENTARY 
INFORMATION section below.

FOR FURTHER INFORMATION CONTACT: Laura Sullivan, Evan Zullow, or Robert 
Mahini, 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.\1\ Section 626 of this 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 rulemaking procedures under Section 553 of the 
Administrative Procedure Act (APA), 5 U.S.C. 553.\3\
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    \1\ 2009 Omnibus Appropriations Act, Pub. L. 111-8, 123 Stat. 
524.
    \2\ Id. Sec.  626(a).
    \3\ Id. Because Congress directed the Commission to use these 
APA rulemaking procedures, the FTC will not use the procedures set 
forth in Section 18 of the FTC Act, 15 U.S.C. 57a.
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    On May 22, 2009, President Obama signed the Credit CARD Act.\4\ 
Section 511 of this act 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 or should not include 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 
Appropriation Act to allow it to issue rules prohibiting or restricting 
conduct that may not be unfair or deceptive itself but would be 
reasonably related to the goal of preventing unfairness or 
deception.\7\
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    \4\ Credit Card Accountability Responsibility and Disclosure Act 
of 2009, Pub. L. 111-24, 123 Stat. 1734 (Credit CARD Act).
    \5\ Id. Sec.  511(a)(1)(B).
    \6\ Id.
    \7\ Unlike Section 18 of the FTC Act, 15 U.S.C. 57, 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 Sec.  626(a); Credit CARD Act 
Sec.  511(a)(1)(B); see also Katharine Gibbs Sch. v. FTC, 612 F.2d 
658 (2d Cir. 1979).
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    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\
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    \8\ Credit CARD Act Sec.  511(a)(1)(B).
    \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 
asserts jurisdiction over ``sham charities'' that operate as for-
profit entities in practice. See infra note 112 and accompanying 
text.
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    The Omnibus Appropriations Act, as clarified by the Credit CARD 
Act, also permits both the Commission and the

[[Page 10708]]

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 the rules. 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''\12\ of the proposed defendant, and the regulator has the 
right to intervene in the action.
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    \11\ Omnibus Appropriations Act Sec.  626; Credit CARD Act Sec.  
511(a)(1)(B).
    \12\ Note, however, that most mortgage assistance relief service 
(MARS) providers likely will fall within the jurisdiction of the 
FTC.
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B. The Advance Notice of Proposed Rulemaking

    On June 1, 2009, the Commission published in the Federal Register 
an Advance Notice of Proposed Rulemaking (ANPR) addressing the acts and 
practices of for-profit companies that offer to work with lenders or 
servicers on behalf of consumers seeking to modify the terms of their 
loan or to avoid foreclosure on the loan.\13\ The ANPR described these 
services generically as ``Mortgage Assistance Relief Services,'' and 
the rulemaking proceeding was entitled the Mortgage Assistance Relief 
Services (MARS) Rulemaking.\14\ The MARS ANPR sought public comment on: 
(1) the mortgage assistance relief services industry; (2) unfair or 
deceptive acts or practices in which providers of these types of 
services are engaged; and (3) prohibitions and restrictions on 
providers of these services that are needed to prevent harm to 
consumers.\15\
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    \13\  Mortgage Assistance Relief Services, 74 FR 26130 (June 1, 
2009) (MARS ANPR).
    \14\ Id. On the same date, the Commission issued another ANPR, 
the Mortgage Acts and Practices Rulemaking, which addresses more 
generally activities that occur throughout the life-cycle of 
mortgage loans, i.e., practices with regard to the marketing, 
advertising, and servicing of mortgage loans. Mortgage Acts and 
Practices, 74 FR 26118 (June 1, 2009). The Commission anticipates 
that it will publish an NPRM relating to other mortgage practices in 
the near future.
    \15\ MARS ANPR, 74 FR at 26137-38. The Credit CARD Act requires 
the FTC to consult with the Federal Reserve Board (Board) concerning 
any portion of the proposed Rule that addresses acts or practices 
covered under the Truth in Lending Act, 15 U.S.C. 1601-1667f. Credit 
CARD Act Sec.  511(a)(1)(B). In this rulemaking, the Commission has 
consulted with and will continue to consult with the Board and, as 
appropriate, other federal banking agencies.
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    In response to the ANPR, the Commission received a total of 46 
comments.\16\ Forty-six state attorneys general, federal banking 
agencies, consumer advocacy groups, nonprofit MARS providers, and 
mortgage lenders and brokers filed individual or group comments. In 
addition, a few comments were received from entities on behalf of the 
for-profit MARS providers that the Rule would cover.\17\
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    \16\ The comments are available at (http://www.ftc.gov/os/comments/mars/index.shtm). In addition, a list of commenters cited 
in this Notice, along with their short citation names or acronyms 
used throughout the Notice, is attached to this Notice as Appendix 
A.
    \17\ One of these comments was from The National Loss Mitigation 
Association (TNLMA), which claims to be ``the premier national 
association'' advocating for the for-profit MARS industry. See TNLMA 
at 1. The Commission has alleged that TNLMA is controlled by a named 
defendant in an on-going FTC law enforcement action. See FTC v. Loss 
Mitigation Servs., Inc., No. SACV09-800 DOC(ANX) (C.D. Cal. filed 
July 13, 2009).
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    The institutional comments the FTC received overwhelmingly 
supported the issuance of a rule governing the activities of MARS 
providers.\18\ Notably, a wide spectrum of these commenters, including 
46 state attorneys general, consumer and community organizations,\19\ 
and financial service providers,\20\ 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.\21\ Additionally, a majority of the comments expressed 
concern regarding pervasive deception and abuse observed in the 
marketing of MARS, including the failure of MARS providers to perform 
promised services\22\ and their misrepresentation of affiliation with 
the government, nonprofits, lenders, or loan servicers.\23\
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    \18\ See, e.g., NAAG at 2 (``With a nationwide rule, states 
could bring actions in federal court to stop violators from 
operating in any jurisdiction.''); MA AG at 2 (``We applaud. . . 
[the FTC's] current step toward regulating foreclosure-rescue and 
advance-fee schemes.''); MN AG at 4 (``Although several states, 
including Minnesota, have passed laws regulating loan modification 
and/or foreclosure rescue companies, a national rule targeting such 
companies would be beneficial. . . .''); OH AG at 2 (``[O]ur office 
believes that a national rule targeting rescue companies is 
needed.''); CRC at 1 (``[We] strongly urge the FTC to develop 
effective rules to address the new cottage industry of fee for 
service loan modification providers.); NCLC at 2 (``We urge the FTC 
to enact strong rules to end abusive and deceptive practices by for-
profit mortgage assistance relief companies.''); CMC at 1 (``The CMC 
strongly supports the concept of prohibiting specific unfair or 
deceptive practices of MARS providers.''); Chase at 1 (``Chase 
strongly supports the proposed regulations because it has witnessed 
MARS entities engage in patterns of abusive and deceptive practices 
to the detriment of borrowers. . . .''); NCRC at 4 (``The FTC should 
act aggressively to promulgate a rule with all possible haste.''); 
OTS at 1 (stating its support of ``FTC efforts in this important 
area''); HPC at 1 (``HPC supports issuance of a rule directed at 
mortgage relief providers.''); Shriver at 4 (``[W]e commend the FTC 
on the proposed regulation. . . .'').
    \19\ See, e.g., CRC 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. . . .''); NCLC at 5 (``NCLC 
encourages the FTC to ban mortgage assistance relief services from 
seeking up-front payments. Prohibiting up-front payments will curb 
the injury and unfairness caused when companies take large payments 
from borrowers and fail to obtain loan modifications on their 
behalf, whether the outfit is an outright scam or merely 
ineffective.''); Shriver at 2 (recommending prohibition on up-front 
fees); NCLR at 1 (recommending that up-front fees be banned).
    \20\ See, e.g., 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. . . 
.''); AFSA at 6 (``[U]p-front fees should be restricted, fees should 
be reasonable, and only be permitted where services were actually 
provided''); HPC at 2 (arguing that consumers should not be required 
to pay up-front fees).
    \21\ See, e.g., NAAG 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.''); MN AG at 4 (``The only way to ensure that loan 
modification and foreclosure rescue companies are working for the 
benefit of the distressed homeowner is to ban the collection of any 
fees until all promised services have been performed.''); MA AG at 2 
(urging the Commission to ``[b]an advance-fee schemes related to 
foreclosure assistance''); see also NYC DCA at 4 (``The FTC 
rulemaking should ban foreclosure rescue services from collecting 
up-front fees from consumers. Collecting fees in advance gives these 
businesses an easy opportunity to swindle consumers by failing to 
provide adequate service, or not providing any service at all.''); 
OH AG at 3-4 (``A prohibition or low fee cap on up-front fees is of 
primary importance in regulating foreclosure rescue services.'').
    \22\ See, e.g., NCLC at 5; NAAG at 4; MN AG at 1-2.
    \23\ See, e.g., NCLC at 3; OH AG at 4; ABA at 7; Chase at 3.
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II. Mortgage Assistance Relief Services

A. The Mortgage Crisis and Assistance for Consumers

    As discussed in the ANPR, historic levels of consumer debt, 
increased unemployment, and a stagnant housing market have contributed 
to high rates of mortgage loan delinquency and foreclosure.\24\ As a 
result, many

[[Page 10709]]

consumers struggling to make their mortgage payments are in search of 
ways to avoid foreclosure. There are a number of options that may be 
available to consumers, including: (1) short sales or deeds-in-lieu of 
foreclosure transactions in which the proceeds of a sale of the home or 
the receipt of the deed to the home is treated as repayment of the 
outstanding mortgage balance; (2) forbearance or repayment plans that 
do not reduce the amount that consumers pay but give them more time to 
bring their payments current; and (3) loan modifications to reduce the 
amount of consumers' monthly payments. Because loan modifications allow 
consumers to stay in their homes and reduce their overall debt, this 
possible solution often has great appeal to consumers. The Commission's 
law enforcement actions suggest that loan modifications may currently 
be the most frequently marketed and sold mortgage assistance relief 
service.\25\
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    \24\ Delinquency and foreclosure start rates are at record 
highs. In the third quarter of 2009, the Mortgage Bankers 
Association's quarterly National Delinquency Survey found that 
14.41% of all mortgage loans were either in foreclosure or 
delinquent by at least one payment, the highest percentage recorded 
in the survey's history. Mortgage Bankers Association, Delinquencies 
Continue to Climb in Latest MBA National Delinquency Survey (Nov. 
19, 2009), available at (http://www.mbaa.org/NewsandMedia/PressCenter/71112.htm). In December 2008, Credit Suisse Bank 
forecasted a total of 9 million foreclosures for the period 2009 
through 2012. See Credit Suisse Fixed Income Research 2 (2008), 
available at (http://www.chapa.org/pdf/ForeclosureUpdateCreditSuisse.pdf); see also NAAG at 2 (``An 
estimated 8.1 million mortgages are anticipated to be in foreclosure 
within the next four years.'').
    \25\ See Appendix B (list of FTC actions against MARS 
providers).
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    In response to the recent mortgage crisis, a number of government 
and private sector programs have been initiated to assist distressed 
homeowners in modifying or refinancing their mortgages.\26\ In March 
2009, for example, the Obama Administration launched the Making Home 
Affordable (MHA) program, which provides mortgage owners and servicers 
with financial incentives to modify and refinance loans.\27\ More than 
650,000 loans have been modified pursuant to this program.\28\ In 
addition, state and local governments, nonprofit organizations, housing 
counselors, and private sector entities have offered a variety of other 
programs and services to help homeowners in distress.\29\
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    \26\ Section II.C of the ANPR described the ongoing federal, 
state, and local efforts to educate consumers, to assist consumers 
in working with their lenders and servicers, and to make loan 
modifications available to a larger number of consumers struggling 
to stay current on their mortgage. See MARS ANPR, 74 FR at 26135-36.
    \27\ For 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 modifications made while 
a borrower is still current on mortgage payments. U.S. Dep't of 
Treasury, Making Home Affordable Summary of Guidelines 2, available 
at (http://www.treas.gov/press/releases/reports/guidelines_summary.pdf).
    \28\ Renae Merle, Lenders to Get Push to Help Homeowners, Wash. 
Post, Nov. 29, 2009, at A4, available at (http://www.washingtonpost.com/wp-dyn/content/article/2009/11/28/AR2009112802436.html).
    \29\ See, e.g., FTC, Mortgage Payments Sending You Reeling? 
Here's What to Do, available at (http://www.ftc.gov/bcp/edu/pubs/consumer/homes/rea04.pdf) (2009) (describing various credit 
counselor alternatives); Foreclosure Prevention Workshops for 
Consumers, available at (http://www.freddiemac.com/avoidforeclosure/workshops.html) (last visited Dec. 22, 2009) (describing local 
credit counseling events by local governments, nonprofits, and other 
organizations).
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    Despite these public and private efforts, consumers continue to 
seek assistance from for-profit companies in obtaining loan 
modifications. Many consumers who are seeking loan modifications are 
not eligible for the MHA program or other government and private 
assistance programs. For example, while the Department of the Treasury 
has estimated that the MHA program will help 3-4 million borrowers by 
February 2012,\30\ industry surveys report that roughly 7.5 million 
households are at least 30 days behind on their mortgage payments or 
already are in foreclosure.\31\ Even among consumers who may be 
eligible for the program, it appears many are failing to meet other 
requirements necessary to qualify for a permanent loan 
modification.\32\ In addition, even if consumers are eligible for 
government and private assistance programs, many housing counselors and 
servicers have struggled to respond in a timely manner to the sheer 
number of consumers who are seeking loan modifications,\33\ leaving 
consumers who are desperate to save their homes waiting anxiously for 
assistance.
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    \30\ See, e.g., Press Release, Making Home Affordable, Making 
Home Affordable Program on Pace to Offer Help to Millions of 
Homeowners (Aug. 4, 2009), available at (http://makinghomeaffordable.gov/pr_08042009.html).
    \31\  See Ruth Simon & James R. Hagerty, One in Four Borrowers 
Is Underwater, Wall St. J., Nov. 24, 2009, at A1, available at 
(http://online.wsj.com/article/SB125903489722661849.html).
    \32\ See, e.g., Brady Dennis & Renae Merle, Democrats Push More 
Mortgage Aid, Wash. Post, Dec. 8, 2009, at A19, available at (http://www.washingtonpost.com/wp-dyn/content/article/2009/12/07/AR2009120703903.html) (noting that ``6 percent of borrowers enrolled 
in the [MHA] program so far have moved from trial modification to 
permanent adjustment''); Renae Merle, Banks Slow to Modify 
Mortgages, Wash. Post, Aug. 5, 2009, available at (http://www.washingtonpost.com/wp-dyn/content/article/2009/08/04/AR2009080401134.html) (``Less than 10 percent of delinquent 
borrowers eligible for the Obama administration's foreclosure 
prevention program have received help so far, according to Treasury 
Department estimates. . . .'').
    \33\ See, e.g., NCLC at 2 (noting that servicers have failed to 
meet borrower demand for loan modifications); NAAG at 7 (noting that 
borrowers have had a difficult time reaching servicers and obtaining 
their assistance); Peter S. Goodman, A Plan to Stem Foreclosures, 
Buried in a Paper Avalanche, N.Y. Times, July 29, 2009, at A1, 
available at (http://www.nytimes.com/2009/06/29/business/29loanmod.html).
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    Many consumers who have been unable to obtain assistance have 
turned to MARS providers. These for-profit companies have widely 
promoted their ability to help consumers in negotiating with lenders or 
servicers and in taking other steps to prevent foreclosure.\34\ 
Responding to consumer demand, these providers focus their advertising 
mainly on their capacity to obtain mortgage loan modifications\35\ as 
opposed to other forms of foreclosure relief, such as a short sale or 
loan forbearance.\36\ Mortgage assistance services based on negotiating 
with the lender or servicer to obtain a loan modification or some other 
type of foreclosure relief have mushroomed in the past two years.\37\ 
Given that there are many small and relatively new MARS providers, it 
is difficult to estimate the total number of such providers,\38\ but 
comments suggest that there are at least 450.\39\
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    \34\  See MARS ANPR, 74 FR at 26134-35.
    \35\ Another foreclosure prevention method that MARS providers 
have used is ``sale-leaseback'' or ``title reconveyance'' 
transactions. In these transactions, MARS providers instruct 
financially distressed consumers to transfer title to their homes to 
the providers and then lease the property back from the providers. 
The providers promise to reconvey title to the homes at some later 
date, yet often do not do so, thereby giving the providers the 
equity in the homes. The incidence of such sale leaseback and title 
reconveyance transactions appears to have declined, in part because 
many consumers do not have significant equity in their homes.
    \36\ See, e.g., NAAG 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 
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 at 1 (``In California, advertisements promising 
loan modification success are inescapable.''); see also Appendix B.
    \37\ See id.
    \38\ See, e.g., NAAG 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. The difficulty of 
gathering information is increased due to the fact many of these 
companies operate primarily over the internet and do not maintain a 
physical presence in the states in which they do business.''); OH AG 
at 2 (``There is little reliable data about the foreclosure rescue 
industry.'').
    \39\ See, e.g., NAAG at 4 (noting that state attorneys general 
have investigated more than 450 mortgage assistance relief 
services).
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    Typically, MARS providers charge consumers advance fees in the 
thousands of dollars.\40\ Some providers

[[Page 10710]]

collect their entire fee at the beginning of the transaction,\41\ and 
others request two to three large installment payments from 
consumers.\42\ One commenter 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.\43\
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    \40\ Id.; see also, e.g., CRC at 3 (``The average fee that we 
are seeing borrowers charged is $3,000; we have seen fees as high as 
$9,500.''); NCRC at 3 (``NCRC documented a median fee of $2,900. . . 
for our testing study. Fees ranged as high as $5,600. . . .''); NCLR 
at 1 (observing fees as high as $8,000); NCLC at 6 (estimating fees 
to be between $2,000 and $4,000).
    \41\ See, e.g., 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).
    \42\ See, 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. 
TRO at 5 (S.D. Fla. filed Nov. 24, 2009).
    \43\ See, e.g., NAAG at 5; see also, e.g., FTC v. Debt Advocacy 
Ctr., LLC, No. 1:09CV2712 (N.D. Ohio filed Nov. 19, 2009).
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    As discussed in the ANPR, MARS providers often claim to possess 
specialized knowledge of the mortgage lending industry,\44\ sometimes 
hiring former mortgage brokers and real estate agents\45\ to support 
their claims. In addition, a growing number of MARS providers are 
employing or affiliating with lawyers.\46\ The providers often tout the 
expertise of these attorneys in negotiating with lenders and servicers. 
In some cases, MARS providers also offer ``forensic audits,'' purported 
reviews of mortgage loans to determine lender and servicer compliance 
with federal and state law, thereby supposedly helping the consumer to 
acquire the leverage needed to obtain better loan modifications.\47\ 
Providers also may use their relationship with attorneys to assert that 
they are not covered by state laws that prohibit non-attorneys from 
collecting advance fees for loan modification services.\48\ For 
example, a previous California law that imposed a number of 
restrictions on ``foreclosure consultants'' also allowed ``licensed 
attorneys. . . [to] charge advance fees under certain limited 
circumstances.''\49\ 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.''\50\ 
California has since passed a new law that removes this exemption.\51\
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    \44\ See, e.g., FTC v. Fed. Housing Modification Dep't, No. 09-
CV-01753 (D.D.C. filed Sept. 15, 2009); FTC v. LucasLawCenter 
``Inc.,'' No. 09-CV-770 (C.D. Cal. filed July 7, 2009).
    \45\ See, e.g., NCLC 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.'').
    \46\ See, e.g., 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, 
e.g., Cincinnati Bar Assoc. v. Mullaney, 119 Ohio St. 3d 412 (2008) 
(disciplining attorneys involved in mortgage assistance relief 
services); Press Release, North Carolina 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/News-Releases-and-Advisories/Press-Releases/AG-Cooper-targets-California-schemes-that-prey-on-.aspx); Press Release, Colorado Attorney 
General's Office, Attorney General Announces Actions Against Seven 
Loan-Moficiation 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, Illinois 
Attorney General, Illinois Attorney General Sues 14th Company for 
Mortgage Rescue Fraud (Aug. 28, 2009), available at (http://www.illinoisattorneygeneral.gov/pressroom/2008_08/20080828.html).
    \47\ See, e.g., 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); California Dep't of Real 
Estate, Consumer Alert 6 (warning consumers of ``forensic loan 
reviews''), available at (http://www.dre.ca.gov/pdf_docs/FraudWarningsCaDRE03_2009.pdf).
    \48\ See supra notes 46-47; see also IL AG at 2 (``Attorneys are 
using the [state] exemption to market and sell the same mortgage 
consulting services provided by non-attorneys.'').
    \49\ Press Release, Office of the Attorney General, California 
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).
    \50\ See State Bar of California, Ethics Alert: Legal Services 
to Distressed Homeowners and Foreclosure Consultants on Loan 
Modifications 2, Ethics Hotliner (Feb. 2, 2009), available at 
(http://www.calbar.ca.gov/calbar/pdfs/ethics/Ethics-Alert-Foreclosure.pdf) (``California State Bar Ethics Alert''); see also 
Florida Bar, Ethics Alert: Providing Legal Services to Distressed 
Homeowners at 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.'').
    \51\ Cal Civ. Code Sec.  2944.7; see also Press Release, Office 
of the Attorney General, California 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).
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B. Observed Consumer Protection Abuses

    The FTC has extensive law enforcement experience with MARS 
providers. In the past two years, the Commission has filed 28 law 
enforcement actions against providers of loan modification and 
foreclosure rescue services.\52\ This extensive law enforcement 
experience, as well as the information received in response to the 
ANPR,\53\ strongly suggests that the deceptive practices of MARS 
providers are widespread and are causing substantial harm to consumers. 
MARS providers often misrepresent the services that they will perform 
and the results they will obtain for consumers. Indeed, providers 
frequently fail to perform even the most basic of promised services. As 
a result, consumers not only lose the thousands of dollars they pay to 
the providers, but may also lose their homes.
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    \52\ See Appendix B.
    \53\ As stated above, the Commission received few comments from 
MARS providers in response to its ANPR. Therefore, to ensure that it 
has complete and accurate information concerning mortgage assistance 
service providers, the effect of their activities on consumers, and 
the impact of proposed restrictions in their operations, the 
Commission is especially interested in receiving comments from MARS 
providers in response to this NPRM.
---------------------------------------------------------------------------

    Typically, MARS providers initiate contact with prospective 
customers through Internet, radio, television, or direct mail 
advertising. The ads instruct consumers to call a toll-free telephone 
number or e-mail the company. Customary claims in the ads and ensuing 
telemarketing and email pitches include representations 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 weeks;\54\ (3) has special 
relationships with lenders

[[Page 10711]]

and servicers;\55\ and (4) is closely affiliated with the 
government,\56\ various nonprofit programs,\57\ or the consumer's own 
lender or servicer.\58\ In some cases, MARS providers also entice 
consumers to make substantial up-front payments with false promises of 
a refund if they do not receive the promised results.\59\ Providers 
typically also represent that there is high likelihood, and in some 
instances a ``guarantee,'' of success.\60\ Despite these promises of 
extremely high success rates, the vast majority of consumers do not 
receive the promised results.\61\
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    \54\ See, e.g., FTC v. First Universal Lending, LLC, No. 09-CV-
82322, Mem. 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 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).
    \55\ See, 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).
    \56\ See, e.g., 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 websites 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 OH 
AG at 4 (``Our office has seen many companies that have names or 
advertisement that make it sound like they are government 
sponsored.''); NCLC at 3 (``One website, USHUD.com, even claims to 
be `America's Only Free Foreclosure Resource' even though HUD-
certified agencies also offer free assistance regardless of 
income.'').
    \57\ See 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).
    \58\ See, 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); see also ABA at 7 (``They often misuse the 
intellectual property of lenders and servicers by claiming in 
mailings, on websites, 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 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.'').
    \59\ See, e.g., FTC v. Truman Foreclosure Assistance, LLC, No. 
09-23543 (S.D. Fla. filed Nov. 23, 2009) (alleging that defendant 
falsely claims to provide ``100% money back guarantee''); Debt 
Advocacy Ctr., LLC, No. 1:09CV2712 (N.D. Ohio filed Nov. 19, 2009) 
(alleging that defendants falsely represent they would 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).
    \60\ See, 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).
    \61\ See, e.g., infra note 123-27; CMC at 1 (``CMC members and 
other mortgage servicers found that MARS providers consistently 
misrepresent their ability to obtain concessions from servicers. . . 
.''); Chase 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.'').
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    Even if the services of MARS providers could deliver the promised 
results, many providers do not provide even the most basic services 
they claimed they would perform. After collecting their up-front fees, 
MARS providers often fail to make initial contact with the lender or 
servicer for months, if at all. They frequently neglect to commence 
negotiations or have substantive discussions with the consumer's lender 
or servicer.\62\ In many cases, the consumer harm from this failure to 
perform as promised is exacerbated because MARS providers often 
instruct consumers to stop communicating with their lenders.\63\ 
Because consumers sever their contact with lenders and servicers, they 
may not discover that their MARS provider is doing little or nothing on 
their behalf; may never learn of concessions that their lender or 
servicer is willing to make; or, worst of all, may never discover that 
foreclosure is imminent.\64\ In some cases, MARS providers advise 
consumers to discontinue making their mortgage payments, without 
informing them that doing so can result in the loss of their homes and 
damage to their credit ratings.\65\ Because of this advice, consumers 
who otherwise could have avoided becoming delinquent may damage their 
credit rating or end up in foreclosure.
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    \62\ See, 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 ``Defendants 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. App. 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 longer 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[quot]).
    \63\ See, e.g., FTC v. Truman Foreclosure Assistance, LLC, No. 
09-23543 (S.D. Fla. filed Nov. 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).
    \64\ See, e.g., FTC v. Truman Foreclosure Assistance, LLC, No. 
09-23543 (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.''); FTC v. Loss Mitigation 
Servs., Inc., No. SACV09-800 DOC (ANX), Mem. In Supp. of Ex Parte 
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 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. All too often, it is not.'').
    \65\ See, e.g., 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. LucasLawCenter ``Inc.,'' No. SACV-09-770 DOC (ANX)(C.D. Cal. 
filed July 9, 2009) (``In numerous instances, Defendants' 
representative [allegedly] 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.''); see also NAAG 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.'').
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    In addition, some MARS providers make the specific claim that they 
offer legal services,\66\ when, in fact, no

[[Page 10712]]

attorneys are employed at the company or, even if there are, they do 
little or no legal work for consumers.\67\ The Commission's law 
enforcement experience, state law enforcement, the comments received in 
response to the ANPR, and state bar actions indicate that a growing 
number of attorneys themselves are engaged in deceptive and unfair 
practices in the marketing and sale of MARS.\68\
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    \66\ See, 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. App. 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'').
    \67\ See, 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, e.g., 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'').
    \68\ See, e.g., IL AG 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 at 2 (``An 
increasing number of attorneys are involving themselves in these 
unethical practices without providing any legal (or other) services. 
. . .''); MN AG 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 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.''); 
see also, e.g., Legislative Solutions for Preventing Loan 
Modification and Foreclosure Rescue Fraud, 111th Cong. 1st Sess., 
Testimony of Scott J. Drexel (State Bar of California) 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).
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C. Continued Law Enforcement and Other Responses

    The Commission has taken aggressive action to protect consumers 
from deceptive MARS providers. As part of that effort, the FTC has 
filed 28 lawsuits\69\ in the last two years against entities in this 
industry for engaging in deceptive practices in violation of the FTC 
Act and, in several instances, the Commission's Telemarketing Sales 
Rule (TSR).\70\ The FTC has coordinated with state law enforcement and 
federal agencies, including the Department of Justice, 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), in these efforts.\71\ For example, the FTC 
has conducted two nationwide sweeps: ``Operation Stolen Hope'' 
(November 24, 2009), in which the Commission joined with 20 states 
collectively to file over one hundred lawsuits against MARS 
providers,\72\ 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.\73\ Previously, the Commission, 
jointly with the Justice Department, the Treasury Department, HUD, and 
the Illinois Attorney General's office, had announced several law 
enforcement actions.\74\
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    \69\ See Appendix B.
    \70\ 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).
    \71\ See 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).
    \72\ Press Release, FTC, Federal and State Agencies Target 
Mortgage Relief Scams (Nov. 24, 2009), available at (http://www.ftc.gov/opa/2009/11/stolenhope.shtm).
    \73\ 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).
    \74\ 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). In 
connection with these joint efforts, the Commission also sent 
warning letters to 71 companies for marketing potentially deceptive 
mortgage loan modification and foreclosure assistance programs. Id.
---------------------------------------------------------------------------

    In addition to coordination with the Commission, the states have 
continued to engage in their own aggressive law enforcement. For 
example, the National Association of Attorneys General (NAAG) reports 
that, as of July 2009, its members had investigated 450 MARS providers 
and sued hundreds of them for alleged state law violations.\75\ The 
states also have continued to enact laws and regulations to address 
practices related to MARS.\76\
---------------------------------------------------------------------------

    \75\ NAAG at 4; see also IL AG at 1 (noting that Illinois has 
over 240 open investigations of MARS providers and filed 28 lawsuits 
against them).
    \76\ To date, at least 29 states and the District of Columbia 
have enacted such statutes or regulations. See, e.g., Cal. Civ. Code 
Sec. Sec.  2944.7 & 2945, et seq.; Colo. Rev. Stat. Sec.  6-1-1101, 
et seq.; 2009 Conn. Gen. Stat. Sec.  36a-489; 6 Del. Code Ann. Sec.  
2400B, et seq.; D.C. Code Sec.  42-2431, et seq.; Fla. Stat. Sec.  
501.1377; Haw. Rev. Stat. Sec.  480E-1, et seq.; Idaho Code Ann. 
Sec.  45-1601, et seq.; 765 Ill. Comp. Stat. Ann. 940/1, et seq.; 24 
Ind. Admin. Code Sec.  5.5-1-1, et seq.; Iowa Code Sec.  741E.1, et 
seq.; Me. Rev. Stat. Ann. tit. 32, Sec. Sec.  6171, et seq. & 6191, 
et seq.; Md. Code Ann., Real Property Sec.  7-301, et seq.; 940 
Mass. Code Regs. Sec.  25.01, et seq.; Mich. Comp. Law Sec.  
445.1822, et seq.; Minn. Stat. Sec.  325N.01, et seq.; Mo. Rev. 
Stat. Sec.  407.935, et seq.; Neb. Rev. Stat. Sec.  76-2701, et 
seq.; Nev. Rev. Stat. Sec.  645F.300, et seq.; N.H. Rev. Stat. Ann. 
Sec.  479-B:1, et seq.; N.Y. Real Prop. Law Sec.  265-b; N.C. Gen. 
Stat. Sec.  14-423, et seq.; 2008 Or. Laws Ch. 19; R.I. Gen. Laws 
Sec.  5-79-1, et seq.; Tenn. Code Ann. Sec.  47-18-5501, et seq.; 
Va. Code Ann. Sec.  59.1-200.1; Wash. Rev. Code Sec.  19.134.010, et 
seq.; Wis. Stat. Sec.  846.45.
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III. Discussion of the Proposed Rule

A. Section 322.1: Scope

    As detailed in Section I, the scope of this rulemaking is set forth 
in the Omnibus Appropriations Act, as clarified by the Credit CARD Act. 
These statutes direct the Commission to commence a rulemaking 
proceeding to enact rules ``related to unfair or deceptive acts or 
practices'' that address, among other things, mortgage assistance 
relief services. As noted earlier, the Commission interprets this 
language to allow it to issue rules that not only restrict practices 
that are themselves unfair or deceptive, but also to restrict other 
practices that may not themselves be unfair or deceptive but the 
restriction of which is reasonably related to the goal of preventing 
unfairness or deception. The Commission's rulemaking authority is 
limited by the Credit CARD Act to persons over whom the FTC has 
enforcement power under the FTC Act.

B. Section 322.2: Definitions

1. Section 322.2(h): Mortgage Assistance Relief Service
    As discussed, the proposed Rule is intended to regulate for-profit 
providers of mortgage assistance relief services. The controlling 
definition of the proposed Rule, which informs the parameters of its 
scope, is that of ``mortgage assistance relief service.'' Proposed 
Sec.  322.2(h) defines ``mortgage assistance relief service'' to 
include ``any service, plan or program, offered or provided in exchange 
for consideration on behalf of the consumer, that is represented, 
expressly or by implication, to assist or attempt to assist the 
consumer'' negotiate a modification of any term of a loan or obtain 
other types of relief to avoid delinquency or

[[Page 10713]]

foreclosure. Proposed Sec.  322.2(h)(2) provides that the term 
``mortgage assistance relief services'' includes any service marketed 
to ``stop[], prevent[], or postpone[] any (i) mortgage or deed of trust 
foreclosure sale for a dwelling or (ii) repossession of the consumers' 
dwelling; or otherwise save the consumer's home from foreclosure or 
repossession.'' Proposed Sec. Sec.  322.2(h)(3)-(7) further define 
these services to include offers purported to assist consumers in 
obtaining: (1) a forbearance or repayment plan; (2) an extension of 
time to cure default, reinstate a loan, or redeem a property;\77\ (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 third-party that is not the loan holder. 
Accordingly, proposed Sec.  322.2(h) is intended to apply to every 
solution that may be marketed by covered providers to financially 
distressed consumers as a means to avoid foreclosure or save their 
homes.
---------------------------------------------------------------------------

    \77\ In some states, mortgagors have the right to ``redeem,'' 
i.e., regain possession of, a property for a period of time 
following foreclosure.
---------------------------------------------------------------------------

    One example of this coverage is the marketing of sale-leaseback or 
title-reconveyance transactions, which commonly are touted to consumers 
as a means to avert foreclosure or its consequences.\78\ As a general 
matter, the FTC does not intend the proposed Rule to address how title-
transfer transactions are regulated. The Commission recognizes that 
there are many comprehensive state laws that govern these types of 
transactions and impose specific requirements when title transfers 
occur.\79\ To the extent sale-leaseback and title-reconveyance 
transactions are marketed as a means to avoid foreclosure, however, 
these purported services would be covered by the proposed Rule. The 
Commission specifically solicits comment on how the proposed Rule 
should apply to these types of transactions, especially in light of 
existing state laws.
---------------------------------------------------------------------------

    \78\ See supra note 35; see also NAAG at 2.
    \79\ See supra note 76. For example, some laws mandate that 
before doing a title transfer the foreclosure rescue operator must 
verify that the consumer can reasonably afford to repurchase the 
home. See, e.g., Minn. Stat. Sec.  325N.17(a)(1).
---------------------------------------------------------------------------

    As a general matter, mortgage brokers are covered by the proposed 
Rule to the extent that they market ``mortgage assistance relief 
services.''\80\ The Commission does not intend the proposed Rule to 
apply to bona fide loan origination or refinancing services that 
mortgage brokers frequently offer. To obtain a new loan or refinance an 
existing loan, consumers can work either with the lender directly or 
with a mortgage broker who acts as an intermediary between the consumer 
and lender. Mortgage brokers can provide the benefit of offering 
consumers a wider choice of loan products from different lenders, 
without consumers having to deal with each lender separately.\81\ 
Homeowners who are delinquent on their loans may be among the consumers 
whom mortgage brokers assist by helping them refinance their loans.
---------------------------------------------------------------------------

    \80\ See NAAG 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 that originally promised. The trend of mortgage brokers 
providing services is likely to continue, especially if the market 
for mortgage loan origination remains soft.'').
    \81\ Mortgage brokers typically are paid by the lender, and 
sometimes the borrower, from the closing costs of the loan 
transaction. See, e.g., National Association of Mortgage 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 at 29 (``[B]rokers 
are normally paid only when a sale or mortgage transaction is 
completed.'').
---------------------------------------------------------------------------

    The Commission is mindful that consumers at risk of foreclosure 
could benefit from assistance in refinancing, and does not wish the 
proposed Rule to reduce the availability of legitimate services of this 
kind. At the same time, the Commission is concerned that services 
purported to help consumers obtain refinancing could be marketed 
deceptively as a means to avoid foreclosure.\82\ Mortgage brokers or 
others could deceive consumers into paying large, up-front fees for 
loan origination or refinancing services based on false promises that 
consumers will be able to save their homes. Thus, the Commission 
solicits comment on how the proposed Rule should treat offers from 
mortgage brokers to work with lenders to negotiate new loans or 
refinance existing loans.
---------------------------------------------------------------------------

    \82\ Consumers who otherwise would not consider themselves 
eligible to refinance their mortgage might have a different 
perspective because publicized government programs such as the MHA 
program offer consumers the opportunity to refinance at lower 
interest rates, even though they are delinquent or owe more than 
what the home is worth.
---------------------------------------------------------------------------

    Finally, mortgage assistance relief services are limited to 
services that are marketed to consumers\83\ who owe on loans secured by 
a ``dwelling'' or residence. A ``dwelling'' is defined to be a 
residential structure containing four or fewer units, whether or not it 
is attached to real property. The term dwelling also includes 
individual condominium units, cooperative units, mobile homes, or 
trailers.\84\ On the other hand, the proposed Rule is not intended to 
cover MARS offered to borrowers whose loans are secured by commercial 
properties. The definition of ``dwelling'' applies only to residences 
that are ``primarily for personal, family, or household purposes.''\85\ 
Based on its law enforcement experience, the Commission believes that 
there are consumers who may own a second home or a rental property and 
seek help to avoid foreclosure on these properties. Therefore, the 
Commission intends the proposed Rule to apply to mortgage assistance 
relief services marketed to these consumers.
---------------------------------------------------------------------------

    \83\ ``Consumer'' is broadly defined to include ``any natural 
person who owes on any loan secured by a dwelling.'' Proposed Sec.  
322.2(b). The Commission intends to cover consumers at every stage 
of the process, and does not limit the proposed Rule to those who 
are in default or foreclosure. Commenters observed that many 
consumers seek assistance from MARS providers before they are 
delinquent on their loans. See CMC 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.''); CFA at 4 (``Many 
homeowners have sought help from MARS 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 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''); see 
also NAAG 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.'').
    \84\ Proposed Sec.  322.2(d). The definition for dwelling is 
based on that used in Regulation Z, 12 CFR 226, which implements the 
Truth in Lending Act, 15 USC 1601 et seq. 12 CFR 226.2(a)(19) 
(2009).
    \85\ This language is derived from Regulation Z. See 12 CFR at 
226.2(a)(12) (definition of ``consumer credit'').
---------------------------------------------------------------------------

2. Section 322.2(c): ``Clear and Prominent''
    The proposed Rule mandates that disclosures be made with clarity 
and prominence in various types of media. As discussed in more detail 
in Section III.D, the proposed disclosures are intended to prevent 
deception and allow consumers to make purchasing decisions about 
mortgage assistance relief services based on truthful information. The 
proposed Rule sets forth general requirements to ensure that the 
disclosures made in commercial

[[Page 10714]]

communications\86\ are sufficiently clear and prominent for consumers 
to notice and comprehend them.\87\ In all cases, disclosures are 
required to use syntax and wording that consumers easily can 
understand, and cannot be accompanied with statements that contradict 
or confuse their meaning.\88\ The proposed Rule intends to prevent MARS 
providers from undermining required disclosures with contradictory or 
obscuring information. In addition, as described below, there are clear 
and prominent requirements that are specific to the particular media in 
which disclosures appear. In the Commission's view, the extensive 
record of deception in the MARS industry makes it necessary to 
articulate with specificity how MARS providers must make required 
disclosures to consumers.
---------------------------------------------------------------------------

    \86\ As defined in the proposed Rule, ``commercial 
communication'' is intended to include any written or verbal 
statement, illustration, or other depiction used to induce the 
purchase of goods or services. See Proposed Sec.  322.2(a).
    \87\ Where possible, in formulating the requirements of the 
proposed Rule, the Commission has drawn from comparable FTC rules 
requiring clear and prominent disclosures. See Disclosure 
Requirements and Prohibitions Concerning Franchising, 16 CFR 436.6 
(2007) (Franchise Rule); Disclosure Requirements and Prohibitions 
Concerning Business Opportunities, 16 CFR 437.1 (2007) (Business 
Opportunity Rule); Regulations Under Section 4 of the Fair Packaging 
and Labeling Act, 16 CFR 500.4 (1994) (Fair Packaging and Labeling 
Act Regulations); Trade Regulation Pursuant to the Telephone 
Disclosure and Dispute Resolution Act of 1992, 16 CFR 308.2 (1993) 
(900 Rule); Rule Concerning Cooling-Off Period for Sales Made at 
Home or at Certain Other Locations, 16 CFR 429.1 (1988) (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).
    \88\ See 900 Rule, 16 CFR 308.3(a)(5); Franchise Rule, 16 CFR 
436.9(a); Business Opportunity Rule, 16 CFR 437.1(a)(21) (prohibits 
making any oral, visual, or written representation that contradicts 
the information required to be disclosed by the Rule).
---------------------------------------------------------------------------

a. Written Disclosures
    Proposed Sec.  322.2(c)(1) sets forth various requirements for 
disclosures disseminated in print or written form. This includes 
consumer communications that appear in print publications or on a 
computer screen. For such disclosures, the proposed Rule specifies that 
the disclosure must be in a color that readily contrasts with the 
background of the consumer communication,\89\ be in the same language 
predominant in the communication,\90\ and appear parallel to the base 
of the communication.\91\ Unless otherwise specified in the proposed 
Rule, the text size must be the larger of 12-point font or one-half the 
size of the largest letter or numeral of any company website or 
telephone number that is displayed in the consumer communication.\92\ 
If there is no website or telephone number displayed in a communication 
touting mortgage assistance relief services, the disclosures must be in 
at least 12-point type. The text-size requirements of the proposed Rule 
are comparable to those of the FTC's Trade Regulation Rule Pursuant to 
the Telephone Disclosure and Dispute Resolution Act of 1992 (``900 
Number Rule''), except for the 12-point type default.\93\
---------------------------------------------------------------------------

    \89\ See, e.g., Tender Corp., Docket No. C-4261, File No. 082-
3188 (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''); Budget Rent-A-Car-System, Inc., Docket No.C-4212, 
File No. 062-3042 (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.'').
    \90\ See, e.g., 900 Rule, 16 CFR 308.3(a)(1). If the ad has 
substantial material in more than one language, the proposed MARS 
Rule requires that the disclosure be delivered in each such 
language. Proposed Sec.  322.2(c)(1).
    \91\ See, e.g., Swisher Int'l, Inc., Docket No. C-3964, File No. 
002-3199 (FTC Aug. 25, 2000), available at (http://www.ftc.gov/os/2000/08/swisherdo.htm) (finding that warnings for cigars must 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 must appear ``in lines 
generally parallel to the base on which the packaging or commodity 
rests as it is designed to be displayed'').
    \92\ There are additional and qualifying requirements for 
disclosures mandated in Sec. Sec.  322.4(b) and (c) of the proposed 
Rule.
    \93\ See 900 Rule, 16 CFR 308.
---------------------------------------------------------------------------

b. Audio Disclosures
    Proposed Sec.  322.2(c)(2) addresses the use of disclosures in 
audio communications such as broadcast radio or streaming radio. The 
disclosure must be delivered in a slow and deliberate manner, at a 
reasonable volume, and at a slow enough pace to be heard and 
understood.\94\
---------------------------------------------------------------------------

    \94\ See, e.g., 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''); Darden 
Rests., Inc., Docket No. C-4189, File No. 062-3112 (FTC May 11, 
2009), available at (http://www.ftc.gov/os/caselist/0623112/070510do0623112c4189.pdf) (same); In re Kmart Corp., Docket No. C-
4197, File No. 062-3112 (FTC Aug. 15, 2007), available at (http://www.ftc.gov/os/caselist/0623088/0623088do.pdf) (same); In re Palm, 
Inc., Docket No. C-4044, File No. 002-3222 (FTC Apr. 19, 2002), 
available at (http://www.ftc.gov/os/caselist/0023332/index.shtm) 
(same); Dot Com Disclosures at 14 (explaining that audio disclosures 
should be ``in a volume and cadence sufficient for a reasonable 
consumer to hear and comprehend it'').
---------------------------------------------------------------------------

c. Video Disclosures
    Proposed Sec.  322.2(c)(3) imposes requirements for consumer 
communications disseminated through video means. This includes video 
communications that appear on television or are streamed over the 
Internet. As a threshold matter, these communications must be delivered 
in accordance with the requirements for written and audio disclosures 
in proposed Sec. Sec.  322.2(c)(1) and (2). In addition, the 
communication must include a simultaneous audio and visual 
disclosure,\95\ the latter of which must be displayed for at least the 
duration of the oral disclosure and comprise four percent of the 
vertical picture height of the screen.\96\
---------------------------------------------------------------------------

    \95\ Disclosures 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), aff'd, 
970 F.2d 311 (7th Cir. 1992) (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'').
    \96\ See 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'').
---------------------------------------------------------------------------

d. Interactive Media
    Proposed Sec.  322.2(c)(4) addresses how disclosures must be made 
in interactive media formats, such as software, the Internet, or mobile 
media. 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 disclosure must appear on 
a separate landing page immediately prior to the consumer incurring a 
financial obligation, be visible to the consumer without the need to 
scroll down any page, and be at least twice the type size of any 
hyperlink to the company's website. Further, the landing page cannot 
contain any information other than the disclosure statement. These 
requirements are intended to ensure that consumers see the information 
conveyed in the disclosures mandated by the proposed Rule at the time 
they are deciding whether to purchase a mortgage relief assistance

[[Page 10715]]

service.\97\ Without the use of a separate landing page, the Commission 
is concerned that the disclosure could be presented in such a way that 
the consumer might not see it or would be distracted with competing 
messages. For example, consumers often close out pop-up screens without 
actually viewing them.\98\ The Commission seeks comment on whether use 
of a separate landing page is an effective method of conveying the 
required disclosures to consumers or whether another means should be 
used.
---------------------------------------------------------------------------

    \97\ See Dot Com Disclosures at 11 (explaining that disclosures 
are more likely to be effective if they are provided when the 
consumer is considering the purchase).
    \98\ See, e.g., Tom Espiner, Web Users Ignoring Security 
Certificate Warnings, CNET.com (July 28, 2009), available at (http://news.cnet.com/8301-1009_3-10297264-83.html) (``In an online study 
conducted among 409 participants, the [Carnegie Mellon University] 
researchers found that the majority of respondents would ignore 
[pop-up] warnings about an expired Secure Sockets Layer (SSL) 
certificate.'').
---------------------------------------------------------------------------

e. Program-length media
    Proposed Sec.  322.2(c)(6) requires that disclosures in program-
length television, radio, and Internet-based advertisements for 
mortgage assistance relief services be presented at the beginning, near 
the middle, and at the end of the advertisement.\99\ Requiring that 
disclosures be delivered at different stages of the broadcast better 
ensures that consumers who tune in at various times will receive them.
---------------------------------------------------------------------------

    \99\ Section 308.3(a)(6) of the 900 Rule has a nearly identical 
requirement. 16 CFR 308.3(a)(6).
---------------------------------------------------------------------------

3. Section 322.2(i): ``Mortgage Assistance Relief Service Provider''
    Under proposed Sec.  322.2(i), any person who ``provides, offers to 
provide, or arranges others to provide, any mortgage assistance relief 
service'' is a ``mortgage assistance relief provider'' subject to the 
proposed Rule. Proposed Sec. Sec.  322.2(i)(1) and (2), however, 
generally exclude loan holders,\100\ servicers,\101\ and the agents of 
such holders and servicers, from the definition of a MARS provider. In 
the ANPR, the Commission stated that this rulemaking would address 
``the practices of entities (other than mortgage servicers) who offer 
assistance to consumers in dealing with owners or servicers of their 
loans to modify them or avoid foreclosure.''\102\ A number of the 
public comments expressed concern that servicers (who are bona fide 
intermediaries between the loan holder and the consumer) may offer loss 
mitigation services that fall within the scope of the proposed 
Rule.\103\ For example, a servicer may notify a consumer of her 
eligibility for a mortgage loan modification under the MHA Program and 
assist her in submitting the necessary paperwork. In addition, lenders 
and servicers may outsource these functions to other parties, 
especially given the current large number of consumers needing 
assistance.\104\
---------------------------------------------------------------------------

    \100\ The proposed Rule defines ``dwelling loan holder'' to mean 
``a person that holds a loan secured by a dwelling.'' Proposed Sec.  
322.2(f).
    \101\ ``Servicer'' is defined in proposed Sec.  322.2(j) as 
``the person responsible for receiving any scheduled periodic 
payments from a consumer pursuant to the terms of any dwelling loan, 
including amounts for escrow accounts under Section 10 of the Real 
Estate Settlement Procedures Act (RESPA), 12 U.S.C. 2609, and making 
the payments to the owner of the loan or other third parties of 
principal and interest and such other payments with respect to the 
amounts received from the borrower as may be required pursuant to 
the terms of the mortgage servicing loan documents or servicing 
contract.'' This definition tracks that of the servicer definition 
in the Real Estate Settlement Procedures Act. See 12 U.S.C. 2605(i).
    \102\ MARS ANPR, 74 FR at 26131. Note that the Commission is 
currently engaged in the MAP Rulemaking, which will address 
servicing practices.
    \103\ See, e.g., CMC at 5 (``Servicers are increasingly turning 
to third-party service-providers to assist them in processing loan 
modifications and in other loss-mitigation activities.''); ABA at 4-
6; AFSA at 3, 5; MBA at 4.
    \104\ See, e.g., David Lawder, Few US mortgage modifications 
made permanent, Reuters, available at (http://www.reuters.com/article/idUSN1021463420091210) (Dec. 10, 2009) (referring to a 
company that ``has been hired by some of the largest U.S. banks to 
assist in modification efforts'').
---------------------------------------------------------------------------

    Commenters asserted that loan owners and servicers should be exempt 
from the proposed Rule for several reasons. First, servicers tend not 
to be engaged in the types of deceptive and unfair conduct described in 
the ANPR and this document, and are not likely to engage in such 
activities in the future.\105\ Second, servicers do not commonly charge 
significant up-front fees in exchange for working with consumers.\106\ 
Third, application of the proposed Rule to servicers could restrict or 
interfere with lenders' and servicers' efforts to inform consumers of 
loss mitigation options and handle their requests for relief.\107\ The 
Commission wishes to avoid discouraging foreclosure solutions that may 
be beneficial to consumers.\108\ Thus, the proposed Rule generally 
exempts loan holders and servicers and their agents.\109\ The 
Commission seeks comment on the exemption, including whether servicers 
have engaged in covered conduct that warrants encompassing them within 
the proposed Rule.
---------------------------------------------------------------------------

    \105\ See, e.g., ABA at 6; AFSA at 3; HPC at 2; see also NAAG 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.''); OH AG at 5.
    \106\ See, e.g., ABA at 5; AFSA 3-4; CMC at 4-5; MBA at 4; HPC 
at 2.
    \107\ See, e.g., MBA at 4.
    \108\ Further, application of the advance fee ban provision, 
discussed infra Sec.  III.E, to servicers could interfere with their 
primary business function, collecting and processing scheduled loan 
payments on behalf of lenders. See Proposed Sec.  322.5.
    \109\ Note that proposed Sec.  322.2(i) does not exempt agents 
of loan holders and servicers if they ``claim, demand, charge, 
collect, or receive any money or other valuable consideration from 
the borrower for the agent's benefit.'' The limiting language 
ensures that MARS providers do not evade the Rule by styling 
themselves as ``agents'' of the lender or servicer. Thus, the 
exemption only applies to functions an agent undertakes on behalf of 
the lender or servicer but not on its own behalf.
---------------------------------------------------------------------------

    Finally, Sec.  322.2(e)(3) exempts nonprofit entities excluded from 
the FTC's jurisdiction under the FTC Act.\110\ The Commission intends 
for this exemption to include bona fide nonprofit housing counselors 
presently offering mortgage assistance relief services.\111\ The FTC, 
however, does have jurisdiction over purported nonprofits that, in 
reality, operate for the profit of their members,\112\ and proposed 
Sec.  322.2(e)(3) does not exempt these entities.
---------------------------------------------------------------------------

    \110\ Section 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).
    \111\ These nonprofit services are described in more detail in 
Section II.C. of the ANPR. MARS ANPR, 74 FR 26135.
    \112\ See, e.g., AMA v. FTC, 638 F.2d 443 (2d Cir. 1980), aff'd 
by equally divided Court, 455 U.S. 676 (1982); FTC v. Ameridebt, 
Inc., 343 F. Supp. 2d 451 (D. Md. 2004).
---------------------------------------------------------------------------

C. Section 322.3: Prohibited Representations

    Proposed Sec.  322.3 addresses deceptive or unfair representations 
that MARS providers commonly make in marketing their services.
1. Section 322:3(a): Prohibited Statements
    Proposed Sec.  322.3(a) prohibits MARS providers from instructing 
consumers to cease communicating with their lenders or servicers. As 
discussed above, if consumers comply with this instruction and stop 
communicating with their lenders and servicers, consumers may not 
discover that their MARS provider is doing little or nothing on their 
behalf, may never learn of concessions their lender or servicer is 
willing to make, or, worst of all, may never be informed that 
foreclosure is imminent. The Commission is not aware of any benefits to 
consumers or competition from MARS providers directing consumers to

[[Page 10716]]

stop communicating with their lenders or servicers. Consumers cannot 
reasonably avoid the injury from this practice because many of them do 
not know of the potentially adverse consequences that could occur from 
ceasing such communications. Nor are there any countervailing benefits 
to consumers or competition from this practice. Accordingly, the 
Commission believes that it is an unfair practice for MARS providers to 
convey such an instruction to consumers. In addition, prohibiting this 
practice is reasonably related to the goal of preventing MARS providers 
from deceiving consumers by hiding from them the actions they have or 
have not taken on consumers' behalf.
2. Section 322.3(b): Prohibited Misrepresentations
    Proposed Sec.  322.3(b) prohibits misrepresentations of any 
material aspect of any mortgage assistance relief service. Proposed 
Sec. Sec.  322.3(b)(1)-(8) sets forth a non-exclusive list of specific 
aspects of a mortgage assistance relief service about which 
misrepresentations would violate the proposed Rule. These aspects 
include the likelihood and time to provide services or obtain results; 
the affiliation of the provider with public or private entities; 
payment and other obligations under existing mortgage loans; the MARS 
provider's refund and cancellation policies; and the completion of 
promised services. This list tracks the types of false or misleading 
claims that the Commission and the states have challenged in law 
enforcement actions, as described above.
    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.''\113\ Misrepresentations of 
material fact are deceptive practices under Section 5. The aspects of 
MARS specified in Sec. Sec.  323.3(b)(1)-(7) of the proposed Rule are 
material to consumers because they pertain to the cost, central 
characteristics, efficacy or other attributes of such services that are 
important to consumers.\114\ Thus, the misrepresentations proposed 
Sec.  323.3(b) prohibits constitute deceptive practices under the FTC 
Act.
---------------------------------------------------------------------------

    \113\ In re Cliffdale Assocs., Inc., 103 F.T.C. 110, 164-66, 
175-76 (1984). Information is ``material'' if it is ``likely to 
affect a consumer's choice of or conduct regarding a product.'' Id. 
at 165.
    \114\ Id. at 182-83.
---------------------------------------------------------------------------

D. Section 322.4: Required Disclosures

    Section 322.4 of the proposed Rule requires that MARS providers 
disclose information to consumers to assist them in making decisions 
about mortgage assistance relief services. First, proposed Sec.  
322.4(a) requires MARS providers to disclose clearly and 
prominently\115\ in all of their commercial communications with 
consumers that they are for-profit businesses not associated with the 
government, and that neither the government nor the lender has approved 
the MARS provider's offer of services. The Commission intends for this 
disclosure to apply to all advertisements and other marketing materials 
directed at a general audience.
---------------------------------------------------------------------------

    \115\ The disclosure must be made in a manner that conforms with 
the definition of ``clear and prominent'' in proposed Sec.  
322.2(c). See supra Sec.  III.B.2.
---------------------------------------------------------------------------

    In addition, proposed Sec.  322.4(b) requires that MARS providers 
disclose in all commercial communications directed to specific 
consumers, clearly and prominently and prior to consummating any 
agreement with the consumer, that: (1) the provider is a for-profit 
business not associated with the government, and neither the government 
nor the consumer's lender endorses its service; (2) the total amount 
consumers will have to pay to purchase, receive, and use the service; 
and (3) even if consumers buy the provider's service, there is no 
guarantee that their lender will agree to change their loan terms. The 
Commission intends these three disclosures to be made in every 
promotional communication between the MARS provider and a specific 
consumer that occurs prior to such consumer incurring any financial 
obligations.\116\ The Commission believes it is appropriate to require 
the disclaimer disavowing any affiliation with the government or the 
consumer's lender not only in general advertising, but in ensuing 
promotional communications with consumers as well. Otherwise, MARS 
providers could qualify or contradict this disclaimer during subsequent 
telemarketing calls or other communications with individual consumers, 
which the FTC's enforcement experience indicates is common 
practice.\117\
---------------------------------------------------------------------------

    \116\ As discussed in Section II.B, often MARS providers 
disseminate advertisements that instruct consumers to call a 
telephone number or contact an email address, and once consumers do 
so MARS providers begin to interact with them on an individual 
level.
    \117\ See, e.g., FTC v. Fed. Loan Modification Law Ctr., LLP, 
No. SACV09-401 CJC (MLGx) (C.D. Cal. filed Apr. 3, 2009) (false 
success rate claims and other deceptive claims often 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).
---------------------------------------------------------------------------

    First, as described above, there are many government, nonprofit, 
and for-profit programs operating in the marketplace that provide a 
wide array of mortgage assistance relief services. In addition, the 
Commission and state law enforcement officials have brought numerous 
law enforcement actions against MARS providers who have misrepresented 
their affiliation with a government agency, a lender, a servicer, or 
others in connection with offering mortgage assistance relief services. 
These providers have used a variety of techniques to create such 
misimpressions, including adopting trade names that resemble the names 
of legitimate government programs.\118\ Given the variety of entities 
that provide such services and the prevalence of these deceptive 
claims, the Commission believes that the requirement that MARS 
providers disclose their for-profit status and nonaffiliation with 
government or other programs is reasonably related to the goal of 
preventing deception.
---------------------------------------------------------------------------

    \118\ See supra note 56.
---------------------------------------------------------------------------

    Second, the total cost of the mortgage assistance relief services 
is perhaps the most material information for consumers in making well-
informed decisions whether to purchase those services. Requiring the 
clear and prominent disclosure of total cost information in every 
communication directed at a specific consumer prior to the consumer 
entering into an agreement makes it less likely that MARS providers 
will deceive prospective customers with incomplete, inaccurate, or 
confusing cost information.\119\ The Commission therefore believes that 
requiring MARS providers to disclose total cost information clearly and 
prominently is reasonably related to the prevention of deception.
---------------------------------------------------------------------------

    \119\ An incidental benefit of requiring that MARS providers 
disclose total cost clearly and prominently is that such 
transparency may facilitate the efforts of consumers to comparison 
shop among MARS providers based on cost, which would be beneficial 
to consumers and competition.
---------------------------------------------------------------------------

    Third, in light of the history of deceptive success claims in this 
industry and the many widely-publicized government programs to help 
consumers seeking relief from lenders, consumers are likely to 
overestimate their abilities to obtain substantial loan modifications 
or other mortgage relief from MARS providers, even in the absence of 
specific misrepresentations of success. Therefore, the Commission 
believes that requiring MARS providers to disclose clearly and 
prominently in all commercial communications with prospective customers 
that their lenders may not agree to change their loan even if consumers 
purchase the services the

[[Page 10717]]

MARS provider offers is reasonably related to preventing deception.
    The Commission has not conducted any empirical research into 
whether the disclosures that are specified in the proposed Rule would 
be an effective means of conveying information about the status, cost, 
and limitations of MARS. The Commission intends to study the 
effectiveness of any proposed disclosures in preventing consumer 
deception. To aid its analysis, the Commission seeks comment and data 
bearing on the costs and benefits of the disclosure requirements 
articulated in the proposed Rule.

E. Section 322.5: Prohibition on Collection of Advance Fees

    The Commission proposes to ban MARS providers from requiring that 
consumers pay in advance for their services, i.e., prior to the 
provider doing or accomplishing what it promised. This remedy is 
justified on two independent grounds: (1) that the collection of 
advance fees by MARS providers is an unfair act or practice and (2) 
that the prohibition is reasonably related to the goal of preventing 
deception. It is also strongly supported by the public comments 
submitted by law enforcers, consumer groups, and financial service 
businesses.\120\
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    \120\ Supra notes 18-21.
---------------------------------------------------------------------------

1. Advance Payments as an Unfair Act or Practice
    Under Section 5(n) of the FTC Act, an act or practice is unfair if: 
(1) it causes or is likely to cause substantial injury to consumers; 
(2) that injury is not outweighed by countervailing benefits to 
consumers or competition; and (3) the injury is not reasonably 
avoidable by consumers themselves.\121\ Section 5(n) also provides that 
the Commission may consider established public policies in determining 
whether an act or practice causes substantial injury, but may not use 
such policies as a primary basis for determining that an act or 
practice is unfair. The Commission believes that requiring that 
consumers pay advance fees for mortgage assistance relief services 
meets the standard for an unfair practice under Section 5(n) of the FTC 
Act, a conclusion that is supported by established public policies 
already incorporated into federal and state laws.
---------------------------------------------------------------------------

    \121\ 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, Committee on Commerce, Science and 
Transportation, United States Senate, Commission Statement of Policy 
on the Scope of Consumer Unfairness Jurisdiction (Dec. 17, 1980).
---------------------------------------------------------------------------

a. Substantial Injury to Consumers
    The comments received and the Commission's law enforcement 
experience support the conclusion that MARS providers generally do not 
achieve the results that they cause consumers to expect, yet retain the 
money they collect in advance fees; thus, allowing providers to collect 
their fees in advance of achieving those results causes or is likely to 
cause substantial injury to consumers.
    Consumers pay up-front fees for mortgage assistance relief services 
in amounts that range from hundreds to thousands of dollars - fees that 
many consumers in financial distress find difficult to pay.\122\ Yet, 
few MARS providers perform the services or deliver the results they 
promise.\123\ Law enforcement, both at the federal\124\ and state 
levels,\125\ as well as comments on the record of this proceeding,\126\ 
indicate that there is a widespread failure of MARS providers to 
perform promised services or achieve promised results. NAAG's written 
comment, representing the views of state attorneys general who have 
monitored the activity of MARS providers throughout the country, 
details these failures in stark terms:

    \122\ See, e.g., NCRC 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 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 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.'').
    \123\ See, e.g., Data Med. Capital, Inc., No. SA-CV-99-1266 AHS 
(Eex), Rep. Temp. Receiver at 4 (C.D. Cal. filed June 19, 2009) 
(stating the defendants' records show that they provided loan 
modifications to only 0.37% - 3/8ths of one percent - of their 
customers); see also, e.g., FTC v. US Foreclosure Relief Corp., No. 
SACV09-768 JVS (MGX), Prelim. Rep. Temp. Receiver at 2 (C.D. Cal. 
filed July 15, 2009) (``[O]n [defendants'] applications taken since 
November 2008, only 11% have resulted in closed modifications.''); 
FTC v. LucasLawCenter ``Inc.,'' No. SACV-09-770 DOC (ANX), Mem. 
Supp. App. TRO at 19 (C.D. Cal. filed July 7, 2009) (``Nearly 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 defendants only completed loan modifications for 
about 6% of consumers).
    \124\ As noted in Section II, since January 1, 2008, the 
Commission has filed twenty-eight actions against MARS providers for 
deceptive and other unlawful practices that typically resulted in 
their failure to provide the promised results. See Appendix B.
    \125\ See, e.g., NAAG at 4 (``As of July 1, 2009, over 450 
companies are or have been investigated for providing foreclosure 
rescue services that violated state laws. Collectively, the states 
participating in the NAAG group have sued at least 130 of these 
companies.''); id. at 6.
    \126\ See, e.g., NAAG 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 up-front fees and then fail to deliver promised 
services. . . .''); MN AG at 2 (``As a general rule, these companies 
provide no service, or at most, simply submit paperwork to the 
homeowner's mortgage company.''); Chase 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.'').
---------------------------------------------------------------------------

 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.\127\

    \127\ NAAG at 6.
---------------------------------------------------------------------------

    The marketplace does not appear to provide an adequate deterrent to 
MARS providers failing to perform on their contracts. MARS providers 
are often new entrants or ephemeral operations with little or no good 
will in their businesses and rarely provide repeat services to their 
customers. In these circumstances, the reputational harm from not 
providing promised services appears to provide little disincentive to 
nonperformance by MARS providers.
    Consumers are especially unlikely to obtain the claimed services or 
results if the MARS provider has promised to obtain a mortgage loan 
modification that lowers consumers' monthly payments.\128\ Many 
consumers who seek mortgage assistance from MARS providers are not 
eligible for the mortgage loan modifications that various government 
programs offer.\129\

[[Page 10718]]

Apart from these programs, lenders and servicers often are unwilling to 
modify the terms of mortgage loans or forgive fees and penalties as an 
alternative to foreclosure.\130\ Even if lenders and servicers might be 
amenable to a modification, many MARS providers do little or no work 
for their customers, neglecting to contact their lenders or servicers 
or failing to respond to their requests for basic information.\131\
---------------------------------------------------------------------------

    \128\ See, e.g., each case in Appendix B.
    \129\ See, e.g., Manuel Adelino et al., Why Don't Lenders 
Renegotiate More Home Mortgages? Redefaults, Self-Cures, and 
Securitization 3 (July 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 2007and 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'').
    \130\  Id.; 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'').
    \131\ See supra notes 62-64.
---------------------------------------------------------------------------

b. Countervailing Benefits to Consumers and Competition
    In analyzing whether an act or practice is unfair, the Commission 
considers its benefits to consumers and competition in comparison to 
its harms. The comments received do not demonstrate that paying in 
advance for mortgage assistance relief services has any benefits to 
consumers. MARS providers, however, have argued generally that charging 
fees in advance is needed to protect them against the risks of 
nonpayment by consumers after delivery of the services.\132\ These 
providers point out that most consumers who purchase MARS are in 
financial distress, so they may not be willing or able to pay the 
amount owed, and that any judicial remedy against consumers for 
nonpayment is costly. MARS providers also argue that they require 
advance fees to pay their ongoing operating costs - e.g., for payroll, 
office space, and equipment - as well as the direct costs of seeking 
modifications for consumers, all of which they incur prior to obtaining 
the modifications.\133\ In short, MARS providers claim that it would be 
impossible or extremely difficult to provide mortgage assistance relief 
services if they could not charge advance fees, thus depriving 
consumers of the benefits of those services.
---------------------------------------------------------------------------

    \132\ TNLMA 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.''). Relatedly, one commenter expressed concern that 
consumers could ``game'' a back-end fee model by rejecting the loan 
modification secured by the provider (in exchange for the fee) and 
then simply approaching the lender directly to obtain the very same 
modification for free. Id.
    \133\ See, e.g., Gutner 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 at 5 (``[MARS providers] 
incur significant costs before the consumer's mortgage is ready to 
be modified.'').
---------------------------------------------------------------------------

    The Commission concludes that the record to date does not show that 
charging advance fees provides a benefit to consumers. As discussed 
above, few MARS providers perform the services or obtain the results 
promised and, therefore, consumers who pay in advance typically get 
nothing in return for their payments. The FTC also concludes that the 
record to date does not demonstrate that charging advance fees benefits 
competition or the extent of any such benefits, much less that any 
benefits to competition exceed the harms to consumers from the payment 
of advance fees. Nothing in the record bears on the nature and extent 
of the costs, if any, to MARS providers if they cannot operate without 
charging advance fees, e.g., by capitalizing their business. For 
example, the record does not address whether MARS providers would be 
unable to recoup their costs relatively quickly - by achieving promised 
results for some consumers and collecting the associated fees - even if 
they were prohibited from charging advance fees. The information the 
Commission has received and reviewed also does not address the extent 
to which consumers would not pay the money they are obligated to pay 
once the services are rendered, or that there are no other means by 
which providers could protect themselves from the risk of 
nonpayment.\134\ The Commission seeks comment and data bearing on the 
costs to MARS providers if they cannot charge advance fees for MARS, 
and the extent to which these costs would prevent them from offering 
services to consumers.
---------------------------------------------------------------------------

    \134\ In particular, the Commission seeks comment on the costs 
and benefits of allowing providers to request or require that 
consumers place advance fees in an independent third-party escrow or 
trust to eliminate the risk of nonpayment.
---------------------------------------------------------------------------

c. Reasonable Avoidability of Injury
    In considering whether an act or practice is unfair, the Commission 
also considers whether the harm from the practice is reasonably 
avoidable by consumers. Consumers can only reasonably avoid harm if 
they understand the risk of injury from an act or practice.\135\ 
Consumers also must have available to them an alternative means of 
avoiding the injury that is not unduly costly to them.\136\
---------------------------------------------------------------------------

    \135\ See In re Int'l Harvester Co., 104 F.T.C. at 1073 
(Unfairness Policy Statement); In re Orkin Exterminating Co., Inc., 
108 F.T.C. 263 at 366 (1986), aff'd, FTC v. Orkin, 849 F.2d 1354 
(11th Cir. 1988).
    \136\ In re Orkin Exterminating Co., Inc., 108 F.T.C. at 374-75 
(Oliver, Chm., concurring).
---------------------------------------------------------------------------

    There is nothing in the record that suggests consumers could 
reasonably avoid the substantial injury caused by having to pay advance 
fees for MARS. Consumers can avoid the injury only if they are aware of 
the risks of paying in advance. Especially in light of the prevalence 
of deception surrounding these services, consumers are unlikely to know 
of the substantial risk that the provider will not perform as promised.
    MARS providers also do not appear to compete on the basis of when 
fee collection takes place. Based on the current record, it appears 
that nearly all MARS providers charge up-front fees for their 
services.\137\ Thus, even if consumers were aware of the risk that MARS 
providers will not perform, as a practical matter they might not have 
the option of protecting themselves by choosing a provider that charges 
only after services are rendered. At the very least, the search costs 
in identifying such providers would pose a significant deterrent for 
consumers in financial distress. Thus, consumers who seek mortgage 
assistance relief services cannot reasonably avoid the substantial harm 
associated with being charged an advance fee for those services.
---------------------------------------------------------------------------

    \137\ Specifically, in its law enforcement actions, the 
Commission has not observed any MARS providers that did not charge 
up-front fees to consumers. See Appendix B. Additionally, none of 
the comments submitted in response to the ANPR cite any example of 
MARS providers employing a different fee model.
---------------------------------------------------------------------------

    In addition, consumers who have paid in advance, only to discover 
that the providers have not provided the promised services or result, 
typically cannot mitigate their harm by seeking a refund. Most MARS 
providers do not provide refunds to consumers;\138\ indeed, providers 
commonly make false claims about the availability of refunds.\139\ 
Ultimately, many consumers

[[Page 10719]]

of mortgage assistance services are never able to recover the amount of 
the advance payment they made to a MARS provider who neither performed 
promised services nor delivered promised results.\140\
---------------------------------------------------------------------------

    \138\ See supra note 59.
    \139\ Even if a MARS provider gave refunds, consumers would have 
been deprived of the use of the money they paid for their advance 
fee for the period of time from when the contract was signed until 
the refund was provided. Financially distressed consumers facing the 
prospect of losing their homes suffer injury from being deprived of 
the use of hundreds or thousands of dollars during this critical 
period of time when they are trying to stay current on their 
mortgages and pay other expenses. Thus, a refund would not eliminate 
the injury from having to make advance payments. It is established 
law under Section 5 that offering a refund is not a defense to a 
charge that a marketer misrepresented its product or service. See, 
e.g., FTC v. Think Achievement Corp., 312 F.3d 259, 261-62 (7th Cir. 
2002); FTC v. Pantron I Corp., 33 F.3d 1088, 1103 (9th Cir. 1994); 
In re Sears, Roebuck and Co., 95 F.T.C. 406, 518 (1980), aff'd, 676 
F.2d 385 (9th Cir. 1982).
    \140\ See, e.g., Door-to-Door Sales Rule Statement of Basis and 
Purpose, 40 FR at 53523 (``Consumers are clearly injured by a system 
which forces them to bear the full risk and burden of sales related 
abuses. There can be little commercial justification for such a 
system.'').
---------------------------------------------------------------------------

    Having paid in advance and not received a refund, the only 
remaining recourse consumers would have for a nonperforming MARS 
provider is to file a lawsuit for breach of contract, hardly a viable 
option for financially-distressed consumers who might be facing 
imminent foreclosure.\141\ Many consumers who are in financial distress 
are not sophisticated in legal matters and may not be aware that filing 
an action against the MARS provider for breach of contract is available 
as an alternative. More significantly, the cost of litigating makes it 
impossible or impractical for many consumers to seek legal recourse. 
Thus, the possibility of taking legal action does not sufficiently 
mitigate the harm to consumers from paying an advance fee.
---------------------------------------------------------------------------

    \141\ In re Orkin Exterminating Co., 108 F.T.C. 263 at 374-75 
(Oliver, Chmn., concurring) (suing for breach of contract is not a 
reasonable means for consumers to avoid injury).
---------------------------------------------------------------------------

    Based on the forgoing analysis, the Commission believes that 
charging an advance fee for mortgage assistance relief services is an 
unfair practice. The Commission reached the same conclusion in its TSR 
with respect to the charging of an advance fee for credit repair 
services, money recovery services, and guaranteed loans or other 
extensions of credit.\142\ As is true in this proceeding, the 
Commission found in the TSR proceeding that companies selling those 
products or services routinely misrepresented the services they would 
perform or the results they would achieve, and that consumers paying 
advance fees would incur all of the risk of nonperformance. The TSR 
therefore prohibits telemarketers of such products or services from 
charging an advance fee.\143\
---------------------------------------------------------------------------

    \142\ See Telemarketing Sales Rule Statement of Basis and 
Purpose, 68 FR 4580, 4614 (Jan. 29, 2003) (TSR Statement of Basis 
and Purpose).
    \143\ See 16 CFR 310.4(a). Note that, although the TSR declares 
the charging of advance fees in this context to be ``abusive'' - the 
term used in the Telemarketing Act - the Commission used the 
unfairness analysis set forth in Section 5(n) of the FTC Act to 
support this declaration. See TSR: Notice of Proposed Rulemaking, 67 
FR 4492, 4511 (Jan. 30, 2002).
---------------------------------------------------------------------------

d. 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. There are strong public policies against charging 
advance fees for MARS as shown by the 20 or more state laws that 
prohibit this practice because of its adverse effect on consumers.\144\ 
Consistent with these statutes and their law enforcement experience, 46 
states filed comments strongly advocating that the Commission issue a 
rule that prohibit the charging of advance fees for MARS.\145\ The 
Commission believes that these state laws provide further support for 
its finding that this practice is unfair.
---------------------------------------------------------------------------

    \144\ See supra note 76.
    \145\ See NAAG at 9; MN AG at 4; MA AG at 2; OH AG at 3.
---------------------------------------------------------------------------

2. The Advance Fee Ban to Help Prevent Deception
    As a second basis for imposing an advance fee ban, the Commission 
believes that such a ban is reasonably related to the goal of 
protecting consumers from widespread deception in the offering of MARS. 
The Commission has authority not only to prohibit conduct that is 
itself unlawful, but also may impose additional relief that is 
reasonably related to restraining unlawful conduct.\146\
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    \146\ The Commission exercises similar discretion in crafting 
orders to resolve law violations. Cf. FTC v. National 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.''); FTC v. 
Ruberoid, 343 U.S. 470, 473 (1952) (``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 by-passed 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.'').
---------------------------------------------------------------------------

    As detailed in Section II of this document, MARS providers commonly 
make claims as to the services they will provide or the results they 
will obtain. These claims induce consumers to pay up-front fees of 
hundreds or thousands of dollars for services and results the providers 
typically do not deliver. Because the likelihood of consumers pursuing 
judicial remedies against nonperformance is small, MARS providers have 
little incentive to perform, and in fact many do not.\147\ The advance 
fee ban proposed in Sec.  322.5 realigns the incentives of the MARS 
provider to deliver on its promises because it will not be paid until 
it does so.\148\ Thus, the ban would help to prevent the deceptive 
performance claims providers frequently make.\149\
---------------------------------------------------------------------------

    \147\ See supra notes 123-26.
    \148\ See, e.g., NAAG at 10 (``The risk of not receiving payment 
provides the strongest possible incentive for mortgage consultants 
to promptly and adequately provide all promised services. Plus, if 
the consultant provides good services and the consumer obtains an 
affordable loan modification, the consumer should be in a better 
position financially to pay the consultant.''); id. at 11 (``The 
incentives created for fraudulent companies to enter into this 
industry by allowing payment of advance fees cannot be mitigated 
through disclosures. The only way to ensure that companies are 
actually working for consumers is to require them to produce results 
before the consumers make payment.''); NCLC at 5, 8 (``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.''); 
MN AG at 4 (``A prohibition on up-front fees also provides the 
strongest incentive for loan modification and foreclosure rescue 
companies to provide adequate services. . . .'').
    \149\ Although the proposed Rule prohibits deceptive 
representations and mandates certain disclosures, there is no 
assurance that these remedies would be effective in every case, or 
that all providers will abide by them. An advance fee ban thus also 
may be needed to prevent deception. The Commission in the TSR 
prohibited the collection of advance fees from credit repair 
services, money recovery services, and guaranteed loans or other 
extensions of credit even though the Rule also banned deceptive 
claims and required disclosures in marketing those products and 
services. See TSR, 16 CFR 310.1, et seq.; TSR Statement of Basis and 
Purpose, 68 FR 4580.
---------------------------------------------------------------------------

3. The Ban on Advance Payments in the Proposed Rule
    Section 322.5(a) of the proposed Rule provides that:

 It is a violation of this rule for any mortgage assistance relief 
service provider to request or receive payment of any fee or other 
consideration until the provider has: (1) [a]chieved all of the results 
that: (i) [t]he provider represented, expressly or by implication, to 
the consumer that the service would achieve, and (ii) [a]re consistent 
with consumers' reasonable expectations about the service and (2) 
[p]rovided the consumer with documentation of such achieved results. . 
. .

The Commission intends for this provision to prevent a MARS provider 
from requesting or receiving any fees or any other form of 
compensation, including an equity stake in consumers' property, until 
it achieves the results that its claims cause consumers to expect or 
that consumers reasonably expect given the type of service sold. Thus, 
the performance that MARS providers must complete before collecting 
fees is those results that are

[[Page 10720]]

represented, expressly or by implication, to prospective consumers and 
that are consistent with the purpose for which the service is sold.
    Section 322.5(1)(i) prohibits a MARS provider from collecting a fee 
until it has achieved each result ``represented, expressly or by 
implication, to the consumer that the service would achieve.'' In 
determining what representations consumers take away from providers' 
communications, the Commission will employ its traditional tools of 
claims construction. Thus, an advertisement or other communication will 
be deemed to convey a claim if consumers, acting reasonably under the 
circumstances, would interpret the communication to convey that 
message.\150\ The message may be conveyed by innuendo as well as by 
express statements.\151\ The Commission looks to the overall, net 
impression created by the communication, rather than focusing on the 
individual elements in isolation.\152\ Information intended to qualify 
a claim must be presented in a clear and prominent manner; fine print 
disclosures in advertisements or contracts generally are ineffective to 
change the meaning of statements that appear in the body of a 
communication.\153\
---------------------------------------------------------------------------

    \150\ See Kraft, Inc., 114 F.T.C. 40, 120 (1991), aff'd, 970 
F.2d 311 (7th Cir. 1992).
    \151\ See Fedders Corp. v. FTC, 529 F.2d 1398, 1402-03 (2d 
Cir.).
    \152\ See Cliffdale Assocs., 103 F.T.C. at 179 & n.32 (Deception 
Policy Statement).
    \153\ Id. at 180-81 (``Written disclosures or fine print may be 
insufficient to correct a misleading representation. . . . Oral 
statements, label disclosures or point-of-sale material will not 
necessarily correct a deceptive representation or omission. Thus, 
when the first contact between a seller and a buyer occurs through a 
deceptive practice, the law may be violated even if the truth is 
subsequently made known to the purchaser. Pro forma statements or 
disclaimers may not cure otherwise deceptive messages or 
practices.''). To be effective, disclosures must be clear and 
conspicuous. See, e.g., Thompson Med. Co. v. FTC, 104 F.T.C. 648 
(1984), aff'd, 791 F.2d 189 (D.C. Cir. 1986); United States v. Bayer 
Corp., No. CV-00-132 (D.N.J. Jan. 11, 2000) (consent decree).
---------------------------------------------------------------------------

    In addition, under Sec.  322.5(a)(1)(ii), before a MARS provider 
can collect any payment, it also must achieve all those results that 
``are consistent with the consumers' reasonable expectations about the 
service.'' Using traditional principles of claim interpretation, the 
Commission believes that even general efficacy claims (e.g., ``our 
service will help you with your mortgage'') are likely to convey that 
consumers can expect to achieve a result consistent with the purpose of 
the product or service,\154\ that the result will be beneficial to 
them,\155\ and that the benefit will be substantial.\156\ Even in the 
absence of claims that a specific result will be achieved, reasonable 
consumers thus are likely to interpret an advertisement as promising 
results consistent with the purpose of the product or service.\157\ The 
act of offering the MARS for sale obligates the provider to achieve at 
a minimum results that are consistent with the results consumers 
reasonably expect to receive from such a service.\158\
---------------------------------------------------------------------------

    \154\ FTC v. Chrysler Corp., 561 F.2d 357 (D.C. Cir. 1977); Feil 
v. FTC, 285 F.2d 879, 885-87 & n.19 (9th Cir. 1960); In re J.B. 
Williams, 68 F.T.C. 481, 542-43 (1965).
    \155\ For example, in a legitimate short sale, the property is 
sold for a price that is less than the debt owed on the mortgage, 
but the lender agrees to take this lesser amount as full 
satisfaction of the debt. A short sale is intended to result in less 
damage to a consumer's credit rating than a foreclosure. Some 
purported ``short sales'' are detrimental to consumers, however. 
See, e.g., NCLC at 17-18 (expressing concern about ``short sale'' 
scams). Some MARS providers that purportedly help the consumer to 
sell the property ``short'' conceal the actual sale price amount 
from the lender, leaving the consumer liable for the difference and 
owing taxes on a larger forgiven balance than necessary. This would 
not be considered a beneficial result for the consumer, and thus the 
MARS provider could not collect a fee for it.
    \156\ An efficacy claim conveys to consumers that the result or 
benefit will be meaningful and not de minimis. See P. Lorillard Co. 
v. FTC, 186 F.2d 52, 57 (4th Cir. 1950) (challenging advertising 
that claimed that the cigarette was lowest in nicotine, tar and 
resins in part because the difference was, in fact, insignificant); 
Sun Co., 115 F.T.C. 560 (1992) (challenging advertising for octane 
gasoline that represented gas would provide superior power that 
would be significant to consumers); Guides Concerning the Use of 
Endorsements and Testimonials in Advertising, 16 CFR 255.2 (2009) 
(``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 actual, albeit variable, conditions of use.''); 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.'').
    \157\ See, e.g., In re International Harvester Co., 104 F.T.C. 
949, 1058-59 (1984) (implied representations may arise from 
``ordinary consumer expectations as to the irreducible minimum 
performance standards of a particular class of good,'' i.e., ``by 
the very act of offering goods for sale the seller impliedly 
represents that they are reasonably fit for their intended uses.'')
    \158\ Id.
---------------------------------------------------------------------------

    The proposed Rule mandates that providers achieve a defined result 
if they promise consumers a loan modification. Specifically, the 
Commission believes that a MARS provider's representation that it will 
negotiate, arrange, or obtain a loan modification (which may include 
modifying the interest rate, principal amount, or the term of the loan) 
implies to reasonable consumers that they will receive a reduction in 
their mortgage obligation, that the result will be permanent, and that 
the benefits will include a substantial decrease in the amount of their 
monthly payments for a meaningful period of time. Accordingly, Sec.  
322.5 provides that if a MARS provider makes an express or implied 
representation that it will ``negotiate, obtain, or arrange a 
modification of any dwelling loan,'' it must obtain a ``mortgage loan 
modification'' for the consumer before it can collect any fee or other 
consideration.
    Under proposed Sec.  322.5, the required ``mortgage loan 
modification'' that must be provided prior to payment is a permanent 
contractual change to the mortgage that substantially reduces the 
borrower's scheduled periodic payments. The reduction must be permanent 
for a period of at least five years or a reduction that will become 
permanent once the consumer successfully completes a trial period. Many 
MARS providers attempt to persuade consumers to accept repayment plans 
or forbearance agreements as a substitute for a promised loan 
modification.\159\ Such plans and agreements do not result in a 
permanent decrease in monthly payments, but tend to increase the amount 
that consumers owe each month on their mortgages, either immediately or 
in the near future when the forbearance period ends. Under the proposed 
Rule, a loan modification must reduce the consumer's scheduled periodic 
payments, and that reduction must be substantial, i.e., a meaningful 
reduction that makes the loan affordable for that consumer.
---------------------------------------------------------------------------

    \159\ See, e.g., FTC v. Loss Mitigation Servs., Inc., No. 
SACV09-800 DOC (ANX), Mem. In Supp. of Ex Parte TRO, Ex. 10 (C.D. 
Cal. filed July 13, 2009); FTC v. Fed. Loan Modification Law Ctr., 
LLP, No. SACV09-401 CJC (MLGx) (C.D. Cal. filed Apr. 3, 2009), Reply 
to Resp. Order to Show Cause at 7 (C.D. Cal. filed Apr. 22, 2009).
---------------------------------------------------------------------------

    The proposed ban on advance fees prohibits MARS providers from 
requesting or collecting advance fees for any represented service until 
all of the results promised, expressly or by implication, are 
delivered. This prevents MARS providers from charging for their 
services piecemeal.\160\ If, for

[[Page 10721]]

example, consumers reasonably expect that at the end of the process 
they will receive a particular outcome, such as a short sale or deed-
in-lieu of foreclosure transaction, the MARS provider cannot require 
the consumer to pay a fee for an initial consultation or subsequent 
fees on a periodic basis as it purportedly performs various steps to 
achieve that outcome. The provider cannot collect any fee until after 
the favorable result marketed ultimately has been achieved for the 
consumer.\161\
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    \160\ Without such a prohibition, MARS providers might attempt 
to charge consumers for discrete tasks that fall short of the full 
service or result promised, such as collecting a fee once they 
conduct an initial consultation with the consumer; review or audit 
the consumer's mortgage loan documents; gather financial or other 
information from the borrower; send an application or other request 
to the lender or borrower; facilitate communications between the 
borrower or servicer; or respond to particular requests from the 
lender or borrower on behalf of the consumer. See, e.g., NAAG 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.'').
    \161\ The MARS provider cannot evade this prohibition by 
refraining from making any explicit claim about the result it will 
achieve (such as a loan modification) and instead offering to 
provide specific mortgage relief-related services, such as a review 
of consumers' loan documents. Such offers are likely to convey to 
reasonable consumers that they will receive the ultimate result that 
is the purpose for which they are entering into the transaction. 
Thus, proposed Sec.  322.5(b) requires MARS providers to obtain the 
loan modification or other remedy before requesting or collecting 
any fee.
---------------------------------------------------------------------------

    Under proposed Sec.  322.5, MARS providers must provide the 
consumer with documentary proof of completed services and achieved 
results before requesting or collecting payment. The Commission intends 
for the required documentation to be the most comprehensive written 
instrument memorializing the loan holder's agreement to offer the 
represented concession to the consumer. In the case of promised loan 
modifications, the proposed Rule specifies that documentation must be a 
``written offer from the dwelling loan holder or servicer to the 
consumer.'' Likewise, the MARS provider must provide documentation in 
the form of a written offer from the lender or servicer setting forth 
other concessions, 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.
4. Alternatives to an Advance Fee Ban
    In proposing an advance fee ban, the Commission has considered and, 
at this stage, decided against imposing alternative restrictions on 
MARS providers. However, it seeks comment on these alternatives - in 
particular, on whether the Commission should: (1) limit or cap advance 
fees instead of banning them outright; (2) allow MARS providers to use 
independent third-party escrow accounts to hold fees until they achieve 
the results; and (3) include a right of rescission.
    First, the Commission seeks comment on whether, instead of banning 
fees outright, the proposed Rule should permit MARS providers to charge 
a small up-front fee or to collect fees as they perform services 
preliminary to obtaining the result that are commensurate with those 
services.\162\ As detailed above, the FTC believes that charging 
hundreds or thousands of dollars in advance for MARS is unjustified 
based on the current record. However, the Commission seeks comment on 
whether there are MARS providers currently operating that charge a 
small up-front fee (such as $50 - $100) or collect fees as they perform 
preliminary services, and then successfully deliver results to their 
customers. Based on the current record, the FTC is not aware of such 
entities.
---------------------------------------------------------------------------

    \162\ For example, Maine's statute regarding MARS providers 
limits them to a $75 up-front fee. See ME. REV. STAT. ANN. tit. 32, 
Sec.  6174-A.
---------------------------------------------------------------------------

    Second, the Commission seeks 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 an escrow account. Under 
this approach, an escrow agent could administer the account to ensure 
that MARS providers receive payment if and only if they successfully 
provide the ultimate results. Based on the Commission's law enforcement 
experience, as well as the views of state law enforcement officials and 
consumer groups,\163\ however, the Commission is concerned that MARS 
providers might improperly obtain access to MARS funds in escrow 
accounts.\164\ The Commission seeks comment on whether escrow accounts 
protect consumers adequately in other types of financial transactions, 
whether such escrows could be used in the context of mortgage 
assistance relief services and, if so, what restrictions or limitations 
should be placed on their use.
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    \163\ See, e.g., NAAG at 10 (``By fees, we mean any transfer of 
money whatsoever from consumers to consultants. This includes monies 
placed in escrow, holds placed on credit cards, and checks that are 
post-dated.''); NCLC at 4 (``Companies should not be permitted to 
evade an advance fee ban by taking the money `in trust' until the 
`services' are performed.'').
    \164\ See, e.g., FTC v. US Foreclosure Relief Corp., No. SACV09-
768 JVS (MGX), Decl. Thomas Layton (C.D. Cal. filed July 16, 2009) 
(stating that attorney improperly transferred 90% of funds from 
client trust accounts associated with loan modification services to 
other non-attorney business partners).
---------------------------------------------------------------------------

    Third, the Commission seeks comment on whether the proposed Rule 
should include a right of rescission. A right of rescission, often 
called a ``cooling-off period,'' would allow consumers to cancel their 
agreements with a MARS provider for a certain period after entering 
into the agreement. Several commenters recommended that the Commission 
include such a provision in the proposed Rule.\165\ Additionally, most 
state MARS statutes provide a right of cancellation.\166\ In light of 
the acute financial and emotional distress faced by consumers of 
MARS,\167\ consumers often may not have or take the time needed, or 
obtain the information necessary, to consider carefully their options 
before deciding to purchase these services.\168\ A right of rescission 
would serve to provide consumers with additional time to make 
decisions.
---------------------------------------------------------------------------

    \165\ See, e.g., NAAG at 9; MN AG at 3-4; NCLC at 12; CRC at 4-
5.
    \166\ See supra note 76.
    \167\ See MARS ANPR, 74 FR at 26134-35.
    \168\ The Commission has previously issued regulations providing 
for a rescission period in circumstances in which the context of the 
transaction made it difficult for consumers to make well-informed 
purchasing decisions. See Door-to-Door Sales Rule, 16 CFR 429.1, et 
seq.; Trade Regulation Rules: Mail or Telephone Order Merchandise 
(Mail Order Rule), 16 CFR 435.1(c) (1993); see also Door-to-Door 
Sales Rule Statement of Basis and Purpose, 37 FR 22943, 22937.
---------------------------------------------------------------------------

    At this time, the Commission believes that a right of rescission is 
not needed to protect consumers if MARS providers are banned from 
collecting advance fees. The Commission seeks comment on whether a 
right of rescission would be adequate to protect consumers in lieu of 
an advance fee ban or, alternatively, whether it would be beneficial to 
consumers as a complement to an advance fee ban. It also seeks comment 
on, to the extent such a provision were included in the Rule, the 
appropriate period of time after consumers enter into the agreement 
that they should be able to rescind their agreements with MARS 
providers.

F. Section 322.6: Assisting and Facilitating

1. Background
    Many MARS providers engaged in deceptive or unfair practices rely 
on, or work in conjunction with, other entities to advertise and 
operate their businesses. These entities may provide a wide variety of 
critical support and assistance, including advertising services, 
telemarketing and other marketing support,\169\ payment

[[Page 10722]]

processing,\170\ and the back-end handling of consumer files.\171\ In 
providing this support and assistance, such entities often know, or 
consciously avoid knowing, that the MARS providers whom they assist are 
engaging in deceptive or unfair conduct.\172\
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    \169\ See, e.g., FTC v. Kirkland Young, LLC, No. 09-23507, Mem. 
Supp. of Emer. Mot. for TRO at 9 (S.D. Fla. filed Nov. 24, 2009).
    \170\ See, e.g., FTC v. Loss Mitigation Servs., Inc., No. 
SACV09-800 DOC (ANX), Pls. Opp. Mot. Decl. Relief at 5 (C.D. Cal. 
filed Nov. 20, 2009) (alleging that payment processor for defendant 
loan modification company had ``actual knowledge that the credit 
card charges [it] processed for [the defendant] were for advance 
fees in violation of relevant consumer protection laws''). In other 
industries, the FTC has sued payment processors for charging 
consumers for products or services despite indications that those 
products or services were illusory. See, e.g., FTC v. InterBill, 
Ltd., No. 06-cv-01644-JCM-PAL (D. Nev. Jan. 8, 2007); FTC v. Your 
Money Access, LLC, No. 07-5174 (E.D. Pa. filed Dec. 11, 2007).
    \171\ See, 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).
    \172\ See supra notes 170-71.
---------------------------------------------------------------------------

    MARS providers, for example, often purchase the contact information 
of potential customers from so-called ``lead generators.'' These lead 
generators, in turn, often rely on a network of Internet advertisers to 
drive traffic to their websites so that they can obtain consumers' 
information.\173\ Lead generators have provided contact information of 
potential customers to many of the MARS providers that the Commission 
has challenged in its law enforcement actions.\174\ Additionally, some 
lead generators themselves disseminate claims to consumers, and the 
Commission has challenged some of these claims as deceptive in 
violation of Section 5 of the FTC Act.\175\
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    \173\ Additionally, advertising affiliate network companies may 
serve as intermediaries between individual advertisers and lead 
generator websites.
    \174\ See, e.g., FTC v. Kirkland Young, LLC, No. 09-23507, Mem. 
Supp. of Emer. Mot. for 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).
    \175\ See 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. Thomas Ryan, No. 1:09-
00535 (HHK) (D.D.C. filed Mar. 25, 2009); FTC v. Sean Cantkier, No. 
1:09-cv-00894 (D.D.C. amended complaint filed July 10, 2009). The 
Commission also has alleged the involvement of lead generators in 
deception and abusive practices in other contexts, including 
deceptive or abusive telemarketing and payday lending practices. 
See, e.g., We Give Loans, Inc., Docket No. C-4232, FTC File No. 072 
3205 (FTC Sept. 5, 2008) (complaint) (payday loans); United States 
v. Voice-Mail Broad. Corp., No. CV-08 MMM (JTLx) (C.D. Cal. filed 
Jan. 29, 2008) (telemarketing).
---------------------------------------------------------------------------

    To address the conduct of those who provide key support to MARS 
providers engaged in unlawful conduct, the proposed Rule prohibits 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. Proposed 
Sec.  322.6 thus would allow FTC and state law enforcement officials to 
obtain monetary and injunctive relief against those who knowingly help 
MARS providers engaged in conduct that harms consumers. The Commission 
believes that (1) it is an unfair act or practice to knowingly or with 
conscious avoidance provide substantial assistance or support to those 
engaged in unlawful conduct; and (2) prohibiting such assistance is 
reasonably related to the goal of preventing the deceptive or unfair 
practices of MARS providers.
2. Substantial Assistance or Support as an Unfair Practice
    Applying the three-prong test under Section 5(n) of the FTC Act, 
the Commission tentatively concludes that it is unfair to knowingly (or 
with conscious avoidance) provide substantial assistance or support to 
a MARS provider engaged in violations of the proposed Rule. A person 
engaged in such conduct causes substantial injury to consumers that is 
not offset by benefits to consumers or competition, and consumers 
cannot reasonably avoid the injury.\176\
---------------------------------------------------------------------------

    \176\ In law enforcement actions, the Commission has alleged 
that entities that offered substantial assistance to another engaged 
in unlawful acts were themselves engaged in unfair practices in 
violation of Section 5 of the FTC Act. See, e.g., FTC v. InterBill, 
Ltd., No. 06-cv-01644-JCM-PAL (D. Nev. filed Jan. 8, 2007); FTC v. 
Your Money Access, LLC, No. 07-5174 (E.D. Pa. filed Dec. 11, 2007). 
Federal court decisions have held that such conduct is unfair in 
violation of Section 5. See, e.g., FTC v. Neovi, Inc., 598 F. Supp. 
2d 1104 (S.D. Cal. 2008) (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).
---------------------------------------------------------------------------

    Persons who knowingly provide substantial assistance or support to 
a MARS provider engaged in unlawful practices significantly enhance the 
provider's ability to engage in the conduct and greatly increase the 
scope of the injury the practices cause. For example, a lead generation 
company may possess the contact information of thousands of consumers 
that otherwise might be unavailable to a small MARS provider. The MARS 
provider could use that information to target in a cost-effective 
manner many more consumers with deceptive marketing advertisements or 
pitches than it could in the absence of such information. Thus, 
entities such as lead generators often play a key role in enabling MARS 
providers to promote their services widely, leading to substantial 
injury to consumers if those providers collect advance fees but fail to 
deliver on their promises.
    The Commission is not aware of any benefits to consumers or 
competition from knowingly assisting or supporting providers in 
violating the proposed Rule. The Commission seeks comment on whether 
there are benefits to consumers or competition from this conduct and, 
if so, whether those benefits outweigh the harms they cause to 
consumers.
    Finally, the substantial injury caused by knowingly providing 
substantial assistance or support in this context is not reasonably 
avoidable by consumers. Consumers do not know that the MARS providers 
with whom they contract are engaged in unlawful conduct, much less 
those who assist or facilitate the providers.
3. Prohibiting Substantial Assistance or Support to Prevent Deception
    The Commission believes that proposed Sec.  322.6 is warranted for 
the purposes of preventing deceptive and unfair conduct by MARS 
providers. As noted above, MARS providers frequently rely upon the 
assistance and support of other entities for essential tasks such as 
identifying potential customers, marketing, back-room operations, and 
payment processing. These support entities make it possible for 
deceptive MARS providers to efficiently target, enroll, and process 
consumers on a wide scale. Prohibiting the knowing substantial 
assistance or support of MARS providers engaged in illegal acts is 
reasonably related to preventing deceptive or unfair practices by MARS 
providers.
4. The Proposed Provision
    Section 322.6 of the proposed Rule prohibits any person 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 the Rule.'' This provision 
is modeled on a similar provision in the TSR.\177\
---------------------------------------------------------------------------

    \177\ See 16 CFR 310.3(b). The Telemarketing Sales Act gave the 
Commission the express authority to prohibit assisting and 
facilitating another in violating the TSR. Although the Omnibus 
Appropriation Act, as clarified by the Credit CARD Act, did not 
provide comparable authority, the Commission believes, as discussed 
earlier, that assisting and facilitating another in violating the 
MARS Rule is itself an unfair act or practice, and in addition that 
prohibiting this conduct is reasonably related to the goal of 
preventing unfair and deceptive conduct.

---------------------------------------------------------------------------

[[Page 10723]]

    Proposed Sec.  322.6 is limited to persons providing substantial - 
i.e., more than casual or incidental - assistance or support to MARS 
providers.\178\ Activities that might constitute substantial assistance 
or support include the provision of consumer leads,\179\ contact lists, 
advertisements, or promotional materials.\180\ Such activities also 
might include the support provided by payment processors\181\ and other 
entities providing essential backroom operations.
---------------------------------------------------------------------------

    \178\ See TSR Statement of Basis and Purpose, 60 FR 43842, 43852 
(``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.'').
    \179\ See, e.g., FTC v. Patten, No. 08-5560 (N.D. Ill. filed 
Sept. 29, 2008).
    \180\ See id.
    \181\ See, e.g., FTC v. Your Money Access, LLC, No. 07-5174 
(E.D. Pa. filed Dec. 11, 2007).
---------------------------------------------------------------------------

    In addition, proposed Sec.  322.6 is limited to persons who know or 
consciously avoid knowing that the MARS provider is violating the Rule. 
As the Commission concluded in the context 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 seller or telemarketer is engaged in an act or 
practice that violates [the Rule].''\182\ Proposed Sec.  322.6 
similarly excludes entities that provide basic support and services to 
MARS providers, but have no reasonable way of knowing that the 
providers are engaged in conduct in violation of the Rule.
---------------------------------------------------------------------------

    \182\ TSR Statement of Basis and Purpose, 60 FR at 43852.
---------------------------------------------------------------------------

G. Section 322.7: Exemptions

    Section 322.7 of the proposed Rule addresses the applicability of 
the Rule's provisions to attorneys who are MARS providers. There is no 
general exemption for attorneys from the requirements of the proposed 
Rule. The Commission, however, proposes a limited exemption for 
licensed attorneys' conduct in connection with a bankruptcy case or 
other court proceeding to prevent foreclosure, where that conduct 
complies with state law, including rules regulating the practice of 
law. Attorneys who meet these criteria would be exempt from the 
proposed Rule's prohibitions against requesting or collecting advance 
fees. Additionally, attorneys would be exempt from the Rule's 
prohibition against advising consumers to cease contact with their 
lenders or servicers. Note, however, that all attorneys would continue 
to be subject to the proposed Rule's prohibition against 
misrepresentations, disclosure requirements, prohibition against 
knowing substantial assistance or support, and recordkeeping 
requirements.
1. Background
    As discussed in Section II, an increasing number of attorneys have 
engaged in deception and unfairness in connection with mortgage 
assistance relief services.\183\ For example, in its written comment, 
the Illinois Attorney General reported 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.''\184\ Including attorneys 
within the proposed Rule is necessary to ensure that the rule is 
effective in preventing such conduct.
---------------------------------------------------------------------------

    \183\ See supra notes 46-48, 66-68. In fact, the State Bar of 
California recently reported a ``crisis'' of attorney misconduct, 
noting that it ``has experienced a 58 percent increase in active 
investigations over 2008 due in large part to the huge increase in 
complaints against attorneys offering loan modification services.'' 
See Press Release, State Bar of California, State Bar Takes Action 
to Aid Homeowners in Foreclosure Crisis (Sept. 18, 2009), available 
at (http://www.calbar.ca.gov/state/calbar/calbar_generic.jsp?cid=10144&n=96395); see also CRC at 6.
    \184\ IL AG at 1.
---------------------------------------------------------------------------

    The Commission, however, recognizes that legal counsel may be 
valuable to some consumers who are trying to save their homes. 
Frequently, consumers will turn to attorneys for legal assistance with 
bankruptcy or other legal proceedings regarding their mortgage.\185\ 
Consumers also may seek legal advice that may not necessarily be 
connected to a legal proceeding. For example, attorneys may conduct a 
review of mortgage contracts to determine legal options and 
obligations, which may aid the attorney in negotiating with a servicer 
on behalf of a consumer.\186\ Under the proposed Rule, in the absence 
of an exemption, attorneys would be prohibited from using certain 
methods of collecting fees when they provide MARS to consumers. For 
example, attorneys representing clients in bankruptcy and other court 
proceedings often collect advance fees in the form of retainers, which 
usually must be placed in escrow.\187\ Section 322.5 of the proposed 
Rule would prohibit the collection of such fees. In addition, attorneys 
performing bona fide legal services routinely advise clients to cease 
any direct communication with outside parties, such as lenders and 
servicers, and to refer all communications from these outside parties 
to the attorneys. Section 322.3(a) of the proposed Rule bars giving 
this instruction to consumers.
---------------------------------------------------------------------------

    \185\ See, e.g., NCLC at 14 (noting that attorneys could 
``fil[e] a bankruptcy petition or. . . suit challenging a predatory 
loan or a defense to foreclosure'' and provide other non-litigation 
legal services including ``negotiating a settlement with a 
lender''); OH AG at 5 (``The knowledge an attorney has of his or her 
state's foreclosure law can properly help borrowers navigate the 
foreclosure process.''); MA AG at 7 (noting that ``a competent and 
ethical attorney can be a valuable asset to a homeowner trying to 
avoid foreclosure'').
    \186\ See NCLC 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'').
    \187\ See, e.g., MODEL RULES OF PROF'L CONDUCT R. 1.15 (2009).
---------------------------------------------------------------------------

    In the Commission's view, the present record\188\ does not support 
a broad exemption for attorneys. Some attorneys have engaged in various 
forms of deceptive and unfair conduct in conducting activities covered 
by the proposed Rule. First, some attorneys have engaged in the same 
deceptive practices as non-attorney MARS providers, i.e., failing to 
provide promised services, falsely touting high likelihoods of success, 
misrepresenting their refund policies, and falsely claiming an 
affiliation with the government or other entities.\189\ Second, some 
MARS providers have begun employing or associating with attorneys to 
(1) support the MARS providers' (often false) claims that they provide 
legal services and (2) try to avail themselves of attorney exemptions 
under various state laws governing MARS.\190\ In such attorney-MARS

[[Page 10724]]

provider arrangements, the attorneys often do little or no legal work 
on behalf of consumers,\191\ with non-attorneys handling most 
functions, including communications with the lender or servicer.\192\ 
The Commission's law enforcement experience, as well as that of state 
attorneys general, indicates that MARS providers often induce consumers 
to believe that they will receive specialized legal assistance from 
attorneys, even though the attorneys have done little more than lend 
their names and credentials to the operation.\193\
---------------------------------------------------------------------------

    \188\ Note that the Commission did not receive any comments in 
response to its ANPR from attorneys or organizations representing 
attorneys addressing the role of attorneys in connection with 
providing loan modification services. To have a complete and 
accurate understanding of the role of attorneys in connection with 
loan modification services, the Commission seeks comment from 
attorneys and other interested parties on this issue.
    \189\  See supra notes 46-47; see also, e.g., NAAG at 13 (``We 
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.''); Drexel Testimony, 111th Cong. 
1st Sess. at 6 (``[A] certain number of attorneys are willing to 
engage in these fraudulent activities on their own.'').
    \190\ See IL AG at 2 (``Attorneys are using the exemption to 
market and sell the same mortgage consulting services provided by 
non-attorneys.''); CSBS 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 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 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.''); California 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.''); FTC v. Loss 
Mitigation Servs., Inc., No. SACV09-800 DOC (ANX), Mem. Supp. Pls. 
Ex Parte App. at 3 (C.D. Cal. 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'').
    \191\ See, e.g., IL AG 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.
    \192\ See, e.g., Chase 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 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.''); 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 California, State Bar Takes Action to Aid Homeowners in 
Foreclosure Crisis (Nov. 25, 2009) (``[T]he attorneys work with 
untrained non-attorney 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); FTC v. LucasLawCenter ``Inc.,'' No. 
SACV-09-770 DOC (ANX) (C.D. Cal. filed July 7, 2009).
    \193\ See, e.g., supra note 46; see also CMC 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 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 at 2.
---------------------------------------------------------------------------

    Many state MARS statutes contain relatively broad exemptions for 
attorneys. For example, some states exempt attorneys so long as they 
are licensed in the same state as the borrower or have an attorney-
client relationship with the borrower.\194\ Attorneys offering MARS 
often have flouted various state bar rules, however.\195\ In many 
cases, these attorneys have not been licensed to practice law in the 
states where consumers who purchase the MARS reside.\196\ In addition, 
given that attorneys purporting to provide MARS often play little or no 
role in counseling or negotiating on behalf of borrowers, they may 
violate state bar requirements that they provide bona fide legal 
services to their clients.\197\ Attorneys also allegedly have engaged 
in prohibited affiliation arrangements with non-attorneys such as fee-
splitting, providing or taking referral fees, and assisting or 
supporting others in the unauthorized practice of law.\198\ In 
response, state bars have initiated numerous investigations of 
attorneys engaged in MARS and, in some cases, have brought misconduct 
cases against them.\199\
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    \194\ See, e.g., COLO. REV. STAT. Sec.  6-1-1103(4)(b)(I); 765 
IL. COMP. STAT. ANN. 940/5; Mo. Rev. Stat. Sec.  407.935(2)(b)a; see 
also, e.g., NAAG at 13 (``Currently, most states exempt attorneys 
from their mortgage rescue consultant laws.''); CMC at 9-10.
    \195\ See generally, e.g., Cincinnati Bar Assoc. v. Mullaney, 
119 Ohio St. 3d 412 (2008) (sanctioning attorneys engaged in 
mortgage assistance relief service for, inter alia, engaging in the 
unauthorized practice of law, fee sharing with nonlawyers, and 
failing to provide adequate legal services); CRC at 2 (``An 
increasing number of attorneys are involved themselves in these 
unethical practices without providing any legal (or other) services, 
sometimes engaging in fee-splitting or even simply acting as a front 
for loan modification companies who are seeking to avoid state laws 
that prohibit some of the practices described above but exempt 
attorneys.'').
    \196\ See, e.g., 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. . . .''); see 
also MODEL RULES OF PROF'L CONDUCT R. 5.5 (2009).
    \197\ See, e.g., CSBS at 2; Chase at 5; CMC at 9-10; OH AG at 5.
    \198\ CSBS at 2; California State Bar Ethics Alert at 2 (``Many 
of the proposed relationships between these foreclosure consultants 
and lawyers violate the Rules of Professional Conduct and other 
ethical rules and, therefore, could result in lawyer discipline.''); 
see also, e.g., California Rules of Professional Conduct R. 1-310 
(prohibiting partnerships with non-attorneys); id. R. 1-310 
(prohibiting fee sharing with non-attorneys); id. R. 1-300(A) 
(prohibiting aiding in unauthorized practice of law.).
    \199\ See, e.g., Press Release, State Bar of California, 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); Florida 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, e.g., Cincinnati Bar Assoc. v. Mullaney, 119 Ohio St. 3d 
412 (2008) (disciplining attorneys involved in mortgage assistance 
relief services).
---------------------------------------------------------------------------

    Most of the public comments filed in response to the ANPR that 
addressed this issue recommended that the Commission not grant a broad 
exemption for attorneys because of concerns that they may continue to 
engage in deceptive and unfair practices related to mortgage assistance 
relief services.\200\ NAAG, for example, urged the Commission to 
provide no exemption for attorneys engaged in MARS.\201\
---------------------------------------------------------------------------

    \200\ See, e.g., IL AG at 1 (``We believe that any rule-making 
should not include a categorical attorney exemption. . . .'').
    \201\ NAAG at 13. One commenter also argued against an exemption 
for attorneys because it ``is likely to create an environment where 
more companies organize themselves as exempted classes,'' whereas 
``[a]n effective rule will not create loopholes that will only be 
readily exploited, nor will it create unfair competition by creating 
less-accountable classes of loan modification or foreclosure rescue 
companies.'' NCRC at 5.
---------------------------------------------------------------------------

2. Proposed Exemption
    Most comments advocated a narrow exemption limited to certain types 
of practice or conduct by attorneys.\202\ With regard to the 
prohibition on collecting advance fees, the Commission proposes to 
exempt only those attorneys who are in compliance with state law, 
including state bar rules, and only for the provision of specific, 
limited legal services. Such a narrowly-tailored exemption seeks to 
strike a balance that would protect consumers from unfair or deceptive 
conduct by attorneys who are

[[Page 10725]]

engaged or otherwise involved in the practice of selling MARS, while at 
the same time preserve the ability of attorneys to provide bona fide 
legal services to homeowners.
---------------------------------------------------------------------------

    \202\ To the extent that commenters supported any exemption for 
attorneys, they largely supported a very limited exemption along the 
lines of the one in the proposed Rule. See, e.g., IL AG at 9 (``We 
continue to support a limited exemption for attorneys who render 
legal services on behalf of consumers in the course of serving as 
the attorney of record in bankruptcy or foreclosure proceedings.'') 
(emphasis in original); Shriver at 3 (recommending that ``attorneys 
engaged in judicial foreclosure proceedings should remain exempt at 
the federal level since they are already regulated [by state law] 
and supervised [by state bar associations]''); 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.''); MA AG at 9 
(recommending that the Commission adopt a provision similar to 
Massachusetts state law, described infra note 206).
---------------------------------------------------------------------------

    The Commission's limited exemption for attorneys in proposed Sec.  
322.7 applies only if the attorney is ``providing legal counsel in 
connection with preparing or filing (i) a bankruptcy petition or any 
other document that must be filed in a bankruptcy proceeding; or (ii) 
any document that must be filed in connection with a court or 
administrative proceeding.'' The preparation and filing of bankruptcy 
petitions and other documents for court proceedings is part of the bona 
fide practice of law. In addition, limiting the attorney exemption in 
the Rule to these concrete and specific legal services makes it easier 
for federal and state law enforcement officials to determine whether an 
attorney in fact qualifies for the exemption. For example, the 
exemption clearly does not cover attorneys who primarily offer to 
obtain loan modifications for consumers outside of a formal legal 
proceeding. Further, the Commission intends for this exemption to cover 
only attorneys who actually provide the specified legal services for a 
borrower; it would exclude attorneys that merely market the possibility 
of doing so.\203\
---------------------------------------------------------------------------

    \203\ In one recent lawsuit by the Commission, the defendants 
represented to consumers that ``they [were] a law firm with 
attorneys in several states offering loan modification, Chapter 13 
bankruptcy, and Chapter 7 bankruptcy.'' FTC v. Washington Data Res., 
Inc., No. 8:09-cv-02309-SDM-TBM (M.D. Fla. filed Nov. 12, 2009). 
Despite any such marketing claims, if the attorney associated with a 
provider fails to work with the borrower to prepare a bankruptcy 
petition, or instead only seeks a loan modification for the borrower 
outside of any bankruptcy or other court proceedings, he or she 
would still be prohibited from requesting or receiving an advance 
fee under the proposed Rule.
---------------------------------------------------------------------------

    Moreover, the limited exemption for attorneys from the advance fee 
ban applies only if the attorney ``complies with all applicable state 
laws, including licensing regulations.'' If an attorney is not licensed 
to practice in the state, there is no reason the proposed Rule should 
not apply to the attorney's activities to the same extent as any other 
MARS provider. If an attorney is licensed to practice in a state, the 
attorney would be exempt under the proposed Rule only if he or she 
complies with state law, including state bar rules. Several commenters 
advocated the inclusion of such a requirement to protect consumers from 
unfair and deceptive conduct of attorneys that would violate state 
ethics and other rules governing attorneys.\204\ For example, a 
frequent characteristic of MARS attorneys engaged in deception is that 
they offer services to borrowers outside of the state in which they are 
licensed.\205\ Under the proposed Rule, such an attorney would not be 
exempt from the rule.
---------------------------------------------------------------------------

    \204\ See, e.g., OH AG at 5 (recommending that the exception 
only apply where the attorney has a legitimate attorney-client 
relationship with the consumer, which would require the attorney to 
provide legal services to the consumer and to be properly licensed 
in the state where he or she would be providing legal services); MA 
AG at 7-8; NCLC at 15; Chase at 5; CMC at 10; NCLC at 15.
    \205\ See supra note 196.
---------------------------------------------------------------------------

    Finally, proposed Sec.  322.7 only exempts attorneys from those 
parts of the proposed Rule that interfere with the attorneys' provision 
of traditional, bona fide legal services to homeowners. Attorneys would 
be exempt from the advance fee ban in proposed Sec.  322.7.\206\ 
Attorneys performing the services within the scope of the exemption 
often collect advance fees in the form of retainers, which usually must 
be placed in escrow.\207\ There is no indication that this practice 
generally has caused problems for consumers.
---------------------------------------------------------------------------

    \206\ Proposed Sec.  322.7 resembles a similar provision in the 
Massachusetts state mortgage assistance relief rules. The 
Massachusetts provision provides, in relevant part, ``It is an 
unfair or deceptive act. . . to solicit, arrange, or accept an 
advance fee in connection with offering, arranging or providing 
Foreclosure-related Services; provided, however, that [this 
provision] shall not prohibit a licensed attorney from soliciting, 
arranging or accepting an advance fee or retainer for legal services 
in connection with the preparation and filing of a bankruptcy 
petition, or court proceedings, to avoid a foreclosure. Provided 
further, however, that a licensed attorney accepting an advance fee 
or legal retainer must comply with all applicable laws and 
regulations pertaining to such fees, including the Massachusetts 
Rules of Professional Conduct. . . .'' 940 MASS. CODE REGS. Sec.  
25.02.
    \207\ See, e.g., MODEL RULES OF PROF'L CONDUCT R. 1.15 (2009).
---------------------------------------------------------------------------

    The Commission recognizes that this narrow exemption would not 
apply to attorneys providing MARS to consumers outside of the 
bankruptcy or litigation context, and therefore might deter some 
attorneys from providing legitimate assistance to consumers, for 
example, by calling lenders or servicers on their behalf. There is 
nothing in the record, however, indicating how many attorneys provide 
these types of services and whether an advance fee ban would deter them 
from helping consumers. In addition to providing a limited exemption 
from the prohibition on advance fees, proposed Sec.  322.7 exempts 
lawyers from the proposed Rule's prohibition against instructing 
consumers to cease communications with their lenders or servicers, so 
long as the lawyer is licensed to practice law in the state where the 
consumers resides. The Commission is concerned that the narrowness of 
the exemption could interfere with the ability of attorneys to offer 
counsel and advice to their clients. Therefore, it seeks comment on 
whether this exemption is justified and whether it would be possible to 
tailor it differently to curb unfair or deceptive acts or practices 
engaged in by attorneys providing MARS, without preventing or deterring 
the provision of legitimate legal services.\208\
---------------------------------------------------------------------------

    \208\ The Commission also seeks comment and data bearing on 
whether other professionals, such as financial planners, advise 
consumers on obtaining loan concessions from their lenders or 
servicers, and whether the proposed Rule would interfere with their 
provision of MARS. The Commission further requests comment on 
whether the proposed Rule should contain a limited exemption for 
these professionals.
---------------------------------------------------------------------------

H. Section 322.8: Waiver

    Section 322.8 of the proposed Rule provides 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.'' The Commission believes that this provision is 
necessary to prevent MARS providers from attempting to circumvent the 
proposed Rule. Several states include similar provisions in their 
statutes restricting MARS.\209\
---------------------------------------------------------------------------

    \209\ See supra note 76.
---------------------------------------------------------------------------

I. Section 322.9: Recordkeeping and Compliance Requirements

    Section 322.9(a) of the proposed Rule sets forth specific 
categories of records MARS providers must retain.\210\ A failure to 
keep such records is an independent violation of the Rule.\211\
---------------------------------------------------------------------------

    \210\ The proposed recordkeeping requirements are modeled after 
those set forth in the TSR Statement of Basis and Purpose, 60 FR at 
43841. As explained below, the required documents include records of 
transactions with consumers, scripts, advertisements, and related 
promotional materials. The Telemarketing Sales Act expressly 
authorized the Commission to impose recordkeeping requirements. 
Although the Omnibus Appropriation Act, as clarified by the Credit 
CARD Act, did not give comparable authority to the Commission, the 
Commission believes that the proposed recordkeeping requirements are 
reasonably related to the goal of preventing unfair and deceptive 
conduct.
    \211\ Proposed Sec.  322.9(c). See 16 CFR 310.5(b) (``Failure to 
keep all records required. .. shall be a violation of [the TSR].''); 
TSR Statement of Basis and Purpose, 60 FR at 43857 (``[I]f a 
deceptive telemarketer or seller were to destroy records, law 
enforcement agencies still would be able to charge them with 
violating Sec.  310.5(b), which makes the failure to maintain all 
the required records a violation of the Rule.'').
---------------------------------------------------------------------------

    Specifically, for a period of 24 months from the date the record is 
produced, MARS providers must keep the following records:
    (1) All contracts or other agreements between the provider and any 
consumer for any mortgage assistance relief service;

[[Page 10726]]

    (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 of any mortgage 
assistance relief service;
    (3) Copies of all documents or telephone recordings created in 
connection with compliance with paragraph (b) of the section, which 
sets forth requirements to monitor employees' and independent 
contractors' compliance with the proposed Rule;
    (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 such information is 
obtained 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 as 
specified in Sec.  322.5 of this rule.
    The Commission believes the record establishes the need to propose 
these recordkeeping requirements. As discussed throughout this 
document, the MARS industry appears to be permeated with deception and 
unfair practices, targeting financially vulnerable consumers. 
Accordingly, strong recordkeeping provisions seem essential to ensure 
effective and efficient enforcement of the Rule and to identify injured 
consumers.\212\
---------------------------------------------------------------------------

    \212\ NCLC notes that HUD's criteria for approving housing 
counselors under the HUD Housing Counseling Program include strong 
recordkeeping provisions. NCLC at 7. These recordkeeping provisions 
include the retention of client files. See Mortgage and Loan 
Insurance Programs Under the National Housing Act and Other 
Authorities, 24 CFR 214.315(b) (2007). As HUD explained in its 
regulation: ``The system must permit HUD to easily access all 
information needed for a performance review.'' Id. at 214.315(a). 
The recordkeeping requirements proposed by the Commission - focusing 
largely on documents pertaining to transactions between the provider 
and client - are similar and will enable the Commission efficiently 
to obtain evidence of compliance with the proposed Rule. See TSR 
Statement of Basis and Purpose, 60 FR at 43875 (``A record retention 
requirement is necessary to enable law enforcement agencies to 
ascertain whether sellers and telemarketers are complying with the 
requirements of the Final Rule, to identify persons who are involved 
in any challenged practices, and to identify customers who may have 
been injured.''); cf. Franchise Rule, 16 CFR 436.6(h) (``Franchisors 
shall retain, and make available to the Commission upon request, a 
sample copy of each materially different version of their disclosure 
documents for three years after the close of the fiscal year when it 
was last used.''); id. at 436.6(i) (``For each completed franchise 
sale, franchisors shall retain a copy of the signed receipt for at 
least three years.''); Funeral Industry Practices (Funeral Rule), 16 
CFR 453.6 (1994) (requiring funeral providers to retain copies of 
price lists and statements of funeral goods and services for at 
least one year).
---------------------------------------------------------------------------

    At the same time, the Commission is mindful that recordkeeping 
provisions impose compliance costs. To reduce the compliance burden, 
the proposed provisions require that MARS providers generate and keep 
documents they likely already retain in the ordinary course of their 
business.\213\ In addition, proposed Sec.  322.9(c) states that 
providers may keep the records in any form and in the same manner, 
format, or place as they keep records in the ordinary course of 
business.\214\ This flexibility as to the form and manner in which 
records must be kept likewise would decrease the cost of recordkeeping.
    The proposed Rule further attempts to limit the retention 
requirements to the minimum amount of information necessary. For 
example, providers must maintain records relating to actual 
transactions with customers; they are not required to keep records 
where consumers do not sign contracts or do not agree to offers of 
mortgage assistance relief services. In addition, providers must retain 
only materially different versions of advertising and related 
materials.\215\ The proposed Rule calls for a 24-month record retention 
period.\216\ The Commission believes that two years is the minimum 
amount of time necessary for consumers to report violations of the Rule 
and for the Commission to complete investigations and to identify 
victims. Accordingly, the FTC believes that the proposed recordkeeping 
provisions strike an appropriate balance between ensuring efficient and 
effective law enforcement and avoiding the imposition of unnecessary 
compliance costs.
---------------------------------------------------------------------------

    \213\ Cf. TSR Statement of Basis and Purpose, 60 FR at 43857 
(``The [TSR] Final Rule requires retaining records that most 
businesses already maintain during the ordinary course of 
business.'').
    \214\ Cf. id.
    \215\ Cf. id. at 43858 (recognizing the burden imposed by 
requiring the retention of each and every script, advertisement, and 
promotional piece, ``much of which may be worthless or redundant 
from a law enforcement standpoint'').
    \216\ Cf. 16 CFR 310.5(a) (setting forth a 24-month record 
retention requirement).
---------------------------------------------------------------------------

    Section 322.9(b) of the proposed Rule also contains four compliance 
requirements reasonably calculated to prevent unfair or deceptive 
practices by MARS providers. Proposed Sec.  322.9(b)(1) requires 
providers to monitor the Rule compliance of their employees and 
independent contractors. Such steps include monitoring sales 
presentations with customers and potential customers. Providers 
specifically must:
    <bullet> Conduct random, blind tape recording of the oral 
representations made by persons in sales or other customer service 
functions;\217\
---------------------------------------------------------------------------

    \217\ The Commission notes that this requirement does not mean 
that MARS providers must tape every sales call; rather, implementing 
a taping program that is reasonably designed to record calls on a 
random basis without knowledge that the calls are being recorded 
would suffice.
---------------------------------------------------------------------------

    <bullet> Establish a procedure for receiving and responding to 
consumer complaints; and
    <bullet> Ascertain the number and nature of consumer complaints 
regarding transactions with the employee or independent contractor.
    Proposed Sec.  322.9(b)(2) also requires that MARS providers 
investigate promptly and fully any consumer complaint received. To 
comply with this provision, MARS providers should establish a procedure 
for receiving, investigating, and responding to all consumer 
complaints. Proposed Sec.  322.9(b)(3), in addition, mandates that MARS 
providers must take corrective action with respect to any salesperson 
whom the provider determines is not complying with the Rule. These 
corrective actions include the adoption and implementation of a 
reasonable program to train, discipline and terminate employees who do 
not comply with the Rule. Finally, proposed Sec.  322.9(b)(4) requires 
documentation of compliance with the above requirements. Such 
documentation must include copies of the random, blind tape recordings 
of employees' communications with consumers and records of any 
disciplinary actions against employees for non-compliance with the 
Rule.
    The compliance requirements in the proposed Rule are comparable to 
provisions in other FTC rules, including the Standards for Safeguarding 
Customer Information (``Safeguards Rule''),\218\ TSR,\219\ and the 900 
Number Rule.\220\ In the TSR and 900 Number Rules, the Commission 
imposed monitoring and compliance requirements parallel to those set 
forth in proposed Sec.  322.9(b). As is the case with the Safeguards 
Rule, proposed Sec.  322.9(b)(3) of the proposed Rule requires that 
covered entities take appropriate corrective actions to ensure employee 
and contractor compliance with the Rule.\221\ In addition, proposed

[[Page 10727]]

Sec.  322.9(b)(1)'s specification that monitoring must include, at a 
minimum, random, blind taping recording and monitoring of the oral 
representations made by sales representatives has a parallel in the 
TSR.\222\ The requirement in proposed Sec.  322.9(b) that MARS 
providers receive, respond to, and investigate consumer complaints is 
comparable to the billing and collection provisions in the 900 Rule 
that require consumer dispute resolution procedures, including 
responding to customer allegations of billing errors.\223\
---------------------------------------------------------------------------

    \218\ 16 CFR 314.1, et seq. (2002) (imposes various affirmative 
obligations on covered entities in connection with implementing 
mandated security program to protect and secure customer 
information); see also Children's Online Privacy Protection Rule, 16 
CFR 312.1, et seq. (2005) (requiring, among other things, parental 
approval to collect personal information from children).
    \219\ 16 CFR 310.1, et seq.
    \220\ 16 CFR 308.1, et seq.
    \221\ 16 CFR 314.4; see also 900 Rule, 16 CFR 308.3(h).
    \222\ See 16 CFR 310.4(a)(6)(i)(C) (requiring telemarketers to 
make and maintain an audio recording of telemarketing transactions 
involving pre-acquired account information).
    \223\ See 16 CFR 308.7. Specifically, the 900 Rule requires 
billers of pay-per-call services to respond to consumer notices of 
billing errors, including: (1) sending a written acknowledgment to 
the consumer of receipt of the billing error notice; (2) correcting 
the billing error and crediting the consumer's account for any 
disputed amount; and (3) if appropriate, explaining to the customer, 
after reasonable investigation, the reasons why no billing error 
occurred.
---------------------------------------------------------------------------

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.\224\ 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. Proposed Sec.  322.10 sets forth that states have the 
authority to file actions against those who violate the Rule.
---------------------------------------------------------------------------

    \224\ Credit CARD Act Sec.  511(b).
---------------------------------------------------------------------------

K. Section 322.11: Severability

    Proposed Sec.  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,\225\ 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.
---------------------------------------------------------------------------

    \225\ See 16 CFR 310.9.
---------------------------------------------------------------------------

IV. Request for Comment

    The Commission seeks comment on various aspects of the proposed 
Rule. Without limiting the scope of issues on which it seeks comments, 
the Commission is particularly interested in receiving comments on the 
questions that follow. In responding to these questions, please include 
detailed factual supporting information whenever possible.

A. General Questions for Comment

    Please provide comment on each aspect of the proposed Rule, 
including answers to the following questions.
    (1) How would the proposed Rule affect the provision of different 
types of mortgage assistance relief services? Useful information would 
include information about the services provided by particular entities 
or the types of entities, how these different entities perform their 
services, and the effect of the proposed Rule on them.
    (a) In particular, what types of mortgage and foreclosure relief 
are being offered to consumers? Do the forms of relief differ in the 
benefits they provide to consumers and, if so, how do they differ? Do 
the costs of mortgage assistance relief services vary based on the type 
of relief offered and, if so, how? For each form of relief, what is the 
likelihood consumers will receive it? What factors affect whether a 
particular consumer will receive a form of relief?
    (b) Do entities differ in how they currently charge fees for their 
services? For example, what payments are made before work begins, what 
payments are made while work is being performed, and what payments are 
made after all work is completed? Which types of providers require 
consumers to make some payment before services are completed, and which 
do not? How much of the total fee do providers typically collect prior 
to completing their work? Are consumers required to make payments that 
are contingent on the provider achieving a beneficial result and, if 
so, how much of the total amount paid is contingent on such a result? 
Which types of providers require consumers to pay only if the providers 
achieve a beneficial result? How is it determined that the provider has 
achieved such a beneficial result?
    (2) What would be the effect of the proposed Rule (including any 
benefits and costs) on consumers? Would the costs and benefits to 
consumers differ depending on the service offered or the type of 
provider offering it and, if so, how? Would the costs and benefits 
differ depending on the form of relief and, if so, how?
    (3) What evidence is there that consumers are misled in the 
promotion and sale of MARS? Are consumers misled by particular types of 
entities and, if so, which ones? What evidence is there that consumers 
are misled about the status of MARS providers or their affiliation with 
the government, government programs, lenders, or servicers? What 
evidence is there that consumers are misled about the likelihood that 
they will receive specific results and, if so, which results? What 
evidence is there that consumers are misled about the total cost of 
MARS? About what other attributes of MARS do providers mislead 
consumers?
    (4) What would be the effect of the proposed Rule (including any 
benefits and costs) on MARS providers?
    (5) Would the proposed Rule encourage or discourage financial 
advisors, financial planners, and other providers of financial services 
from becoming MARS providers or adding MARS to their existing lines of 
business? Does the proposed Rule restrict business practices, for 
example, the terms of payment, that create barriers for financial 
service providers from becoming MARS providers? If so, what are these 
business practices and how does the proposed Rule affect them?
    (6) What changes, if any, should be made to the proposed Rule to 
increase benefits to consumers and competition?
    (7) What changes, if any, should be made to the proposed Rule to 
decrease costs to industry or consumers?
    (8) How would the proposed Rule affect small business entities with 
respect to costs, profitability, competitiveness, and employment?

B. Specific Questions on Proposed Provisions

1. Section 322.2: Definitions
    (1) Does the definition of ``mortgage assistance relief service'' 
in proposed Sec.  322.2(h) adequately describe the scope of the 
proposed Rule's coverage? If not, how should it be modified? Are there 
additional services or forms of relief that should be included in the 
definition? Alternatively, are there services or forms of relief that 
should not be included in the definition? Should additional terms be 
defined and, if so, how? What would be the costs and benefits of each 
suggested definition?
    (a) In particular, should the proposed Rule cover services to 
assist consumers negotiate with their lenders to obtain new loans or 
refinancing? What types of entities offer these kind of services? What 
factors affect whether a particular consumer receives this form of 
relief? Do entities offer these services to consumers who may be 
delinquent on their mortgages, owe more on their mortgages than their 
homes are worth, or who are struggling to make their mortgage payments? 
What is the likelihood that consumers in these situations receive 
refinancing or new loans? What evidence, if any, is there that 
consumers in these situations are being misled about these services? 
Are other laws or regulations sufficient to

[[Page 10728]]

protect consumers from these practices? What would be the costs and 
benefits of including these types of services in the proposed Rule?
    (b) The Commission intends the proposed Rule to apply to sale-
leaseback and similar transactions only to the extent that such 
transactions are marketed as a means to avoid foreclosure. What are the 
costs and benefits of this approach? Should these services generally be 
exempted from coverage? Alternatively, should these services be subject 
to additional restrictions and limitations in the proposed Rule? What 
is the experience of the states in regulating these types of 
transactions? Does the proposed Rule conflict with state laws 
regulating sale-leaseback and similar transactions and, if so, how 
should the conflict be resolved?
    (c) Are there reasons to broaden the definition of MARS to include 
the word ``product?'' Would the addition of ``products'' allow the 
proposed Rule to address deceptive and unfair practices not already 
covered? Are there reasons to include ``products'' in anticipation of 
likely changes in the marketplace? Why or why not?
    (2) Should any entities covered by the definition of ``mortgage 
assistance relief service provider'' in proposed Sec.  322.2(i) be 
excluded or exempted from this definition? If so, which entities? Why 
or why not?
    (a) In particular, should MARS provider be defined for the purposes 
of the proposed Rule to exclude persons who provide incidental or de 
minimis advice or assistance? If so, how should incidental or de 
minimis advice or assistance be measured? Should this modified 
definition depend on whether the person attempts to obtain the mortgage 
relief on behalf of the consumer, or advises or assists the consumer to 
obtain the relief on his or her own?
    (3) Proposed Sec. Sec.  322.2(i)(1) and (2) generally exempt loan 
holders and servicers, as well as their agents, from the definition of 
``mortgage assistance relief service providers.'' Is this exemption 
appropriate? Why or why not? Do these entities promote or sell MARS to 
consumers? If so, what types of services are offered to consumers and 
how are fees collected for these services? Are there concerns that loan 
holders and servicers engage in deceptive or unfair conduct addressed 
by the proposed Rule? If so, please provide a detailed explanation.
    (4) Proposed Sec.  322.2(i)(3) generally exempts from the 
definition of ``mortgage assistance relief service providers'' any 
nonprofit excluded from the FTC's jurisdiction. What types of such 
nonprofit entities offer MARS? What types of MARS do these entities 
offer to consumers and, if applicable, how are fees collected for these 
services? What are the costs and benefits for consumers if MARS are 
provided by a nonprofit rather than a for-profit entity? Does the 
proposed Rule create an incentive for for-profit entities to become 
nonprofits? If providers become nonprofits, what would be the 
advantages and disadvantages for consumers?
    (5) Are the disclosure standards set forth in the definition of 
``clear and prominent'' appropriate for MARS? What are the costs and 
benefits of these standards? For example, is it appropriate for the 
visual disclosure to be at least 4 percent of the vertical picture or 
screen height and be shown for at least the duration of the oral 
disclosure? Should these disclosures be larger or longer? Do consumers 
notice and comprehend disclosures that appear on a separate landing 
page immediately prior to the page on which the consumer takes action 
to incur any financial obligation? Are there alternative standards that 
would be more effective? Are there data bearing on whether the proposed 
disclosure standards would be effective?
2. Section 322.3: Prohibited Representation
    (1) Proposed Sec.  322.3(a) bans providers from advising consumers 
not to contact or communicate with their lenders or servicers. What are 
the costs and benefits of banning these types of statements? Should 
additional statements relating to MARS be prohibited? Are there 
alternative approaches to banning such advice that would allow such 
advice to be given but would still protect consumers from the risk 
arising from not communicating with servicers or lenders?
    (2) Proposed Sec.  322.3(b) prohibits misrepresentations of any 
material aspect of any MARS, and provides specific examples of such 
prohibited misrepresentations. How widespread is each specified 
misrepresentation? Are there other prohibited misrepresentations that 
should be specified in the proposed Rule? If so, why? Should any of the 
described misrepresentations be broadened or narrowed to better address 
the deceptive conduct they are intended to prevent? If so, what should 
those modifications be?
3. Section 322.4: Required Disclosures
    (1) Are the disclosures required by proposed Sec.  322.4 
appropriate to address current and prospective harms to consumers in 
connection with the sale of MARS? Why or why not? How could the 
disclosures be modified to better address these harms? Is the proposed 
language of each disclosure readily understandable by consumers? If 
not, is there alternative language that would be more effective? If so, 
provide the suggested disclosure language and discuss why it would be 
more effective.
    (2) The disclosure required under Sec.  322.4(b)(3) only must be 
made in cases where MARS are represented to perform services and 
achieve results that are set forth in Sec.  322.2(h)(1) and Sec. Sec.  
322.2(h)(3)-(6). Are there other situations in which the disclosure 
requirements should be tailored to apply only to entities purporting to 
provide certain services or results, or should each of the disclosure 
requirements be applicable to all MARS providers? Why or why not? If 
so, which entities should be covered for each required disclosure?
    (3) What are the costs and benefits of the disclosure requirements 
in the proposed Rule? How would MARS providers comply with the 
requirements? What burdens do the requirements impose on providers? Are 
there changes that could be made to lessen the burdens without reducing 
the benefits to consumers?
    (a) In particular, would having the proposed Rule mandate a 
specific format for disclosures or set forth a disclosure requirement 
that would be a safe harbor lessen the burdens on MARS providers 
without reducing the benefits to consumers?
    (b) Should the proposed Rule mandate that the required disclosures 
be made in writing? If so, how should such disclosures be made, for 
example, in a contract or a stand-alone notice? If there is a written 
notice, what types of information should be included in the notice? For 
example, should the written notice disclose the total fee for the MARS 
and/or any formula used to calculate the amount of the fee charged for 
the service? When should the written disclosures be made to consumers? 
What would be the added benefits to consumers of such a disclosure 
requirement? What would be the added costs to MARS providers?
    (4) Are there additional types of information that should be 
disclosed to prevent harm to consumers? If so, please identify the 
types of information, and, if possible, provide suggested language that 
could be used to convey that information to consumers. Also, please 
discuss the relative costs and benefits to consumers and industry of 
such disclosures? For example, would it be beneficial for MARS 
providers to disclose to consumers the consequences

[[Page 10729]]

of not paying their mortgages (such as the loss of their home and 
damage to their credit ratings)? Why or why not? If the proposed ban on 
advance fees is enacted, would it be beneficial for MARS providers to 
disclose to consumers that fees are not owed unless promised results 
are delivered? Why or why not? Should MARS providers be required to 
disclose the minimum specific benefit the consumer will receive, e.g., 
the minimum reduction in the monthly payment amount, for the amount of 
fees to be paid? Would such a disclosure be beneficial to consumers or 
competition? Why or why not?
    (5) Should the FTC require MARS providers to disclose their 
historical performance? If so, how should historical performance be 
measured and disclosed? Could historical performance information 
mislead some consumers about the likelihood that they will achieve the 
promised results? How do the potential benefits of such a disclosure 
compare to the potential costs? If the FTC requires this disclosure, 
what if any disclosure should be required of new entrants?
4. Section 322.5: Prohibition on Collection of Advance Payments
    (1) Proposed Sec.  322.5 specifically prohibits the collection of 
any fee or other consideration for MARS until after the provider has 
achieved all of the results the provider represented, expressly or by 
implication, to the consumer that the service would achieve, and that 
is consistent with consumers' reasonable expectations about the 
service. Should MARS providers be required to achieve these results to 
receive payment? Why or why not? Would an alternative standard for 
receiving payment be more appropriate? If so, describe the alternative 
standard and discuss its relative costs and benefits.
    (a) In particular, the Notice of Proposed Rulemaking to amend the 
Telemarketing Sales Rule to address the sale of debt relief services, 
74 FR 41988 (Aug. 19, 2009) prohibits:

 Requesting or receiving payment of any fee or consideration from a 
person for any debt relief service until the seller has provided the 
customer with documentation in the form of a settlement agreement, debt 
management plan, or other such valid contractual agreement, that the 
particular debt has, in fact, been renegotiated, settled, reduced, or 
otherwise altered.

Should the standard be the same as or different than the standard 
articulated for debt relief services in the proposed amendments to the 
TSR?
    (b) Would it be appropriate for the Commission to consider allowing 
providers to collect a limited initial fee or set-up fee at the 
beginning of MARS being provided? Would this provide sufficient 
protection for consumers? Why or why not? Do providers currently use 
this payment model in the MARS industry and, if so, how much do they 
collect upfront from consumers and in total? For what purposes do 
providers use such fees? What has been the experience of states that 
have limited the amount of the initial fee or set-up fee providers may 
charge consumers? If providers were permitted to collect an initial or 
set-up fee, what fees should be limited and what amount should be 
permitted?
    (c) Should MARS providers who promise that consumers will obtain a 
specific end result (e.g., a successful loan modification) be allowed 
to charge partial or piecemeal fees for intermediate results (e.g., 
helping the consumer fill out required forms to apply for the loan 
modification)? Why or why not? Would allowing providers to charge fees 
for intermediate services provide an opportunity for fraudulent 
providers to charge consumers without ever obtaining the result 
consumers expect, such as a loan modification, and thus evade the 
advance fee ban?
    (d) Should MARS providers be allowed to charge fees for individual 
services (e.g., helping consumers fill out required forms) so long as 
they do not promise that consumers will obtain a specific end result 
(e.g., a successful loan modification)? Why or why not? If MARS 
providers are allowed to collect such fees in this situation, should 
they be required to disclose that they are not promising to deliver a 
specific, or any, end result? Would such a disclosure be sufficient to 
avoid consumer deception?
    (e) What are the costs and benefits of providers charging fees 
based on the level of the benefit provided? For example, what is the 
effect if MARS providers charge fees that are proportional to the size 
of the loan modification ultimately obtained for the consumer? If MARS 
providers charge such fees for loan modifications, should a minimum 
level of benefit be required? If a minimum level of benefit is 
required, should the minimum level be a substantial and permanent 
reduction in the amount of the scheduled mortgage payments, or 
something else? Should providers be required to charge fees based on 
the level of the benefit provided? Why or why not?
    (2) In certain cases, proposed Sec.  322.5 specifies that a MARS 
provider cannot request or receive payment until after it delivers a 
``mortgage loan modification'' to the consumer. Mortgage loan 
modification is defined as a ``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.'' Under the proposed Rule, such change must be 
``permanent for a period of five years or more;'' or ``will become 
permanent for a period of five years or more once the consumer 
successfully completes a trial period of three months or less.'' Is 
this the appropriate standard to ensure that providers confer on 
consumers the benefit they expect? Why or why not? Are there 
alternative standards that should be applied? If so, describe the 
suggested standard and explain the relative costs and benefits of the 
standard.
    (a) Does the definition of ``mortgage loan modification'' define 
the conditions for payment clearly enough? Why or why not? In 
particular, does the term ``substantially'' need to be defined and, if 
so, what would constitute a substantial reduction for the consumer? 
Similarly, should the term ``permanent'' be modified to ensure that 
consumers receive a benefit consistent with reasonable expectations? If 
so, describe the suggested modifications and discuss the relative costs 
and benefits of each modification.
    (3) What benefits do consumers paying fees in advance of 
performance provide to consumers or competition? What evidence is there 
that consumers who purchase MARS fail to pay the fees if fees are not 
collected in advance? What evidence is there that without collecting 
fees in advance providers could not fund their operations? Will it no 
longer be economically feasible for covered entities to provide 
particular types of services if this fee restriction is imposed? Which 
services will it be no longer economically feasible to provide and why?
    (4) Would it be appropriate to allow providers to use escrow 
accounts to collect their fees upfront? What are the costs and benefits 
of using escrow accounts?
    (a) To what extent do providers of MARS currently use escrow 
accounts? If so, how are these escrows structured, for example, what 
conditions must be met before providers are entitled to withdraw money 
from the escrows? Have providers abused escrow accounts, for example, 
by making unauthorized withdrawals or refusing to return money to 
consumers when services are not performed? What has been the

[[Page 10730]]

experience in states that allow escrows for MARS? What has been the 
experience of the states with respect to these escrows, for example, 
have the states observed abuses and, if so, what? Are there types of 
escrows used for other services that providers of MARS could use that 
would provide sufficient protection for consumers? Why or why not?
    (b) If escrows are allowed in connection with consumers paying fees 
to MARS providers, how should the escrows be structured? What 
restrictions and limitations are needed to protect consumers, for 
example, should any funds held in escrow be returned automatically to 
consumers if services are not completed within a certain time period? 
What type of accounting and reporting should be required for escrow 
accounts, if any? Are there entities that could provide escrow services 
in connection with MARS and, if so, which types of entities? Is there a 
way to determine whether a provider of escrow services is more likely 
to perform its duties adequately, for example, are there applicable 
licensing requirements?
    (5) To what extent does the proposed Rule's advance fee ban (Sec.  
322.5) prevent harm to consumers that would not be eliminated by its 
prohibition against misrepresentations (Sec.  322.3) and the disclosure 
requirements (Sec.  322.4)? If you believe that proposed Sec.  322.5 
does not provide any additional protection, please explain why.
    (6) Should any type or portion of fees charged by entities offering 
MARS be exempted from proposed Sec.  322.5? If so, which fees, either 
by type of entity providing the service or by type of fee, should be 
exempted, and why?
    (7) Should consumers have the right to rescind any agreement to 
purchase MARS within a certain time period? Should a right of 
rescission be a substitute for, or complement to, the advance fee ban? 
Why or why not? If the proposed Rule contained a right of rescission, 
how long should consumers have to rescind their contracts? What are the 
relative costs and benefits of giving consumers the right to rescind 
the contract?
    (8) Proposed Sec.  322.5 prohibits the collection of any fee or 
other consideration until after the MARS provider provides the consumer 
with documentation of achieved results. What type of documentation 
should be required, for example, should the provider be required to 
produce a copy of a written contract between the lender or servicer and 
the consumer setting forth the specific concession? In the case of 
``mortgage loan modifications,'' proposed Sec.  322.5 requires that the 
provider produce a ``contractual agreement between the dwelling loan 
holder or servicer and the consumer.'' For a mortgage loan 
modification, is this the appropriate form of documentary proof, or are 
there alternatives? Describe each suggested alternative and discuss its 
relative costs and benefits.
5. Section 322.6: Assisting and Facilitating
    (1) Is proposed Sec.  322.6 the appropriate standard to address 
assisting and facilitating in connection with the sale of MARS? Why or 
why not? What types of entities provide substantial assistance or 
support to MARS providers? What evidence is there that these entities 
know or consciously avoid knowing that MARS providers are violating the 
proposed Rule? What would be the costs to these entities of determining 
whether MARS providers are in compliance with the proposed Rule? What 
effect would these costs have on those who assist the operation of MARS 
providers?
6. Section 322.7: Exemptions
    (1) Proposed Sec.  322.7 exempts attorneys from proposed Sec.  
322.3(a)'s ban on instructing consumers not to communicate with their 
lenders or servicers, so long as the attorneys are licensed to practice 
in the state where the consumer resides. Is this exemption appropriate? 
Why or why not? What are the costs and benefits of allowing attorneys 
to make these types of statements? Are there other types of entities 
that should be exempted from this provision? If so, identify which 
entities and explain why.
    (2) Proposed Sec.  322.7 exempts an attorney from the advance fee 
ban if the attorney: (a) provides MARS in connection with a bankruptcy 
petition or other court proceeding; (b) is licensed to practice in the 
state where the consumer resides; and (c) is in compliance with 
applicable state laws, including licensing regulations. Is this 
exemption appropriate? Why or why not? Should the exemption be broader 
to cover other legal services attorneys provide? If so, describe other 
services and discuss the costs and benefits of exempting them from the 
advance fee ban. What is the experience of states with laws governing 
MARS that exempt attorneys?
    (3) What types of MARS services apart from representation in 
litigation (e.g, calling lenders or servicers on consumers' behalf) do 
attorneys perform that would not qualify for the exemption in proposed 
Sec.  322.7? How prevalent is the provision of these non-litigation 
legal services, and how do they provide consumers with legitimate 
mortgage relief? If such services are provided, what types and amounts 
of fees do these providers charge, and how are these fees collected? 
Are trust or escrow accounts used to hold these fees while services are 
being performed? Does the proposed advance fee ban unduly restrict the 
provision of these non-litigation legal services? If so, are there any 
alternatives to the proposed advance fee ban, such as escrows accounts, 
that will adequately protect consumers from unfair and deceptive 
practices, while allowing attorneys to continue to provide such bona 
fide legal services to consumers?
    (4) Are there entities other than attorneys that should be exempt 
from the advance fee ban and, if so, which entities? What types of MARS 
services do these entities perform? For example, do financial planners 
or advisors provide MARS services and, if so, what types of services do 
they perform? How prevalent is the provision of MARS services by any 
such non-attorney entities? What types and amount of fees do these non-
attorney entities charge? How would the advance fee ban affect the 
provision of these types of services to consumers? If an exemption is 
appropriate, please describe in detail the entities and services that 
should be covered by the exemption and how the exemption should be 
structured?
7. Section 322.9: Recordkeeping and Compliance Requirements
    (1) Proposed Sec.  322.9 requires a 24-month document retention 
period. Is this period of time adequate for effective and efficient law 
enforcement? Does it impose unnecessary costs on MARS providers? Should 
the Commission consider an alternative document retention period, for 
example, a time period commensurate with the five-year statute of 
limitations for an FTC action for civil penalties? If so, explain what 
you believe to be the appropriate time period, and why?
    (2) Proposed Sec.  322.9(b)(1) sets forth steps MARS providers must 
take to monitor and ensure that all their employees and independent 
contractors comply with the proposed Rule. For example, the proposed 
Rule requires MARS providers to perform random, blind, taping and 
testing of telemarketer presentations, to establish a procedure for 
receiving and responding to consumer complaints, and to determine the 
number and nature of consumer complaints regarding employees and 
independent contractors. Are these monitoring requirements sufficient 
to ensure compliance with the Rule? Should the Commission consider

[[Page 10731]]

alternative monitoring provisions? What would be the costs and benefits 
of such alternatives?
    (3) Proposed Sec.  322.9(b)(4) mandates that MARS providers 
maintain documentation of their compliance with Sec. Sec.  322.9(b)(1)-
(3) of the Rule. Should the retention period for these documents be a 
24-month period or an alternative period of time? For example, would a 
time period commensurate with the five-year statute of limitations for 
an FTC action for civil penalties be more appropriate? For each 
suggested time period, discuss why you believe it would be appropriate.
    (4) Proposed Sec.  322.9(c) permits MARS providers to retain 
documents in any form and in the same manner, format, or place as they 
keep such records in the ordinary course of business. Is this 
flexibility warranted in the context of MARS? Should the Commission 
specify how documents should be retained? If so, explain what you 
believe to be the appropriate standard for retaining documents.
    Interested parties are invited to submit written comments 
electronically or in paper form. Comments should refer to ``Mortgage 
Assistance Relief Services Rulemaking, Rule No. R911003'' to facilitate 
the organization of comments. Please note that your comment - including 
your name and your state - will be placed on the public record of this 
proceeding, including on the publicly accessible FTC website, at 
(http://www.ftc.gov/os/publiccomments.shtm).
    Because comments will be made public, they should not include any 
sensitive personal information, such as any individual's Social 
Security number; date of birth; driver's license number or other state 
identification number, or foreign country equivalent; passport number; 
financial account number; or credit or debit card number. Comments also 
should not include any sensitive health information, such as medical 
records or other individually identifiable health information. In 
addition, comments should not include any ``[t]rade secret or any 
commercial or financial information which is obtained from any person 
and which is privileged or confidential. . . . ,'' as provided in 
Section 6(f) of the FTC Act, 15 U.S.C. 46(f), and Commission Rule 
4.10(a)(2), 16 CFR 4.10(a)(2). Comments containing material for which 
confidential treatment is requested must be filed in paper form, must 
be clearly labeled ``Confidential,'' and must comply with FTC Rule 
4.9(c), 16 CFR 4.9(c).\226\
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    \226\ The comment must be accompanied by an explicit request for 
confidential treatment, including the factual and legal basis for 
the request, and must identify the specific portions of the comment 
to be withheld from the public record. The request will be granted 
or denied by the Commission's General Counsel, consistent with 
applicable law and the public interest. See 16 CFR 4.9(c).
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    Because paper mail addressed to the FTC is subject to delay due to 
heightened security screening, please consider submitting your comments 
in electronic form. Comments filed in electronic form should be 
submitted at (http://public.commentworks.com/ftc/MARS-NPRM) and 
following the instructions on the web-based form. To ensure that the 
Commission considers an electronic comment, you must file it on the 
web-based form at (http://public.commentworks.com/ftc/MARS-NPRM). If 
this Notice appears at (http://www.regulations.gov/search/Regs/home.html#home), you may also file an electronic comment through that 
website. The Commission will consider all comments forwarded to it by 
regulations.gov. You may also visit the FTC website at (www.ftc.gov) to 
read the Notice and the news release describing it.
    A comment filed in paper form should include the reference 
``Mortgage Assistance Relief Services Rulemaking, Rule No. R911003'' 
both in the text of the comment and on the envelope, and should be 
mailed or delivered to the following address: Federal Trade Commission, 
Office of the Secretary, Room H-135 (Annex W), 600 Pennsylvania Avenue, 
NW, Washington, DC 20580. The FTC is requesting that any comment filed 
in paper form be sent by courier or overnight service, if possible, 
because U.S. postal mail in the Washington, DC area and at the 
Commission is subject to delay due to heightened security precautions.
    Comments on any proposed filing, recordkeeping, or disclosure 
requirements that are subject to the paperwork burden review under the 
Paperwork Reduction Act should additionally be submitted to: Office of 
Information and Regulatory Affairs, Office of Management and Budget 
(OMB), Attention: Desk Officer for Federal Trade Commission. Comments 
should be submitted via facsimile to (202) 395-5167 because U.S. postal 
mail at the OMB is subject to delay due to heightened security 
precautions.
    The FTC Act and other laws the Commission administers permit the 
collection of public comments to consider and use in this proceeding as 
appropriate. The Commission will consider all timely and responsive 
public comments it receives, whether filed in paper or electronic form. 
Comments received will be available to the public on the FTC website, 
to the extent practicable, at (http://www.ftc.gov/os/publiccomments.htm). As a matter of discretion, the Commission makes 
every effort to remove home contact information for individuals from 
the public comments it receives before placing those comments on the 
FTC website. More information, including routine uses permitted by the 
Privacy Act, may be found in the FTC's privacy policy, at (http://www.ftc.gov/ftc/privacy.shtm).

V. Communications by Outside Parties to the Commissioners or Their 
Advisors

    Written communications and summaries or transcripts of oral 
communications respecting the merits of this proceeding from any 
outside party to any Commissioner or Commissioner's advisor will be 
placed on the public record.\227\
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    \227\ See 16 CFR 1.26(b)(5).
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VI. Regulatory Flexibility Act

    The Regulatory Flexibility Act of 1980 (RFA)\228\ requires the 
Commission to provide an Initial Regulatory Flexibility Analysis (IRFA) 
with a proposed Rule, and a Final Regulatory Flexibility Analysis 
(FRFA) with a final rule, unless the Commission certifies that the rule 
will have no significant economic impact on a substantial number of 
small entities.\229\
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    \228\ 5 U.S.C. 601-612.
    \229\ 5 U.S.C. 603-605. Covered entities under the proposed Rule 
will be classified as small businesses if they satisfy the Small 
Business Administrator's relevant size standards, as determined by 
the Small Business Size Standards component of the North American 
Industry Classification System (NAICS). Because a wide range of 
individuals and companies may provide mortgage assistance relief 
services to homeowners, no one classification is applicable to this 
rulemaking. The closest NAICS size standards relevant to this 
rulemaking is $7-8.5 million maximum in annual receipts. That is the 
range in size standard for comparable professional and support 
services, such as those for lawyers ($7 million), tax preparation 
services ($7 million), certified public accountants ($8.5 million), 
human resources consulting services ($7 million), and marketing 
consulting services ($7 million).
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    The Commission anticipates that the proposed MARS Rule will have no 
significant economic impact on a substantial number of small entities. 
As noted above, the proposed 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 ANPR, the 
proposed Rule's reach is limited. First, the

[[Page 10732]]

proposed Rule will 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 proposed 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 proposed Rule 
would provide attorneys with a limited exemption from the advance fee 
ban, as well as with a broad exemption from its prohibition against 
directing consumers not to contact their lender or servicer.
    As detailed below, the Commission believes that the proposed Rule 
is likely to cover several hundred MARS providers. Although the 
Commission does not know the precise number of such providers, its 
conservative estimate is that the Rule will cover approximately 500 
providers. It is not known, however, how many of those 500 providers, 
if any, are small entities. The Commission nonetheless believes that 
the number of providers that are small entities is not likely to be 
substantial and, therefore, the proposed Rule is not likely to have a 
significant economic impact on a substantial number of small entities. 
Accordingly, this document serves as notice to the Small Business 
Administration of the Commission's certification of no economic impact. 
Nonetheless, the FTC has determined to prepare the following analysis:

A. Description of the Reasons That Action by the Agency is Being 
Considered

    The Commission proposes, and seeks comment on, a rule to implement 
Section 626 of the Omnibus Appropriations Act, as amended by the Credit 
CARD Act, which mandates that the Commission initiate a rulemaking with 
respect to mortgage loans. Section 511 of the Credit CARD Act clarified 
that the Commission's rulemaking should relate to unfair or deceptive 
acts or practices, and stated that the FTC's implementing rules should 
address ``loan modification and foreclosure rescue services.'' In 
addition, the proposed Rule will cover those entities over which the 
FTC has jurisdiction under the FTC Act - entities other than banks, 
thrifts, federal credit unions, and nonprofits that engage in the 
conduct the rule would cover. Through this document, the Commission 
proposes, and seeks comment on, prohibitions, disclosures, affirmative 
compliance requirements, and recordkeeping provisions aimed at for-
profit MARS providers to prevent deceptive and unfair practices that 
harm borrowers, consistent with the goals of the Act.

B. Statement of the Objectives of, and Legal Basis for, the Proposed 
Rule

    The proposed Rule is intended to implement Section 626 of the 
Omnibus Appropriations Act, as amended by the Credit CARD Act, which 
directs the Commission to initiate a rulemaking with respect to 
mortgage loans. As noted above, the Omnibus Act, as amended, directs 
the Commission to initiate a rulemaking related to unfair or deceptive 
acts or practices with respect to mortgage loans. Through the 
rulemaking, the Commission seeks to prevent deceptive and unfair acts 
and practices in the mortgage assistance relief services industry, 
which has been the subject of numerous individual law enforcement 
actions under Section 5 of the FTC Act.

C. Small Entities to Which the Proposed Rule Will Apply

    The proposed Rule will apply to mortgage assistance relief service 
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 ANPR suggest that the number of MARS 
providers purporting to assist distressed homeowners is growing in 
response to the crisis in the home mortgage industry,\230\ but do not 
offer empirical data on the number of such entities.\231\ 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 comment, the National 
Community Reinvestment Coalition reported testing of 100 MARS 
providers. NAAG stated that its members have investigated 450 companies 
and brought suits against 130 under state law.\232\ Accordingly, 
Commission staff has taken a conservative approach and estimates that 
there are approximately 500 mortgage assistance relief service 
providers. Nonetheless, staff cannot readily estimate the number of 
such providers, if any, that are small entities. Accordingly, the 
Commission specifically requests additional comment on: (1) the number 
of individuals or entities that provide mortgage assistance relief 
services; and (2) the number of such providers, if any, that are small 
entities.
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    \230\ See, e.g., MA AG at 1-2; NAAG at 3-4; OH AG at 1.
    \231\ For example, NAAG explained that it is difficult to obtain 
empirical data on providers ``due to the prominence of internet-
based companies and their ephemeral nature. The difficulty of 
gathering information is increased due to the fact many of these 
companies operate primarily over the internet and do not maintain a 
physical presence in the states in which they do business.'' NAAG at 
3.
    \232\ NAAG at 4.
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D. Projected Reporting, Recordkeeping, and Other Compliance 
Requirements

    The proposed 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 proposed 
recordkeeping requirements would ensure covered entities can 
demonstrate compliance with specific proposed Rule provisions, which 
are discussed below.
    The proposed 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.\233\ The 
professional or other skills necessary for compliance with the proposed 
Rule are discussed in the Paperwork Reduction Act analysis elsewhere in 
this document.\234\
---------------------------------------------------------------------------

    \233\  See supra Sec.  VI.C.
    \234\ See infra Sec.  VII.
---------------------------------------------------------------------------

E. Duplicative, Overlapping, or Conflicting Federal Rules

    The Commission has not identified any other federal statutes, 
rules, or policies that would duplicate, overlap, or conflict with the 
proposed Rule. The Commission invites comment on this issue.

[[Page 10733]]

F. Significant Alternatives to the Proposed Rule Amendments

    As previously noted, the proposed Rule is intended to prevent 
deceptive and unfair acts and practices in the mortgage assistance 
relief services industry, as mandated by the Act. The proposed Rule is 
intended to achieve that goal without creating unnecessary compliance 
costs. To achieve that goal, the Commission proposes a definition of 
``mortgage assistance relief service provider'' that focuses on for-fee 
third-party providers. The term does not include the mortgage loan 
holder or servicer of a mortgage, or any agent of either, provided that 
the agent does not receive any money or other valuable consideration 
from the borrower for the agent's own benefit.\235\ Further, as 
discussed in Section III.I above, providers generally must keep only 
consumer files and consumer transactional records that are retained in 
the ordinary course of business. In addition, proposed Sec.  322.9(c) 
states that providers may keep the records in any form and in the same 
manner, format, or place as they keep records in the ordinary course of 
business.
---------------------------------------------------------------------------

    \235\ See ABA at 8; AFSA at 1, 3; Chase at 1; CMC at 1; MBA at 
3-4 (urging the Commission not to cover mortgage servicers or third 
parties retained by mortgage servicers to assist homeowners on a 
not-for-profit basis).
---------------------------------------------------------------------------

    The proposed Rule also limits the type of information that must be 
retained to a minimum. For example, providers must maintain records 
relating to actual transactions with customers; they are not required 
to keep records if consumers do not sign contracts or otherwise agree 
to an offer of mortgage assistance relief services. In addition, 
providers must retain only materially different versions of advertising 
and related materials.\236\ Finally, the proposed Rule calls for a 24-
month record retention period. The Commission believes this is the 
minimum amount of time necessary for consumers to report violations of 
the Rule and for the Commission to complete investigations of 
noncompliance and to identify victims.
---------------------------------------------------------------------------

    \236\ See TSR Statement of Basis and Purpose, 60 FR at 43858 
(recognizing the burden imposed by requiring the retention of each 
and every script, advertisement, and promotional piece, ``much of 
which may be worthless or redundant from a law enforcement 
standpoint.'').
---------------------------------------------------------------------------

    Furthermore, the recordkeeping and disclosure requirements are 
format-neutral; they would not preclude the use of electronic methods 
that might reduce compliance burdens. In addition, the Commission is 
not aware of any feasible or appropriate exemptions for small entities 
because the proposed Rule attempts to minimize compliance burdens for 
all entities.
    Nonetheless, the Commission seeks additional comment regarding: (1) 
the existence of small entities for which the proposed Rule would have 
a significant economic impact and (2) suggested alternatives, including 
potential exemptions for small entities, that would reduce the economic 
impact of the proposed Rule on such small entities. If the comments 
filed in response to this document identify any small entities that 
would be significantly affected by the proposed Rule, as well as 
alternatives that would reduce compliance costs on such entities, the 
Commission will consider the feasibility of such alternatives and 
determine whether they should be incorporated into any final Rule.

VII. Paperwork Reduction Act

    The Commission is submitting this proposed Rule and a 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 proposed Rule constitute 
``collection[s] of information'' for purposes of the PRA.\237\ The 
associated PRA burden analysis follows.
---------------------------------------------------------------------------

    \237\ See 44 U.S.C. 3502(3)(A).
---------------------------------------------------------------------------

A. Disclosure Requirements

    As discussed in the preamble, the proposed Rule requires several 
disclosures that MARS providers must place in commercial communications 
for MARS and must state to specific consumers who seek such services. 
In commercial communications, providers must include the following 
statement: ``IMPORTANT NOTICE: (Name of company) is a for-profit 
business not associated with the government. This offer has not been 
approved by the government or your lender.''
    In addition, providers must disclose to consumers, in any 
advertisement or other commercial communication directed to a specific 
consumer, the cost of those services and the following statements: (1) 
that ``(Name of company) is a for-profit business not associated with 
the government;'' (2) that the ``offer has not been approved by the 
government or your lender''; and, in some instances; (3) ``Even if you 
buy our service, your lender may not agree to change your loan.''\238\
---------------------------------------------------------------------------

    \238\ Proposed Sec.  322.4 sets forth the format and content of 
the notice, which varies depending upon the medium used.
---------------------------------------------------------------------------

B. Recordkeeping Requirements

    The proposed Rule also imposes several recordkeeping requirements. 
Several record retention requirements, however, pertain to records that 
are customarily kept in the ordinary course of business, such as copies 
of contracts and consumer files containing the name and address of the 
borrower, and materially different versions of sales scripts and 
related promotional materials. As such, the retention of these 
documents does not constitute a ``collection of information,'' as 
defined by OMB's regulations that implement the PRA.\239\
---------------------------------------------------------------------------

    \239\ See 5 CFR 1320.3(b)(2).
---------------------------------------------------------------------------

    In other instances, the proposed 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 performance of 
promised services and delivery of promised services before seeking 
payment from a borrower; (2) monitoring of sales presentations by tape 
recording and testing of oral representations; (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 proposed Rule, including training and disciplining 
sales persons.

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. The related PRA burden assumptions and calculations follow.
(1) Disclosure Requirements
    The proposed Rule calls for the disclosure of specific items of 
information to consumers. Largely, the content of the disclosures is 
prescribed. Thus, the PRA burden on providers is greatly reduced.\240\ 
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,

[[Page 10734]]

at an hourly rate of $45.22.\241\ Based upon these estimates and 
assumptions, total labor cost for 500 MARS providers to prepare the 
required documents is $45,220 (500 providers x 2 hours each x $45.22 
per hour).
---------------------------------------------------------------------------

    \240\ According 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).
    \241\ This 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, 2008, tbl. 3, at 
3-1 (2009), (http://www.bls.gov/ncs/ncswage2008.pdf) (``Occupational 
Earnings Survey'').
---------------------------------------------------------------------------

(2) Recordkeeping Requirements
    As noted above, the proposed 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 proposed Rule provisions, it is reasonable 
to assume that providers will each spend approximately 100 hours to do 
this. 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 $45.22.\242\ Based upon the 
above estimates and assumptions, the total labor cost to prepare the 
required documents to demonstrate compliance is $2,826,250 (500 
providers x 125 hours each x $45.22 per hour).
---------------------------------------------------------------------------

    \242\ Id.
---------------------------------------------------------------------------

    Commission staff further assumes that office support file clerks 
will handle the proposed Rule's record retention requirements at an 
hourly rate of $13.24.\243\ Based upon the above estimates and 
assumptions, the total labor cost to retain and file documents is 
$19,860 (500 providers x 3 hours each x $13.24 per hour).
---------------------------------------------------------------------------

    \243\ This estimate is based on mean hourly wages for office 
file clerks found at OCCUPATIONAL EARNINGS SURVEY, tbl. 3, at 3-22.
---------------------------------------------------------------------------

D. Estimated Capital/Other Non-Labor Cost Burden

    The proposed 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.\244\ 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.
---------------------------------------------------------------------------

    \244\ Associated costs would be reduced if the disclosures are 
made electronically.
---------------------------------------------------------------------------

    The Commission invites comments that will enable it to: (1) 
evaluate whether the proposed collections of information are necessary 
for the proper performance of the functions of the Commission, 
including whether the information will have practical utility; (2) 
evaluate the accuracy of the Commission's estimate of the burden of the 
proposed collections of information, including the validity of the 
methodology and assumptions used; (3) enhance the quality, utility, and 
clarity of the information to be collected; and (4) minimize the burden 
of the collections of information on those who must comply, including 
through the use of appropriate automated, electronic, mechanical, or 
other technological techniques or other forms of information 
technology.

                            Appendix A - List of Commenters and Short-names/Acronyms
                                               MARS Proposed Rule
Short-name/Acronym                              Commenter
ABA                                             American Bankers Association
AFSA                                            American Financial Services Association
ALMSC                                           American Loss Mitigation Solutions Corp.
CRC                                             California Reinvestment Coalition, et al.
CMC                                             Consumer Mortgage Coalition
CSBS                                            Conference of State Bank Supervisors
CUNA                                            Credit Union National Association
Chase                                           Chase Home Finance, LLC
Gutner                                          John Gutner
HPC                                             Housing Policy Counsel
IL AG                                           Illinois Office of the Attorney General
MA AG                                           Massachusetts Office of the Attorney General
MBA                                             Mortgage Bankers Association
MN AG                                           Office of the Minnesota Attorney General
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
NYC DCA                                         New York City Department of Consumer Affairs
OTS                                             Office of Thrift Supervision
OH AG                                           Ohio Attorney General
Shriver                                         Sargent Shriver National Center on Poverty Law
TNLMA                                           The National Loss Mitigation Association
----------------------------------------------------------------------------------------------------------------


[[Page 10735]]

Appendix B - List of FTC MARS Law Enforcement Actions

MARS Proposed Rule

    <bullet> FTC v. First Universal Lending, LLC, No. 09-CV-82322 (S.D. 
Fla. filed Nov. 24, 2009)
    <bullet> FTC v. Truman Foreclosure Assistance, LLC, No. 09-23543 
(S.D. Fla. filed Nov. 23, 2009)
    <bullet> FTC v. Debt Advocacy Ctr, LLC, No. 1:09CV2712 (N.D. Ohio 
filed Nov. 19, 2009)
    <bullet> FTC v. Kirkland Young, LLC, No. 09-23507 (S.D. Fla. filed 
Nov. 18, 2009)
    <bullet> FTC v. 1st Guar. Mortgage Corp., No. 09-DV-61846 (S.D. 
Fla. filed Nov. 17, 2009)
    <bullet> FTC v. Washington Data Res., Inc., No. 8:09-cv-02309-SDM-
TBM (M.D. Fla. filed Nov. 12, 2009)
    <bullet> FTC v. Fed. Housing Modification Dep't, No. 09-CV-01753 
(D.D.C. filed Sept. 15, 2009)
    <bullet> FTC v. Infinity Group Servs., No. SACV09-00977 DOC (MLGx) 
(C.D. Cal. filed Aug. 26, 2009)
    <bullet> FTC v. Loan Modification Shop, Inc., No. 3:09-cv-00798 
(JAP) (D.N.J., amended complaint filed Aug. 4, 2009)
    <bullet> FTC v. Apply2Save, Inc., No. 2:09-cv-00345-EJL-CWD (D. 
Idaho filed July 14, 2009)
    <bullet> FTC v. Loss Mitigation Servs., Inc., No. SACV09-800 DOC 
(ANX) (C.D. Cal. filed July 13, 2009)
    <bullet> FTC v. Sean Cantkier, No. 1:09-cv-00894 (D.D.C., amended 
complaint filed July 10, 2009)
    <bullet> FTC v. LucasLawCenter ``Inc.,'' No. SACV-09-770 DOC (ANX) 
(C.D. Cal. filed July 7, 2009)
    <bullet> FTC v. US Foreclosure Relief Corp., No. SACVF09-768 JVS 
(MGX) (C.D. Cal. filed July 7, 2009)
    <bullet> FTC v. Freedom Foreclosure Prevention Specialists, LLC, 
No. 2:09-cv-01167-FJM (D. Ariz. filed June 1, 2009)
    <bullet> FTC v. Data Med. Capital, Inc., No. SA-CV-99-1266 AHS 
(Eex) (C.D. Cal., contempt application filed May 27, 2009)
    <bullet> FTC v. Dinamica Financiera LLC, No. 09-CV-03554 CAS PJWx 
(C.D. Cal. filed May 19, 2009)
    <bullet> FTC v. Fed. Loan Modification Law Ctr., LLP, No. SACV09-
401 CJC (MLGx) (C.D. Cal. filed Apr. 3, 2009)
    <bullet> FTC v. Thomas Ryan, No. 1:09-00535 (HHK) (D.D.C. filed 
Mar. 25, 2009)
    <bullet> FTC v. Home Assure, LLC, No. 8:09-CV-00547-T-23T-Sm (M.D. 
Fla. filed Mar. 24, 2009)
    <bullet> FTC v. New Hope Prop. LLC, No. 1:09-cv-01203-JBS-JS 
(D.N.J. filed Mar. 17, 2009)
    <bullet> FTC v. Hope Now Modifications, LLC, No. 1:09-cv-01204-JBS-
JS (D.N.J. filed Mar. 17, 2009)
    <bullet> FTC v. National Foreclosure Relief, Inc., No. SACV09-117 
DOC (MLGx) (C.D. Cal. filed Feb. 2, 2009)
    <bullet> FTC v. United Home Savers, LLP, No. 8:08-cv-01735-VMC-TBM 
(M.D. Fla. filed Sept. 3, 2008)
    <bullet> FTC v. Foreclosure Solutions, LLC, No. 1:08-cv-01075 (N.D. 
Ohio filed Apr. 28, 2008)
    <bullet> FTC v. Mortgage Foreclosure Solutions, Inc., No. 8:08-cv-
388-T-23EAJ (M.D. Fla. filed Feb. 26, 2008)
    <bullet> FTC v. Nat'l Hometeam Solutions, Inc., No. 4:08-cv-067 
(E.D. Tex. filed Feb. 26, 2008)
    <bullet> FTC v. Safe Harbour Foundation of Florida, Inc., No. 08-C-
1185 (N.D. Ill. filed Feb. 27, 2008).

VIII. Proposed Rule

List of Subjects in 16 CFR Part 322

    Consumer Protection, Trade Practices, Telemarketing.
    Pursuant to the Omnibus Appropriations Act, as amended by the 
Credit CARD Act,\245\ for the reasons set forth in the preamble, the 
Federal Trade Commission is proposing to amend title 16, Code of 
Federal Regulations, by adding a new part 322, to read as follows:
---------------------------------------------------------------------------

    \245\ Pub. L. No. 111-8, Sec.  626, 123 Stat. 524, as amended by 
Pub. L. No. 111-24, Sec.  511, 123 Stat. 1734.
---------------------------------------------------------------------------

PART 322 - MORTGAGE ASSISTANCE RELIEF SERVICES RULE

Section Contents
Sec.  322.1 Scope of regulations of this part.
Sec.  322.2 Definitions.
Sec.  322.3 Prohibited representations.
Sec.  322.4 Required disclosures.
Sec.  322.5 Prohibition on collection of advance payments.
Sec.  322.6 Assisting and facilitating.
Sec.  322.7 Exemptions.
Sec.  322.8 Waiver not permitted.
Sec.  322.9 Recordkeeping and compliance requirements.
Sec.  322.10 Actions by states.
Sec.  322.11 Severability.

    Authority: Pub. L. 111-8, Sec.  626, 123 Stat. 524, as amended 
by Pub. L. No. 111-24, Sec.  511, 123 Stat. 1734.


Sec.  322.1  Scope of regulations in this part.

    This part implements the 2009 Omnibus Appropriations Act, Pub. L. 
111-8, Sec.  626, 123 Stat. 524 (Mar. 11, 2009), as amended by the 
Credit Card Accountability Responsibility and Disclosure Act of 2009, 
Pub. L. 111-24, Sec.  511, 123 Stat. 1734 (May 22, 2009).


Sec.  322.2  Definitions.

    (a) ``Commercial communication'' means any written or verbal 
statement, illustration, or depiction, whether in English or any other 
language, that is designed to effect a sale or create interest in the 
purchasing of goods or services, 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.''
    (b) ``Consumer'' means any natural person who owes on any loan 
secured by a dwelling.
    (c) ``Clear and prominent'' means:
    (1) In textual communications, the required 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. 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 volume and cadence 
sufficient for an ordinary consumer to hear and comprehend them;
    (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 
(c)(1) and (c)(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;

[[Page 10736]]

    (4) In communications made through interactive media, such as the 
Internet, online services, and software, the required disclosures shall 
be:
    (i) Consistent with paragraphs (c)(1), (c)(2), and (c)(3) of this 
section,
    (ii) Made on a separate landing page immediately prior to the page 
on which the consumer takes any action to incur any financial 
obligation,
    (iii) Unavoidable, e.g., visible to consumers without requiring 
them to scroll down a webpage, and
    (iv) Appear in type at least twice the size as any hyperlink to the 
company's website or display of the Uniform Resource Locator of the 
company's website;
    (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.
    (d) ``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, or trailer.
    (e) ``Dwelling loan'' means any loan secured by a dwelling, and any 
associated deed of trust or mortgage.
    (f) ``Dwelling Loan Holder'' means the person who holds a loan 
secured by a dwelling.
    (g) ``Material'' means likely to affect a person's choice of, or 
conduct regarding, any mortgage assistance relief service.
    (h) ``Mortgage Assistance Relief Service'' means any service, plan, 
or program, offered or provided in exchange for consideration on behalf 
of the consumer, that is represented, expressly or by implication, to 
assist or attempt to assist the consumer with any of the following:
    (1) 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;
    (2) Stopping, preventing, or postponing any mortgage or deed of 
trust foreclosure sale for a dwelling or any repossession of the 
consumer's dwelling, or otherwise saving the consumer's dwelling from 
foreclosure or repossession;
    (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 that is not the dwelling loan holder.
    (i) ``Mortgage Assistance Relief Service 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 of such person, provided 
that any such agent does not claim, demand, charge, collect, or receive 
any money or other valuable consideration from the consumer for the 
agent's benefit;
    (2) The servicer of a dwelling loan, or any agent of such person, 
provided that any such agent does not claim, demand, charge, collect, 
or receive any money or other valuable consideration from the consumer 
for the agent's benefit; and
    (3) Any nonprofit, bank, thrift, federal credit union, or other 
person specifically excluded from the Federal Trade Commission's 
jurisdiction pursuant to 15 U.S.C. 44 and 45(a)(2).
    (j) ``Person'' means any individual, group, unincorporated 
association, limited or general partnership, corporation, or other 
business entity.
    (k) ``Servicer'' means the person responsible for receiving any 
scheduled periodic payments from a consumer pursuant to the terms of 
any dwelling loan, including amounts for escrow accounts under section 
10 of the Real Estate Settlement Procedures Act (12 U.S.C. 2609), and 
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.


Sec.  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, or sale 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 Sec.  
322.2(h);
    (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 Sec.  322.2(h);
    (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 person or program;
    (4) The consumer's obligation to make scheduled periodic payments 
or any other payments pursuant to the terms of the consumer's existing 
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; or
    (7) That the mortgage assistance relief service provider has 
completed the represented services, as specified in Sec.  322.5, or 
otherwise has a right to claim, demand, charge, collect, or receive 
payment or other consideration.


Sec.  322.4  Required disclosures.

    It is a violation of this rule for any mortgage assistance relief 
service provider to engage in the following conduct:
    (a)(1) Failing to place the following statement, in a clear and 
prominent

[[Page 10737]]

manner, in every commercial communication for any mortgage assistance 
relief service:

 ``(Name of company) is a for-profit business not associated with the 
government. This offer has not been approved by the government or your 
lender.''

    (2) In textual communications except for communications not covered 
by paragraph (b) of this section, the required disclosure also must be 
preceded by the statement ``IMPORTANT NOTICE'' in bold-face type.
    (b) Failing to disclose, in a clear and prominent manner, in every 
communication directed at a specific consumer that promotes the sale of 
any mortgage assistance relief service and occurs prior to the consumer 
entering into any agreement for the purchase of such service, the 
following information:
    (1) ``You will have to pay (insert amount) for this service.'' 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, charges, or penalties;
    (2) ``(Name of company) is a for-profit business not associated 
with the government. This offer has not been approved by the government 
or your lender;'' and
    (3) In cases where the provider advertises any represented service 
or result set forth in Sec.  322.2(h) other than paragraph (h)(2), 
``Even if you buy our service, your lender may not agree to change your 
loan.''

(c) For the disclosures required by paragraph (b) of this section, in 
textual communications the disclosures also must appear together under 
the following heading,``IMPORTANT NOTICE: Carefully consider this 
information before buying this service.'' The heading must be in bold 
face font that is two point-type larger than the font size of the 
required disclosures. 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 ``Please consider 
carefully the following information before buying this service.'' In 
telephone communications, the required disclosures must be made at the 
beginning of the call.


Sec.  322.5  Prohibition on collection of advance payments.

    (a) It is a violation of this rule for any mortgage assistance 
relief service provider to request or receive payment of any fee or 
other consideration until the provider has:
    (1) Achieved all of the results that:
    (i) The provider represented, expressly or by implication, to the 
consumer that the service would achieve, and
    (ii) Are consistent with consumers' reasonable expectations about 
the service; and
    (2) Provided the consumer with documentation of such achieved 
results.
    (b) In cases where the provider has represented, expressly or by 
implication, that it will negotiate, obtain, or arrange a modification 
of any term of any dwelling loan, the provider shall not request or 
receive any payment or other consideration until it has:
    (1) Obtained a mortgage loan modification for the consumer; and
    (2) Provided the consumer documentation of the mortgage loan 
modification in the form of a written offer from the dwelling loan 
holder or servicer to the consumer.
    (c) For the purposes of paragraph (b) of this section, ``mortgage 
loan modification'' means 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.


Sec.  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.


Sec.  322.7  Exemptions.

    (a) A person licensed to practice law in the state in which the 
consumer resides is exempt from Sec.  322.3(a) of this rule.
    (b) A person licensed to practice law in the state in which the 
consumer resides is not prohibited under Sec.  322.5 from requesting or 
receiving compensation if such person complies with all applicable 
state laws, including licensing regulations, in connection with 
preparing or filing:
    (1) A bankruptcy petition or any other document that must be filed 
in a bankruptcy proceeding; or
    (2) Any document that must be filed in connection with a court or 
administrative proceeding.


Sec.  322.8  Waiver not permitted.

    Any 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.


Sec.  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 produced, 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 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 compliance with paragraph (b) of this section.
    (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 such information is 
obtained 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 as 
specified in Sec.  322.5 of this part.
    (b) A mortgage assistance relief service provider 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 sales presentations with customers, and 
shall also include, at a minimum, the following:
    (i) Performing random, blind tape recording and testing of the oral 
representations made by persons engaged in sales or other customer 
service functions;
    (ii) Establishing a procedure for receiving and responding to 
consumer complaints; and
    (iii) Ascertaining the number and nature of consumer complaints

[[Page 10738]]

regarding transactions in which all employees and independent 
contractors are involved;
    (2) Investigate promptly and fully any consumer complaint received;
    (3) Take corrective action with respect to any employee or 
independent contractor whom the mortgage assistance relief service 
provider determines is not complying with this rule, which may include 
training, disciplining, or terminating such person; and
    (4) Maintain documentation of its compliance with paragraphs 
(b)(1)-(3) of this section.
    (c) A mortgage assistance relief provider may keep the records 
required by Sec.  322.9 (a) and (b) in any form, and in the same 
manner, format, or place as they keep such records in the ordinary 
course of business. Failure to keep all records required under Sec.  
322.9 (a) and (b) shall be a violation of this Part.


Sec.  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, Pub. L. 111-8, Sec.  
626, 123 Stat. 524 (Mar. 11, 2009), as amended by Pub. L. 111-24, Sec.  
511, 123 Stat. 1734 (May 22, 2009).


Sec.  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.
[FR Doc. 2010-4651 Filed 3-8-10; 8:45 am]
BILLING CODE 6750-01-S