```

[Senate Hearing 111-647]
[From the U.S. Government Publishing Office]

                                                        S. Hrg. 111-647

                    FINANCIAL SERVICES AND PRODUCTS:
                THE ROLE OF THE FEDERAL TRADE COMMISSION
                        IN PROTECTING CONSUMERS

=======================================================================

                                HEARING

                               before the

                         COMMITTEE ON COMMERCE,
                      SCIENCE, AND TRANSPORTATION
                          UNITED STATES SENATE

                     ONE HUNDRED ELEVENTH CONGRESS

                             SECOND SESSION

                               __________

                            FEBRUARY 4, 2010

                               __________

    Printed for the use of the Committee on Commerce, Science, and 
                             Transportation

                  U.S. GOVERNMENT PRINTING OFFICE
57-887 PDF                WASHINGTON : 2010
-----------------------------------------------------------------------
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20402-0001

       SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                     ONE HUNDRED ELEVENTH CONGRESS

                             SECOND SESSION

            JOHN D. ROCKEFELLER IV, West Virginia, Chairman
DANIEL K. INOUYE, Hawaii             KAY BAILEY HUTCHISON, Texas, 
JOHN F. KERRY, Massachusetts             Ranking
BYRON L. DORGAN, North Dakota        OLYMPIA J. SNOWE, Maine
BARBARA BOXER, California            JOHN ENSIGN, Nevada
BILL NELSON, Florida                 JIM DeMINT, South Carolina
MARIA CANTWELL, Washington           JOHN THUNE, South Dakota
FRANK R. LAUTENBERG, New Jersey      ROGER F. WICKER, Mississippi
MARK PRYOR, Arkansas                 GEORGE S. LeMIEUX, Florida
CLAIRE McCASKILL, Missouri           JOHNNY ISAKSON, Georgia
AMY KLOBUCHAR, Minnesota             DAVID VITTER, Louisiana
TOM UDALL, New Mexico                SAM BROWNBACK, Kansas
MARK WARNER, Virginia                MIKE JOHANNS, Nebraska
MARK BEGICH, Alaska
                    Ellen L. Doneski, Staff Director
                   James Reid, Deputy Staff Director
                   Bruce H. Andrews, General Counsel
             Ann Begeman, Acting Republican Staff Director
             Brian M. Hendricks, Republican General Counsel
                  Nick Rossi, Republican Chief Counsel

                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on February 4, 2010.................................     1
Statement of Senator Rockefeller.................................     1
Statement of Senator Johanns.....................................    17
Statement of Senator Begich......................................    20
Statement of Senator Dorgan......................................    21
Statement of Senator Wicker......................................    29
Statement of Senator Klobuchar...................................    33

                               Witnesses

Hon. Jon Leibowitz, Chairman, Federal Trade Commission...........     4
    Prepared statement...........................................     6

                                Appendix

Hon. Kay Bailey Hutchison, U.S. Senator from Texas, prepared 
  statement......................................................    41
Letter, dated February 22, 2010, to Hon. Jay Rockefeller from 
  Michael C. Dillon..............................................    42
Hon. Jon Leibowitz, additional prepared statement................    45
Response to written questions submitted to Hon. Jon Leibowitz by:
    Hon. Byron Dorgan............................................    48
    Hon. Claire McCaskill........................................    48
    Hon. Kay Bailey Hutchison....................................    54
    Hon. John Ensign.............................................    57
    Hon. John Thune..............................................    58
    Hon. Roger F. Wicker.........................................    60
    Hon. David Vitter............................................    64

 
                 FINANCIAL SERVICES AND PRODUCTS: THE
                  ROLE OF THE FEDERAL TRADE COMMISSION
                        IN PROTECTING CONSUMERS

                              ----------                              

                       THURSDAY, FEBRUARY 4, 2010

                                       U.S. Senate,
        Committee on Commerce, Science, and Transportation,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 2:28 p.m. in room 
SR-253, Russell Senate Office Building, Hon. John D. 
Rockefeller IV, Chairman of the Committee, presiding.

       OPENING STATEMENT OF HON. JOHN D. ROCKEFELLER IV, 
                U.S. SENATOR FROM WEST VIRGINIA

    The Chairman. Ladies and Gentlemen, this hearing will come 
to order. I should say at the beginning that I will give my 
statement and then Mr. Leibowitz gives his at which point there 
will be two votes. So the masses gathered here on the dias will 
disappear.
    [Laughter.]
    The Chairman. For a brief period of time then we'll be 
right back to have questions and answers or question and 
answers whatever/however it works out to be.
    Mr. Leibowitz. Mr. Chairman, I'll stay.
    The Chairman. OK. Today American consumers are hurting. 
Many have lost their jobs. Foreclosures are up and in tough 
economic times family budgets get very, very tight. And in the 
midst of all this pain, unscrupulous business practices 
continue to target consumers directly when they can least 
afford it.
    It's difficult for the average consumer to know who to 
trust. And we need to change that. I've actually got to the 
point in watching television when somebody is peddling a 
product and then I start out with a sense I don't trust this. 
Is there something behind this?
    It's true. I mean the experience of what we've done here in 
the Commerce Committee just makes me very skeptical about the 
way people present their wares. So we are doing everything we 
can to weather these storms. People are beginning to find work. 
And Congress is fighting to create more jobs. So we'll see how 
that turns out.
    I believe we cannot forget how we got here. Many of the 
enormous economic problems we face today are a direct result of 
weak consumer protections in the financial sector. President 
Obama has proposed creating a new agency to better regulate the 
financial sector and better protect consumers. And today's 
hearing is our chance to look closely at the Federal Trade 
Commission, in particular, and its role as top cop on the beat.
    In fact, this hearing will be a little bit different than 
usual because there is really a chance for our witness to 
describe what he's doing, what he's thinking of doing and talk 
about it. It's not so much a, you know, beat you over the head 
or you beat us over the head. That's not the style of this. 
Trying to find out what your plans are.
    So we've got to identify the enforcement and the oversight 
tools that the FTC needs to most effectively protect consumers 
in our complicated world. I firmly believe the FTC must remain 
a cornerstone of our consumer protection system. And will do 
everything in my power to make sure that remains the case.
    For too long deceptive financial products, criminal 
investigation schemes and a reckless faith in the industry's 
ability to regulate itself, a mantra for some, have 
significantly undermined our economy. The world of financial 
products is extraordinarily complex and getting more so every 
day. Consumers are overwhelmed by countless choices 
indecipherable fine print and grand and glorious claims. And as 
more and more of these products are created beyond the domain 
of local banks our current regulatory structure simply cannot 
oversee them.
    And so therefore, too often, financial regulators overlook 
financial products, outside of traditional banks and ordinary 
Americans have paid the price. This is where the FTC can and 
should play a leading role. Over the last 5 years the agency 
has brought more than 100 cases to protect consumers from abuse 
of financial practices. I'd be interested in hearing about 
those. These cases have run the gamut from routine settlements 
with fly by night, payday, loan operators to resource intensive 
litigation with major mortgage servicing companies.
    The common thread that runs through each investigation is 
an unwavering focus that, from our point of view, is an 
unwavering focus on the American consumer. Now even as our 
government responds and adapts to the frequently changing 
realities of our tremendously difficult modern economy, we can 
never lose that focus, never forget who comes first. As any 
consumer activities continue to surge and this has stunned me, 
just what's happened in this Committee, what's come upon this 
Committee, what people offer up for various segments of, you 
know, evil practices and deceptive practices.
    I don't like to think of America that way. And so that's 
one of the reasons that we're here and you're there, Mr. 
Leibowitz. So the Federal Trade Commission's acts, long 
standing, general prohibition against ``unfair or deceptive 
acts or practices'' has become the bedrock of consumer 
protection laws in the United States. Now it is time to shore 
up that foundation.
    I want to close by saying that when I took over this 
Committee, just one year ago, I vowed to make this Committee 
focus more on protecting the consumer. We have lots and lots 
and lots of work that we have to do in many, many fields. But 
it was, I thought, time to crack down a bit and we have.
    We have investigated a number of scams from online 
merchants who share their customer's credit card information 
without first receiving real consent, to insurance companies 
putting profits before people. We went through that at some 
length. For all the companies out there looking to rip off the 
hard working people of this country, I say to them that this 
Committee is only getting started in its effort to safeguard 
the people from these misleading practices. We will not stop 
until consumer protection is the cornerstone of our thriving 
economy as I know it can and should be.
    Finally, I want to recognize the importance of quickly 
confirming Julie Brill and Edith Ramirez, both of whom I met 
with, it seems like to me, a long, long time ago, the 
President's recent nominees to join Chairman Leibowitz as 
Commissioners of the FTC so they can get to work.
    Thank you, Chairman Leibowitz, for your work to make the 
FTC the strong agency consumers need. We need to hear from you 
how we can better equip the FTC to protect the American people. 
And I look forward to your testimony.
    I note the presence of the Senator from Nebraska, who 
appears to be the only Republican here. So, you are Kay Bailey 
Hutchison. Do you have a statement you'd like to make?
    Senator Johanns. No, I'll take a pass. I walked in. It was 
just you and I and I wondered, Mr. Chairman, whether we had 
succeeded in chasing all of our colleagues away or something.
    The Chairman. It's possible.
    [Laughter.]
    The Chairman. It is possible.
    Senator Johanns. So much of what you said I agree with and 
I won't take the time of the Committee for the statement. I 
know we've got a vote coming up here. So maybe----
    The Chairman. No, no, no, no. That's not for 25 minutes.
    Senator Johanns. 25 minutes. Well, we'll--I'm more than 
content to let the witness proceed.
    The Chairman. What about Mr. Begich over here? He's 
looking--he's so far down I can barely see him.
    [Laughter.]
    Senator Begich. You know I'm lucky they promoted me from 
there to here, so I'm----
    The Chairman. So that is true. You're sort of coming into 
my focus here.
    Senator Begich. I want you to know my 40-page speech I will 
not give. And I will sit back and relax.
    The Chairman. And you won't give it to the Committee to 
have to record somewhere either?
    Senator Begich. No, because my staff hasn't seen it. I 
wrote it myself.
    [Laughter.]
    The Chairman. Ah, ok.
    Senator Begich. Please know, Mr. Chairman, all the staff 
laughed at that in nervousness.
    [Laughter.]
    The Chairman. Alright. Mr. Chairman?

          STATEMENT OF HON. JON LEIBOWITZ, CHAIRMAN, 
                    FEDERAL TRADE COMMISSION

    Mr. Leibowitz. Thank you, Chairman Rockefeller, Senator 
Johanns, Senator Begich and I also, by the way, put my 23-page 
written statement into the record.
    I'm Jon Leibowitz, Chairman of the Federal Trade 
Commission. And with discussions of financial regulatory reform 
ongoing let me thank you for inviting me to testify about the 
FTC's work in protecting consumers, including consumers of 
financial services, and urge you to ensure that the Commission 
can continue doing this critical work. Let me also thank you 
for mentioning the nominations of Julie Brill and Edith 
Ramirez. We certainly appreciate the Committee for moving their 
nominations rapidly. And we hope to have confirmation soon.
    I'll first discuss our highest consumer protection priority 
and that's targeting financial frauds that take the last dollar 
out of the pockets of ordinary Americans.
    Then I'll offer our views on how financial regulatory 
reform, done properly, could strengthen our ability to pursue 
those who take advantage of the hardest hit Americans.
    But before getting into those details let me emphasize one 
fact. Although many Federal agencies have some authority over 
different aspects of the financial services industry, the FTC 
is the only agency whose sole objective is to protect 
consumers. The Commission has a long bipartisan history of 
accomplishing this objective. And in fact in the last decade, 
as you alluded to, Mr. Chairman, we have recovered nearly a 
half billion dollars for consumers who lost their money to 
financial frauds.
    Mr. Chairman, as these types of scams have proliferated 
during the current economic downturn, we have stepped up our 
efforts to stop them. With the State Attorneys General, we've 
brought sweeps of hundreds of cases to shut down unscrupulous 
businesses that offer fraudulent mortgage modification and 
foreclosure rescue services, fake jobs, or phony access to 
Federal stimulus money. And in this poster you can see a 
picture of President Obama and Vice President Biden offering 
stimulus money, I believe in this case they claimed on one of 
their websites that you could use the money for things like 
education, paying off a mortgage and leisure travel. And so, 
you know, there are a lot of scammers out there.
    All told in the last year the FTC----
    The Chairman. I'm looking at it and the way it's set up it 
kind of looks like the President has done a $15 billion scam. 
And I want you to clear that up very promptly.
    Mr. Leibowitz. No, I don't--you can disagree with his 
policies. I happen to support them. But I don't believe that 
the President is involved in this issue.
    The Chairman. It's juxtaposition.
    Mr. Leibowitz. It's just an unfortunate juxtaposition 
designed to rip off consumers. So in the last year, the FTC has 
brought 40 cases against 200 defendants engaged in fraud 
targeting financially distressed consumers. But I want to point 
out that our efforts aren't just about abstract statistics. 
They're also about helping real people with real problems.
    So let me just give you a couple of examples.
    Jaime L. lives in California. And last year Jaime was 
facing foreclosure on his home. He paid $3,000 to a company 
that told him they could get his loan modified. In fact, they 
told him not to pay his mortgage company while they reworked 
the mortgage.
    After months passed with no action, he contacted the 
company which assured him, assured him, that his modification 
would be completed by the following week. But that same day, 
the bank repossessed his home, telling Jaime that it had tried 
to reach the modification company but had never received a 
response. In other words, the company took Jaime's money, but 
did nothing for him or his family.
    In fact and sadly, the day after Thanksgiving, Jaime and 
his family were evicted from their home. The FTC sued the 
company. And the case is currently in litigation.
    Another victim is Angela B. from New Hampshire, who is 
disabled and lives on a fixed income because she needed help 
paying off her mortgage. She visited a website that advertised, 
falsely, free government grants. She agreed to pay $1.99 to 
receive a CD with instructions about how to obtain those 
grants. What she wasn't told was that she was being enrolled in 
a negative option plan and charged a recurring fee of 95 
dollars. The Commission shut down that operation, which 
targeted Angela B. and so many other Americans.
    The Commission's law enforcement isn't limited to stopping 
boiler room type frauds. We also prosecute nationally known 
companies that engage in unfair, deceptive practices. For 
example, the Commission recently obtained a $28 million 
settlement from the subprime mortgage servicer, EMC, a 
subsidiary of Bear Stearns, for hiding fees from consumers. 
Just last fall, we finished mailing out redress checks to 
86,000 Americans.
    And tomorrow--in a case we won against a bottom-feeding 
debt collector, one who is now in jail, because we referred the 
case over to the Justice Department--we're going to start to 
mail out $25,000--I'm sorry, 25,000 more redress checks to 
Americans. And we obtained a $114 million settlement from a 
subprime credit card marketer named CompuCredit, again for 
charging hidden fees, in this instance to poor, mostly minority 
consumers.
    Now in addition to our law enforcement and with critical 
leadership from you, Chairman Rockefeller, and of course from 
you, Senator Dorgan, the Commission has stepped up our use of 
rulemaking to stop unfair and deceptive financial practices. 
Today, we announced a proposed rule that would ban advance fees 
by mortgage modification and foreclosure rescue companies. As 
we've seen in our law enforcement actions far too often, 
consumers pay thousands of dollars in advance for these 
services, but they get nothing in return.
    The proposed rule would prohibit misrepresentations as well 
and require that providers disclose critical information to 
consumers. Our rulemaking efforts will continue. We plan to 
issue proposed rules in the near future covering mortgage 
advertising and servicing, two areas where we've also seen 
problematic practices.
    The Commission has also developed a wide variety of 
creative education materials to help consumers avoid financial 
scams. I think examples are on your desks. And you can see the 
poster for our DVD, ``Real People, Real Stories.''
    Demand for these materials is very, very high. We've 
literally distributed hundreds of thousands of copies to 
consumers through neighborhood organizations, through HUD, 
through consumer groups and through state attorneys general. 
Mr. Chairman, the FTC has done a lot to protect consumers, yet 
we acknowledge that we can and that we should do more.
    In his proposal for the Consumer Financial Protection 
Agency, President Obama emphasized giving us the consumer 
protection tools and resources we need. As all of you know, the 
FTC is a relatively small agency with a very, very broad 
mission. Our workforce today is about 1,100 people. That is 700 
fewer than it was 30 years ago even though our responsibilities 
have grown dramatically during this period, as has the American 
population. I think it's gone up from about 205 million in 1979 
to--about 230 million in 1979 to about 305 million today.
    And in this context there are additional tools as you 
alluded to Senator Rockefeller, that would allow us to be more 
effective with fewer personnel.
    One is the authority to seek civil penalties against those 
who engage in unfair or deceptive acts or practices. That's an 
idea that was originally espoused by Caspar Weinberger when he 
was Chairman of the Commission in the early 1970s.
    Another is the ability to promulgate rules using the same 
notice and comment procedures that virtually all other agencies 
use. Right now we are under something called the Magnuson-Moss 
Rule rulemaking approach, which is a kind of medieval form of 
rulemaking. It can take eight to 10 years to do a rule. And 
clear authority to prosecute those who knowingly aid or albeit 
violations.
    Finally I just want to say a few words about financial 
services reform and proposals to establish a Consumer Financial 
Protection Agency. The Commission supports, I think, the 
fundamental objective of elevating protection for consumers of 
financial services. And I support the CFPA as a means to 
accomplish that goal while some of my colleagues would prefer 
other approaches. Nonetheless, we all agree that if such an 
agency is created, the FTC needs to remain an active and 
effective cop on the beat in both financial and non-financial 
matters.
    To my mind, at least, the bill that was passed by the House 
late last year would both give us critical new tools and 
preserve our ability to help consumers. So we look forward to 
working with this committee as legislation moves ahead. Please 
be assured though, that whether or not Congress passes 
financial reform that includes the CFPA, we at the FTC will 
continue our work to protect financially distressed consumers.
    Thank you so much.
    [The prepared statement of Mr. Leibowitz follows:]

          Prepared Statement of Hon. Jon Leibowitz, Chairman, 
                        Federal Trade Commission
I. Introduction
    Chairman Rockefeller, Ranking Member Hutchison, and members of the 
Committee, I am Jon Leibowitz, Chairman of the Federal Trade Commission 
(``FTC'' or ``Commission''). I appreciate the opportunity to appear 
before you today,\1\ and the Commission thanks this Committee for its 
interest in preserving and strengthening the ability of the FTC to aid 
consumers in financial stress during these difficult economic times.
---------------------------------------------------------------------------
    \1\ Except as noted, the views expressed in this statement 
represent the views of the Commission. My oral presentation and 
responses to questions are my own and do not necessarily reflect the 
views of the Commission or any individual Commissioner. Commissioner 
Kovacic dissents from portions of the testimony as explained in notes 
45 and 47. Commissioners Kovacic, Harbour, and Rosch offer separate 
views in note 54.
---------------------------------------------------------------------------
    This testimony first describes the FTC's law enforcement, 
rulemaking, and consumer education efforts. These efforts have helped 
protect millions of consumers of financial products and services from 
unscrupulous businesses that engage in unfair, deceptive, and other 
unlawful practices. Although the FTC has long played an active role in 
prosecuting financial fraud and deception, the agency has stepped up 
its efforts in recent months in response to the economic downturn. For 
example, in 2009 alone, the FTC and the states, working in close 
coordination, brought more than 200 cases against firms that peddled 
phony mortgage modification and foreclosure rescue scams.
    The testimony next explains the rationale for granting the 
Commission appropriate resources and remedial tools to enable it to be 
even more effective in protecting consumers. Finally, the testimony 
provides the Commission's perspective on recent proposals to create a 
new consumer financial protection agency as part of a broader reform of 
the financial services regulatory system.
II. The FTC's Authority over Financial Services
    Although many Federal agencies have authority over different 
aspects of the financial services industry, the FTC is the only such 
agency whose sole objective is to protect consumers. The Commission can 
bring law enforcement actions to enforce Section 5 of the FTC Act, 
which prohibits unfair or deceptive acts or practices in or affecting 
commerce.\2\ The agency also can bring law enforcement actions to 
enforce rules that the Commission issues \3\ to implement the FTC 
Act.\4\ The FTC Act, however, exempts banks, savings and loan 
institutions, and Federal credit unions from the Commission's 
jurisdiction. Thus, the Commission's authority encompasses the conduct 
of non-bank entities, such as non-bank mortgage companies, mortgage 
brokers, creditors, and debt collectors.
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    \2\& 15 U.S.C.  45(a).
    \3\ The Commission issued the Credit Practices Rule in 1984, to 
restrict the use of certain remedies in consumer credit contracts. 16 
C.F.R. Part 444. In 1975, the Commission issued the Holder in Due 
Course Rule, 16 C.F.R. Part 433. This Rule preserves the ability of 
consumers to raise claims and defenses against purchasers of consumer 
credit contracts.
    \4\ In addition, under the FTC Act, the Board of Governors of the 
Federal Reserve (``FRB''), Office of Thrift Supervision, and National 
Credit Union Administration have the authority to promulgate rules 
prohibiting unfair or deceptive practices engaged in by banks, thrifts, 
and Federal credit unions, respectively. See 15 U.S.C.  57a(f).
---------------------------------------------------------------------------
    The Commission also has law enforcement and, in some cases, 
regulatory powers under a number of consumer protection statutes that 
specifically relate to financial services, including the Truth in 
Lending Act (``TILA''),\5\ the Home Ownership and Equity Protection Act 
(``HOEPA''),\6\ the Consumer Leasing Act (``CLA''),\7\ the Fair Debt 
Collection Practices Act (``FDCPA''),\8\ the Fair Credit Reporting Act 
(``FCRA''),\9\ the Equal Credit Opportunity Act (``ECOA''),\10\ the 
Credit Repair Organizations Act (``CROA''),\11\ the Electronic Funds 
Transfer Act (``EFTA''),\12\ and the privacy provisions of the Gramm-
Leach-Bliley Act (``GLB Act'').\13\ These statutes, like the FTC Act, 
do not give the FTC jurisdiction over banks.\14\
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    \5\ 15 U.S.C.  1601-1666j (mandates disclosures and other 
requirements in connection with consumer credit transactions).
    \6\ 15 U.S.C.  1639 (provides additional protections for consumers 
entering into certain high-cost mortgage loans).
    \7\ 15 U.S.C.  1667-1667f (requires disclosures, limits balloon 
payments, and regulates advertising in connection with consumer lease 
transactions).
    \8\ 15 U.S.C.  1692-1692p (prohibits abusive, deceptive, and 
unfair debt collection practices by third-party debt collectors).
    \9\ 15 U.S.C.  1681-1681x (imposes standards for consumer 
reporting agencies, information furnishers, and consumer report users). 
The Fair and Accurate Credit Transactions Act of 2003 amended the FCRA, 
primarily establishing rights and obligations relating to identity 
theft. Pub. L. No. 108-159, 117 Stat. 1952 (2003).
    \10\ 15 U.S.C.  1691-1691f (prohibits creditor practices that 
discriminate on the basis of race, religion, national origin, sex, 
marital status, age, receipt of public assistance, and the exercise of 
certain legal rights).
    \11\ 15 U.S.C.  1679-1679j (mandates disclosures and other 
requirements in connection with credit repair organizations, including 
a prohibition against charging fees until services are completed).
    \12\ 15 U.S.C.  1693-1693r (establishes the rights and 
responsibilities of institutions and consumers in connection with 
electronic fund transfer services).
    \13\ 15 U.S.C.  6801-6809 (requires financial institutions to 
provide annual privacy notices; provides consumers the means to opt out 
from having certain information shared with nonaffiliated third 
parties; and safeguards customers' personally identifiable financial 
information).
    \14\ Most of these statutes grant rulemaking authority to one or 
more of the agencies with enforcement responsibility under the 
statutes. The FTC has rulemaking authority for certain financial 
services under the FTC Act, for certain specified purposes under the 
FCRA and GLB Act, and with respect to mortgage loans under the Omnibus 
Appropriations Act of 2009, as amended.
---------------------------------------------------------------------------
III. FTC Activities to Protect Consumers in Financial Distress
    The Commission has a long history of protecting consumers at every 
stage of their relationship with financial services companies. As the 
economic downturn has taken hold, fraudulent schemes exploiting 
consumers in financial distress have proliferated. Accordingly, the 
Commission has stepped up its efforts to stop these frauds and protect 
vulnerable consumers, using its four primary tools: law enforcement, 
rulemaking, consumer education, and research and policy development.
A. Law Enforcement
    The FTC is primarily a law enforcement agency, and it has used its 
authority proactively to protect financially distressed consumers. In 
many of these cases, the Commission has used its powers to seek 
temporary restraining orders, asset freeze orders, and other immediate 
relief to stop financial scams in their tracks and preserve money for 
ultimate return to consumers. Even prior to the economic downturn, the 
Commission acted aggressively to stop financial fraud and assist 
consumer victims. For example, the agency brought a series of cases 
against a number of the Nation's largest subprime mortgage lenders and 
servicers challenging a variety of unfair and deceptive practices.\15\ 
Over the past 5 years, the FTC has filed over 100 actions against 
providers of financial services, and in the past 10 years, the 
Commission has obtained nearly half a billion dollars in redress for 
consumers of financial services.
---------------------------------------------------------------------------
    \15\ See, e.g., FTC v. Associates First Capital Corporation, No. 
1:01-CV-00606-JTC (N.D. Ga. 2002) ($215 million returned to deceived 
consumers); see also, e.g., FTC v. EMC Mortgage Corp., No. 4:08-cv-338 
(E.D. Tex. Sept. 9, 2008) ($28 million in redress to 86,000 consumers); 
U.S. v. Fairbanks Capital Corp., No. 03-12219 DPW (Nov. 12, 2003) ($40 
million in consumer redress), judgment modified in U.S. v. Select 
Portfolio Servicing, No. 03-12219-DPW (D. Mass. 2007) (stipulated 
judgment).
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    Most recently, the Commission's highest priority has become 
targeting frauds that prey on consumers made vulnerable by the economic 
crisis. For example, the FTC launched an aggressive, coordinated 
enforcement initiative to shut down mortgage loan modification and 
foreclosure rescue scams perpetrated on homeowners having difficulty 
making their mortgage payments. Heavily advertised in mainstream media 
and on the Internet, these schemes purport to assist consumers in 
avoiding foreclosure or renegotiating mortgage terms with their lenders 
or servicers. Typically, the fraudsters promise that, in exchange for 
an up-front fee in the thousands of dollars, they will obtain a loan 
modification or prevent foreclosure; in fact, they do little but 
collect their fee. Taking advantage of the widespread publicity about 
government mortgage assistance programs, such as the Making Home 
Affordable program, many of these firms use copycat names or look-alike 
websites to falsely suggest that they are affiliated with those 
programs.\16\ In some instances, the businesses impersonate private, 
nonprofit programs or claim to be affiliated with the consumer's lender 
or servicer.\17\
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    \16\ Recent FTC cases have targeted fraudulent programs such as 
``bailout.hud-gov.us'' and ``bailout.dohgov.us.'' See, e.g., FTC v. 
Thomas Ryan, Civil No. 1:09-00535 (HHK) (D.D.C. filed March 25, 2009).
    \17\ See, e.g., FTC v. New Hope Property LLC, No. 1:09-cv-01203-
JBS-JS (D.N.J. filed Mar. 17, 2009); FTC v. Hope Now Modifications, 
LLC, No. 1:09-cv-01204-JBS-JS (D.N.J. filed Mar. 17, 2009); FTC v. 
Kirkland Young, LLC, No. 09-23507 (S.D. Fla. filed Nov. 18, 2009); FTC 
v. Loss Mitigation Servs., Inc., No. SACV-09-800 DOC(ANX) (C.D. Cal. 
filed July 13, 2009).
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    In the past 9 months, the FTC has brought 17 cases (against more 
than 90 defendants) targeting foreclosure rescue and mortgage 
modification frauds,\18\ with other matters under active investigation. 
In addition, the Commission has leveraged its resources by partnering 
with numerous state and Federal law enforcement agencies, especially 
state attorneys general that have brought cases under their own 
statutes. In two nationwide sweeps during the Summer and Fall of 2009, 
``Operation Stolen Hope'' and ``Operation Loan Lies,'' the Commission 
joined with many states and other Federal agencies to collectively file 
more than 200 lawsuits against loan modification and foreclosure rescue 
providers.\19\
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    \18\ A full list of these law enforcement actions is attached to 
this testimony as Appendix A.
    \19\ FTC, Press Release, Federal and State Agencies Target Mortgage 
Relief Scams (Nov. 24, 2009) (announcing 118 actions by 26 Federal and 
state agencies), available at http://www.ftc.gov/opa/2009/11/
stolenhope.shtm; FTC, Press Release, Federal and State Agencies Target 
Mortgage Foreclosure Rescue and Loan Modification Scams (July 15, 2009) 
(announcing operation involving 189 actions by 25 Federal and state 
agencies), available at http://www.ftc.gov/opa/2009/07/loanlies.shtm.
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    The Commission has targeted a variety of other deceptive and 
fraudulent schemes aimed at consumers in financial distress, including 
the following:

        1. Mortgage servicing. In September 2008, the FTC settled 
        charges that EMC Mortgage Corporation and its parent, The Bear 
        Stearns Companies, LLC, violated Section 5 of the FTC Act and 
        the FDCPA in servicing mortgage loans, including debts that 
        were in default when EMC obtained them.\20\ The EMC settlement 
        required the defendants to pay $28 million in consumer redress, 
        and the Commission has sent checks to more than 86,000 
        consumers. The settlement also barred the defendants from 
        future law violations and required EMC to establish a 
        comprehensive data integrity program.
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    \20\ FTC v. EMC Mortgage Corp., No. 4:08-cv-338 (E.D. Tex. Sept. 9, 
2008).

        2. Debt relief services. As consumers struggle to make payments 
        on their credit cards and other unsecured debt, they are 
        vulnerable to the claims of purveyors of deceptive debt 
        settlement, debt negotiation, and other for-profit debt relief 
        services. These heavily-advertised services promise to 
        renegotiate debt terms with consumers' creditors to reduce 
        their debt, often by specific, substantial amounts. Over the 
        past several years, the Commission has brought 19 lawsuits 
        against for-profit debt relief companies, including five in the 
        past year, halting deceptive practices and returning money to 
        consumers.\21\
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    \21\ See, e.g., FTC v. JPM Accelerated Services Inc., No. 09-CV-
2021(M.D. Fla. filed Dec. 11, 2009); FTC v. Economic Relief 
Technologies, LLC, No. 09-CV-3347 (N.D. Ga. filed Dec. 8, 2009); FTC v. 
2145183 Ontario Inc., No. 09-CV-7423 (N.D. Ill. filed Dec. 8, 2009); 
FTC v. Edge Solutions, Inc. of New York, No. CV-07-4087-JG-AKT 
(E.D.N.Y. Aug. 7, 2008) (stipulated order and judgment for permanent 
injunction). In addition, as described below, the Commission is engaged 
in a rulemaking to amend its Telemarketing Sales Rule to cover debt 
relief services.

        3. Credit repair. Consumers who are late or in default on their 
        debt payments may suffer serious harm to their credit ratings, 
        making it all the more difficult for them to obtain credit, 
        insurance, employment, or housing in the future. Many credit 
        repair outfits misrepresent their ability to remove negative 
        but accurate information from consumers' credit reports in 
        violation of Section 5 of the FTC Act and the Credit Repair 
        Organizations Act. In the last 5 years, the FTC has taken 
        action in 17 cases to stop fraudulent credit repair scams, many 
        of these in partnership with state law enforcers.\22\
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    \22\ For example, in October 2008, the Commission coordinated a law 
enforcement sweep that included ten FTC actions and 26 state actions 
against credit repair operations. See FTC, Press Release, FTC's 
Operation ``Clean Sweep'' Targets ``Credit Repair'' Companies (Oct. 23, 
2008), available at http://www.ftc.gov/opa/2008/10/cleansweep.htm.

        4. Economic stimulus scams. Over the last year, the Commission 
        has also focused its efforts on responding to new scams that 
        try to capitalize on the economic downturn by falsely promising 
        grants ostensibly associated with the U.S. Government to 
        consumers facing financial hardship.\23\
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    \23\ See, e.g., FTC, Press Release, At FTC's Request, Court Halts 
Deceptive Claims for Free Government Grants (Aug. 20, 2009), available 
at http://www.ftc.gov/opa/2009/08/grantconnect.shtm; FTC, Press 
Release, FTC, Three States Charge Scammers with Falsely Promising 
``Guaranteed'' $25, 000 Government Grants as Part of the Economic 
Stimulus Package (July 23, 2009), available at http://www.ftc.gov/opa/
2009/07/gwi.shtm; FTC, Press Release, FTC Cracks Down on Scammers 
Trying to Take Advantage of the Economic Downturn (July 1, 2009), 
available at http://www.ftc.gov/opa/2009/07/shortchange.shtm.

        5. Debt collection. Unpaid debt has reached unprecedented 
        levels; as a result, the number and amount of debts pursued by 
        third-party debt collectors and debt buyers \24\ has 
        skyrocketed. The Commission has maintained an aggressive 
        program to enforce Section 5 of the FTC Act and the Fair Debt 
        Collection Practices Act against collectors who deceive, 
        harass, or abuse consumers.\25\
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    \24\ Debt buyers purchase unpaid debt from creditors or debt 
collectors, typically for pennies on the dollar, and collect it on 
their own behalf. Debt buyers, like debt collectors who collect debt on 
behalf of creditors, are subject to the Fair Debt Collection Practices 
Act, 15 U.S.C.  1692-1692p.
    \25\ See, e.g., U.S. v. Academy Collection Service, Inc., No.: 
2:08-cv-01576-KJD-GWF (D. Nev. Jan. 7, 2010) (consent decree); U.S. v. 
Oxford Collection Agency, Inc., No.: 2:09-cv-02467-LDW-AKT (E.D.N.Y. 
July 2, 2009) (consent decree).

        6. Advance fee loans. Consumers unable to qualify for credit 
        from traditional sources may turn to marketers of advance fee 
        credit cards or loans. In the last 5 years, the FTC pursued 19 
        cases against marketers who promised credit in exchange for the 
        payment of an advance fee, but failed to deliver the credit as 
        promised.\26\
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    \26\ See, e.g., FTC v. Group One Networks, Inc., No. 09-CV-00352 
(M.D. Fla. filed Mar. 3, 2009); FTC v. Integrity Financial Enterprises, 
LLC, No.: 8:08-cv-914-T-27 MSS (M.D. Fla. Dec. 10, 2008) (stipulated 
judgment and order); FTC v. Financial Advisors & Associates Inc., No.: 
8:08-cv-00907-T-26 TBM (M.D. Fla. Sept. 22, 2008) (stipulated judgment 
and order). The FTC's Telemarketing Sales Rule (``TSR'') prohibits 
telemarketers from requesting or receiving payment of any advance fee 
for credit, when they have represented a high likelihood of success in 
obtaining or arranging the extension of credit. 16 C.F.R.  
310.4(a)(4).

        7. Payday lending. Cash-strapped consumers may also look to 
        payday loans for financial assistance. Payday loans are high-
        cost short term loans, usually repaid by a check post-dated to 
        correspond to the consumer's next paycheck. The Commission 
        recently has brought a number of cases against payday lenders 
        for failing to disclose key loan terms and other law 
        violations.\27\
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    \27\ See, e.g., FTC, Press Release, Internet Payday Lenders Will 
Pay $1 Million to Settle FTC and Nevada Charges; FTC Had Challenged 
Defendants' Illegal Lending and Collection Tactics (Sept. 21, 2009), 
available at http://www.ftc.gov/opa/2009/09/cash.shtm; FTC, Press 
Release, Payday Loan Lead Generators Settle FTC Charges (June 24, 
2008), available at http://www.ftc.gov/opa/2008/06/wegiveloans.shtm; 
FTC, Press Release, FTC Charges Three Internet Payday Lenders with Not 
Disclosing Required APR Information in Ads (Feb. 27, 2008), available 
at http://www.ftc.gov/opa/2008/02/amercash.shtm.

        8. Credit card marketing. In December 2008, the FTC settled a 
        case with a subprime credit card marketer, CompuCredit, for 
        making deceptive representations to consumers while marketing 
        subprime credit cards to sub-prime borrowers. CompuCredit 
        allegedly misrepresented the amount of credit that would be 
        available immediately to consumers, failed to disclose up-front 
        fees, and failed to disclose that certain purchases could 
        reduce a consumer's credit limit. Under the settlement, 
        CompuCredit must pay redress to injured consumers and it is 
        estimated that the redress program will result in more than 
        $114 million in credits to consumer accounts. \28\
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    \28\ FTC v. CompuCredit Corp., No. 1:08-CV-1976-BBM-RGV (N.D. Ga. 
2008) (settled in December 2008). The Commission worked closely on this 
case with the Federal Deposit Insurance Corporation, which brought a 
parallel action challenging this deceptive conduct.

        9. Other scams targeting the financially distressed. In recent 
        months, the Commission has filed lawsuits against a variety of 
        other operations for preying on consumers suffering financial 
        hardship, including those offering fake get-rich-quick schemes, 
        work-at-home offers, and job hunting aids.\29\
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    \29\ See, e.g., FTC, Press Release, Court Jails Promoter of Work-
At-Home Scam; Envelope- Stuffing Scheme Deceived Spanish-Speaking 
Consumers (Dec. 23, 2009), available at http://www.ftc.gov/opa/2009/12/
intermarketing.shtm; FTC, Press Release, FTC Cracks Down on Scammers 
Trying to Take Advantage of the Economic Downturn (July 1, 2009), 
available at http://www.ftc.gov/opa/2009/07/shortchange.shtm.

    In sum, the Commission believes its extensive law enforcement 
efforts have stopped numerous fraudulent operations from preying on 
consumers hard hit by the economic crisis.
B. Rulemaking
    To complement its law enforcement, the Commission, with critical 
assistance from this committee, has stepped up its use of rulemaking in 
the financial area. Such rules enhance both compliance with the laws 
and the Commission's ability to prosecute wrongdoers, for example, by 
specifying violative practices and enabling the agency to obtain civil 
penalties from violators. The FTC's recent rulemaking proceedings 
include the following:

   On June 1, 2009, pursuant to the Omnibus Appropriations Act 
        of 2009 (as clarified by the Credit CARD Act of 2009) \30\ the 
        Commission commenced rulemaking proceedings on unfair or 
        deceptive mortgage-related practices: \31\
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    \30\ Omnibus Appropriations Act of 2009, Pub. L. No. 111-8,  626, 
123 Stat. 524 (Mar. 11, 2009); Credit CARD Act of 2009, Pub. L. No. 
111-24,  511(a)(1)&(2), 123 Stat. 1734 (May 22, 2009). Chairman 
Rockefeller and Senator Dorgan played key roles in obtaining this new 
rulemaking authority for the FTC.
    \31\ 74 Fed. Reg. 26,118 (June 1, 2009); 74 Fed. Reg. 26,130 (June 
1, 2009).

     This week, the Commission issued a notice of proposed 
            rulemaking, seeking public comment on a proposed rule 
            covering loan modification, foreclosure rescue, and other 
            mortgage assistance relief services. The rule would ban 
            providers from collecting fees prior to delivering the 
            promised results, prohibit misrepresentations in the 
            marketing of these services, and require certain 
            affirmative disclosures about the nature and terms of the 
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            service.

     The Commission anticipates publishing a second notice of 
            proposed rulemaking in the near future addressing mortgage 
            advertising practices, followed by a third proposed 
            rulemaking addressing mortgage servicing.

   On August 19, 2009, the Commission published in the Federal 
        Register proposed amendments to the Telemarketing Sales Rule 
        (``TSR'') \32\ designed to curb deception and abuse by 
        providers of for-profit debt relief services.\33\ The amended 
        rule proposed by the Commission would, among other things, 
        prohibit debt relief service providers from charging consumers 
        a fee until they have delivered the promised results. The 
        Commission staff is considering the public comments the agency 
        received in response to the proposed rule and has begun 
        drafting a final rule.
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    \32\See 16 C.F.R. Part 310.1.
    \33\ TSR; Notice of Proposed Rulemaking; Announcement of Public 
Forum, 74 Fed. Reg. 41988 (Aug. 19, 2009). Commission staff hosted a 
public forum on the proposed rule on November 4, 2009, which included 
participants representing the debt relief industry, consumer groups, 
state law enforcement, and other interested parties. See http://
www.ftc.gov/bcp/rulemaking/tsr/tsr-debtrelief/index.shtm.

   The Commission, in conjunction with the Federal bank 
        agencies, also has promulgated rules to protect the privacy of 
        consumers' sensitive information, including financial and 
        credit report information, under the GLB Act and the FACT Act 
        amendments to the Fair Credit Reporting Act.\34\
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    \34\ In addition, the Commission and the Federal banking agencies 
recently announced rules and guidelines expanding the obligations of 
the entities that furnish information to consumer reporting agencies to 
provide accurate information. See Procedures To Enhance the Accuracy 
and Integrity of Information Furnished to Consumer Reporting Agencies 
Under Section 312 of the Fair and Accurate Credit Transactions Act; 
Final Rule; Guidelines for Furnishers of Information to Consumer 
Reporting Agencies; Proposed Rule, 74 Fed. Reg. 31,484 (July 1, 2009). 
Consumers with inaccuracies in their credit reports may be denied 
credit or other benefits, or be forced to pay a higher rate. In 
addition, the FTC and several other Federal agencies recently issued a 
consumer-friendly model notice that financial institutions can use to 
disclose their privacy practices to their customers, as required by the 
GLB Act. See FTC, Press Release, Federal Regulators Issue Final Model 
Privacy Notice Form (Nov. 17, 2009), available at http://www.ftc.gov/
opa/2009/11/glb.shtm.

    By setting clear standards and making violations easier to prove, 
the Commission believes that these rules will result in significantly 
greater protections for consumers of financial services.
C. Consumer Education
    The FTC complements its rulemaking and law enforcement actions with 
consumer education. The Commission has conducted numerous education 
campaigns designed to help consumers manage their financial resources, 
avoid deceptive and unfair practices, and be aware of emerging scams. 
For example, the FTC recently has undertaken a major consumer education 
initiative related to mortgage loan modification and foreclosure rescue 
scams, including the release of a suite of mortgage-related resources 
for homeowners. These resources are featured on a new web page, 
www.ftc.gov/MoneyMatters. The FTC encourages wide circulation of this 
information: consumer groups and nonprofit organizations distribute FTC 
materials directly to homeowners, while some mortgage servicers are 
communicating the information on their websites, with their billing 
statements, and on the telephone.\35\
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    \35\ In addition, the FTC has worked with community organizations, 
state attorneys general, and other partners to distribute copies of a 
new video featuring the stories of real people who are working with 
legitimate housing counselors to save their homes. The video is 
available at http://ftc.gov/multimedia/video/credit/mortgage/hope-
now.shtm.
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D. Research and Policy Development
    Another means by which the FTC helps protect consumers of financial 
services is through its role in conducting consumer research and 
developing and advocating for pro-consumer policies. For example, in 
recent years, the Commission has taken the lead in developing and 
testing consumer disclosures in several financial contexts. In 2007, 
for example, the Commission released a staff report on a study 
conducted by the agency's Bureau of Economics on the effectiveness of 
mortgage disclosures.\36\ The study examined how consumers search for 
mortgages, how well they understand cost disclosures and the terms of 
their own loans, and whether better disclosures could help them shop 
for mortgage loans and avoid deceptive lending practices. The study 
found that mortgage disclosure forms in current use fail to convey key 
mortgage costs and terms to many consumers, and that more effective 
disclosures can be created to help consumers make better-informed 
decisions.\37\
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    \36\ See, e.g., FTC, Bureau of Economics Staff Report, Improving 
Consumer Mortgage Disclosures: An Empirical Assessment of Current and 
Prototype Disclosure Forms (June 2007), available at http://
www.ftc.gov/os/2007/06/P025505mortgagedisclosurereport.pdf.
    \37\ The FTC also is carrying out a series of studies of the 
accuracy of credit reports, pursuant to the FACT Act. See FTC, Press 
Release, FTC Issues Third Interim Report to Congress on Results of 
Studies Required by FACT Act (Dec. 23, 2008), available at http://
www.ftc.gov/opa/2008/12/factareport.shtm.
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    The Commission also has engaged in efforts to identify and promote 
effective consumer protection policies with respect to debt collection. 
In 2009, for example, FTC staff conducted a series of public 
roundtables across the United States on the consumer protection issues 
raised by debt collection litigation and arbitration practices.\38\ The 
roundtables followed a 2009 Commission report \39\ recommending changes 
in the FDCPA to reform and modernize the debt collection regulatory 
system. Other recent FTC research and policy development initiatives in 
the financial area include a public workshop to examine consumer 
protection problems related to debt relief services and a two-day 
forum, and associated staff report, on developing better methods for 
deterring and preventing fraud.\40\
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    \38\ See FTC Roundtable, Debt Collection: Protecting Consumers 
(Dec. 4, 2009), available at http://www.ftc.gov/bcp/workshops/
debtcollectround/index.shtm.
    \39\ In this report, the Commission also recommended that Congress 
grant it rulemaking authority under the FDCPA. See FTC, Collecting 
Consumer Debts: The Challenges of Change (Feb. 2009), available at 
http://www.ftc.gov/bcp/workshops/debtcollection/dcwr.pdf. Additionally, 
last month, the Commission ordered nine of the Nation's largest debt 
buyers to turn over information about their practices in buying and 
collecting consumer debt, which the agency intends to use for a study 
of the debt-buying industry and how it might be contributing to 
problematic debt collection practices. See FTC, Press Release, FTC 
Orders Buyers of Consumer Debt to Submit Information for Study of Debt 
Buying Industry (Jan. 5, 2010), available at http://www.ftc.gov/opa/
2010/01/sci.shtm.
    \40\ See FTC, Consumer Protection and the Debt Settlement Industry 
(Sept 25, 2008), available at http://www.ftc.gov/bcp/workshops/
debtsettlement/index.shtm; FTC, Press Release, FTC Issues Staff Report 
on Agency's Fraud Forum (Dec. 29, 2009), available at http://
www.ftc.gov/opa/2009/12/fraud.shtm.
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IV. Enhancing the FTC's Ability to Protect Consumers
    Although the FTC has substantially increased its consumer 
protection efforts in response to the current economic crisis, the 
Commission understands that much more could, and should, be done. 
Appropriate resources and certain new enforcement and regulatory tools 
would significantly enhance the FTC's ability to anticipate and respond 
effectively to the proliferation of financial fraud.
    Indeed, in announcing his proposal last summer to establish a new 
Consumer Financial Protection Agency, President Obama explained that 
``[t]here are other agencies, like the Federal Trade Commission, 
charged with protecting consumers, and we must ensure that those 
agencies have the resources and the state-of-the-art tools to stop 
unfair and deceptive practices as well.'' \41\ The financial services 
regulatory reform bill passed by the House of Representatives late last 
year includes additional authority that would enable the Commission to 
more effectively protect consumers.
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    \41\ White House, Office of the Press Secretary, Remarks by the 
President on 21st Century Financial Regulatory Reform (June 17, 2009), 
available at http://www.whitehouse.gov/the press office/Remarks-of-the-
President-on-Regulatory-Reform/.
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A. Resources
    The FTC is a relatively small agency with a very broad consumer 
protection and competition mission, ranging from operation of the Do 
Not Call registry, to challenging unfair or deceptive marketing and 
advertising, to enforcement of the consumer financial protection 
statutes with respect to most businesses in the United States, to 
challenging anti-competitive conduct that would harm consumers. As the 
economic downturn has continued, the Commission has implemented 
efficiencies that enable it to ``do more with less;'' at the same time, 
the agency has shifted more of its consumer protection resources to 
protecting consumers of financial services, while continuing to carry 
out its myriad other obligations. The FTC understands budgetary 
constraints, but assures both the Congress and the Administration that 
any funds the FTC receives will be used to respond more effectively to 
the broad range of current and future consumer protection issues and, 
specifically, to better protect consumers from financial-related 
fraud.\42\
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    \42\ See Prepared Statement of the FTC on Leveraging FTC Resources 
to Protect Consumers of Financial Services and Promote Competition 
before the House Committee on Appropriations Subcommittee on Financial 
Services and General Government (Mar. 31, 2009), available at http://
www.ftc.gov/os/2009/03/P064814financialservices.pdf.
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B. Aiding and Abetting Authority
    Many individuals and small companies engaged in unlawful practices 
rely on the support and assistance of other, usually larger, companies. 
This support and assistance often is instrumental to the success of the 
scams and allows them to be perpetrated on a much broader scale than 
would otherwise be possible. Having the ability to prosecute those who 
make fraud possible by assisting others is a key component of an 
effective enforcement program. Therefore, the Commission encourages 
Congress to clarify the law \43\ and provide explicit authority for the 
FTC to take law enforcement action against those who provide 
substantial assistance to another while knowing, or consciously 
avoiding knowing, that the person is engaged in unfair or deceptive 
practices in violation of Section 5 of the FTC Act. \44\
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    \43\ Until the 1994 Supreme Court decision in Central Bank of 
Denver v. First Interstate Bank of Denver, 511 U.S. 164 (1994), which 
held that the Securities and Exchange Commission (``SEC'') did not have 
aiding and abetting authority under the Exchange Act, it was understood 
that there was an implied cause of action under Section 5 of the FTC 
Act for aiding and abetting unfair or deceptive acts and practices. 
Although in many circumstances the Commission is able to allege that 
providing knowing assistance to others in violating the law meets the 
standard for unfairness under Section 5, 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), it would 
be useful for Congress to amend the FTC Act to include an express cause 
of action under Section 5 for aiding and abetting unfair or deceptive 
acts or practices. Such a change would be comparable to Congress's 
restoration of the SEC's aiding and abetting authority shortly after 
Central Bank of Denver. See 15 U.S.C.  78(t)(e). Having such authority 
clarified would make the FTC a much more effective law enforcement 
agency, as demonstrated by the agency's use of the aiding and abetting 
authority in the TSR to strike at those who help telemarketers defraud 
consumers. See Telemarketing and Consumer Fraud Prevention Act, 15 
U.S.C.  6101-6108 (as amended); TSR, 16 C.F.R. Part 310.
    \44\ See Prepared Statement of the FTC on the Commission's Work to 
Protect Consumers and to Promote Competition, and on a Bill to 
Reauthorize the Commission before the Senate Committee on Commerce, 
Science, and Transportation (Apr. 8, 2008) (``FTC Reauthorization 
Testimony''), available at http://www.ftc.gov/os/testimony/
P034101reauth.pdf. H.R. 4173 would grant this authority.
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C. APA Rulemaking Authority \45\
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    \45\ Commissioner Kovacic dissents from the Commission's 
endorsement of authority to use, for promulgating all rules respecting 
unfair or deceptive acts or practices under the FTC Act, the notice and 
comment procedures of the Administrative Procedures Act (``APA''). 
While other agencies have the authority to issue significant rules 
following notice and comment procedures, the Commission's rulemaking 
authority is unique in its range of subject matter (unfair or deceptive 
acts or practices) and sectors (reaching across the economy, except for 
specific, albeit significant, carve-outs). Except where Congress has 
given the Commission a more focused mandate to address particular 
problems, beyond the FTC Act's broad prohibition of unfair or deceptive 
acts or practices, Commissioner Kovacic believes it prudent to retain 
procedures beyond those encompassed in the APA. However, he supports 
sector-specific APA rulemaking to promulgate rules that set forth 
unfair or deceptive acts or practices relating to all financial 
services. Further, he would be willing to consider more generally 
whether all the procedures currently required to issue, repeal, or 
amend rules issued under the FTC Act are necessary.
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    Effective consumer protection requires that the Commission not only 
be able to enforce existing statutes and rules, but that it be able to 
promulgate in a timely and efficient manner additional rules to respond 
to conduct in the marketplace that may harm consumers. The current 
rulemaking procedures prescribed by Section 18 of the FTC Act (often 
referred to as ``Magnuson-Moss'' rulemaking) are complex, cumbersome, 
and time-consuming, resulting in rulemaking proceedings lasting many 
years. The procedural requirements for Magnuson-Moss rules are far more 
burdensome than the Administrative Procedures Act (``APA'') notice and 
comment procedures that most other Federal agencies are authorized to 
use. The Commission recently recommended that Congress amend Section 18 
to authorize the FTC to use APA rulemaking procedures to address 
consumer protection issues.\46\ The Commission believes that such an 
amendment would significantly enhance the agency's ability to stop 
financial fraud.
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    \46\See Prepared Statement of the FTC on Consumer Credit and Debt: 
The Role of the Federal Trade Commission in Protecting the Public 
before the House Committee on Energy and Commerce Subcommittee on 
Commerce, Trade, and Consumer Protection (Mar. 24, 2009), available at 
http://www.ftc.gov/os/2009/03/P064814consumercreditdebt.pdf. Congress 
has provided APA rulemaking when it has mandated or permitted the FTC 
to promulgate some specific rules. See e.g., T1Omnibus Appropriations 
Act of 2009, Pub. L. No. 111-8,  626, 123 Stat. 524 (Mar. 11, 2009); 
Credit CARD Act of 2009, Pub. L. No. 111-24,  511(a)(1) & (2), 123 
Stat. 1734 (May 22, 2009); FCRA, 15 U.S.C.  1681-1681x; GLB Act, 15 
U.S.C.  6801- 6809; FCRA Free Credit Report Rule, 16 C.F.R. Part 610; 
GLB Privacy Rule, 16 C.F.R. Part 313; GLB Safeguards Rule, 16 C.F.R. 
Part 314.
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D. Civil Penalty \47\ and Independent Litigating Authority
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    \47\ Commissioner Kovacic dissents from the Commission's 
endorsement of across-the-board civil penalty authority. The existing 
consequences attendant to a finding that an act or practice is unfair 
or deceptive under the FTC Act include an administrative order (whose 
violation would then subject the respondent to civil penalties) or a 
court-issued injunction (which can contain such equitable remedies as 
redress and disgorgement). In his view, these are generally appropriate 
remedies, and they are consistent with the goal of developing FTC law 
to develop new doctrine and to reach new and emerging problems. The 
routine availability of civil penalties, even if subject to a scienter 
requirement, would in his view risk constraining the development of 
doctrine, much as judicial concerns about the availability of private 
litigation with mandatory treble damages appear to be constraining the 
development of antitrust doctrine. See, e.g., Bell Atlantic Corp. v. 
Twombly, 550 U.S. 544, 558-59 (2007). Commissioner Kovacic would prefer 
that Congress grant more targeted authority to seek civil penalties, 
perhaps including civil penalty authority where financial services are 
involved, and particularly including civil penalty authority in matters 
where existing remedies are likely to be inadequate. See FTC 
Reauthorization Testimony, supra note 44.
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    For consumer protection law enforcement to serve as an effective 
deterrent of unlawful behavior, the agency must have tough and 
effective remedies that can be imposed quickly and without undue 
burden. Two remedial powers that the FTC currently lacks--the authority 
to seek civil penalties for violations of the FTC Act and the authority 
to prosecute civil penalty cases in Federal court in its own name--
would make the agency's law enforcement more effective.
    Although the Commission can seek a wide range of equitable remedies 
in Federal court, including consumer redress and disgorgement of ill-
gotten gains, in most circumstances it lacks the authority to obtain 
civil penalties against violators of the FTC Act.\48\ The Commission 
believes that broad civil penalty authority for FTC Act violations 
would enable the agency to more effectively deter financial and other 
types of fraud, as well as other unfair or deceptive practices, 
especially in those cases in which obtaining consumer redress or 
disgorgement is impossible or impractical.\49\ Indeed, as far back as 
1970, then FTC Chairman Caspar Weinberger advocated allowing the FTC to 
assess civil penalties administratively against respondents who 
knowingly committed consumer protection violations.\50\
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    \48\ Generally speaking, the Commission now can seek civil 
penalties only in four types of cases: knowing violations of FTC rules, 
violations of certain statutes (such as the FCRA or FDCPA), violations 
of a prior order against the defendant, and knowing violations of prior 
Commission findings that a specific practice is unfair or deceptive. 
See 15 U.S.C.  45 (m)(1)(A), (l), and 45(m)(1)(B).
    \49\ Such cases would include those in which measuring consumer 
injury or wrongful profits is difficult; this is often true, for 
example, in cases involving spyware installation or data breaches.
    \50\ See Hearings on H.R. 14931 and Related Bills before the 
Subcomm. on Commerce and Finance of the H. Comm. on Interstate and 
Foreign Commerce, 91 st Cong. 53, 54 (1970) (statement of FTC Chairman 
Caspar Weinberger); Hearings on S. 2246, S. 3092, and S. 3201 Before 
the Consumer Subcomm. of the S. Comm. on Commerce, 91st Cong. 9 (1970) 
(Letter from Caspar W. Weinberger, Chairman, Federal Trade Commission) 
(forwarding copy of House testimony). In 1973, the Senate passed S. 
356, which authorized civil penalties for any unfair or deceptive act 
or practice in violation of FTC Act Section (5)(a)(1) that was 
committed with actual or objective Knowledge. Earl W. Kintner, the 
Legislative History of the Federal Antitrust Laws and Related Statutes 
5236-37 (1983) (reprint of S. 356 as passed by the Senate).
---------------------------------------------------------------------------
    Under current law, the Commission must refer to the Department of 
Justice (``DOJ'') all cases in which it seeks civil penalties or 
involving scammers who harm American consumers from abroad. The DOJ 
then has 45 days to decide whether to file the case in its own name or 
return it to the Commission. The Commission has previously testified 
about the benefits for effective law enforcement of being able to file 
and litigate civil penalty cases in its own name--as it now does when 
seeking other remedies.\51\ This authority would allow the Commission--
the agency with the greatest expertise in enforcing the FTC Act--to 
bring cases more quickly and efficiently.\52\ The Securities and 
Exchange Commission and Commodity Futures Trading Commission already 
have independent litigating authority to bring civil penalty cases 
without referring cases to the DOJ. This authority is critical to our 
efforts to fight fraud.
---------------------------------------------------------------------------
    \51\ See, e.g., Prepared Statement of the FTC on Proposed Consumer 
Financial Protection Agency: Implications for Consumers and the Federal 
Trade Commission, before the House Committee on Energy and Commerce 
Subcommittee on Commerce, Trade and Consumer Protection (July 8, 2009), 
available at http://www.ftc.gov/os/2009/07/090708Acfpatestimony.pdf; 
FTC Reauthorization Testimony, supra note 44.
    \52\ Even under the best of circumstances, the referral process 
results in a significant delay in bringing the case. It is also less 
efficient; under current practice, once DOJ accepts a referral, the FTC 
normally assigns one or more of its staff attorneys, at DOJ's request, 
to assist in litigating the case. Despite excellent relations and 
coordination between the two agencies, this leads to a duplication of 
effort and inefficiency. And for some cases, like illegal robocall 
cases, this means that the FTC must make a difficult choice: file a 
case quickly to stop ongoing harm but give up the possibility of civil 
penalties; or seek civil penalties but wait weeks for the DOJ to 
prepare a case, allowing the misconduct to continue and more consumers 
to be harmed.
---------------------------------------------------------------------------
V. Reform of Consumer Financial Protection
    On June 17, 2009, President Obama announced his proposal to create 
a Consumer Financial Protection Agency (``CFPA'') as part of a broader 
reform of the Nation's financial regulatory system. On December 11, 
2009, the House passed H.R. 4173,\53\ Title IV of which would establish 
the CFPA with broad powers to protect consumers with respect to 
financial activities. It would transfer many of the consumer protection 
functions currently performed by the Federal banking agencies to the 
new agency. With respect to the FTC, Title IV would transfer to the 
CFPA the FTC's rulemaking authority under certain enumerated statutes 
with respect to businesses engaged in financial activities. Title IV 
also would retain the FTC's authority under the FTC Act and its 
enforcement authority under the enumerated statutes, concurrently and 
in coordination with the CFPA.
---------------------------------------------------------------------------
    \53\ More specifically, H.R. 3126 was incorporated into H.R. 4173 
and passed by the House on that date.
---------------------------------------------------------------------------
    The Commission supports the fundamental objective of improving the 
effectiveness of the current governmental system for consumer financial 
protection. However this is accomplished, whether through the creation 
of a new agency or otherwise,\54\ the Commission believes that at a 
minimum, Congress should ensure that the FTC's authority and ability to 
protect consumers is neither eroded nor made unclear. The Commission 
has a unique combination of institutional capabilities and has achieved 
an excellent record of law enforcement, rulemaking, research, and 
consumer education in the financial services field. It should remain an 
active and effective consumer protection agency with respect to both 
financial and nonfinancial products and services.
---------------------------------------------------------------------------
    \54\ Commissioner Kovacic and Commissioner Rosch recommend, perhaps 
as an alternative to creating a new agency to perform the Federal 
banking agencies' current consumer protection functions, that the 
Committee consider a model by which consumer protection with respect to 
banks and other depository institutions would be enhanced by providing 
the Commission with a role in protecting consumers of depository 
institutions. Such expansion of the Commission's consumer protection 
role would require a concomitant increase in the Commission's resources 
to ensure the continuing excellence of its enforcement record. See 
generally William E. Kovacic, The Consumer Financial Protection Agency 
and the Hazards of Regulatory Restructuring, Lombard Street (Sept. 14, 
2009), available at http://www.ftc.gov/speeches/kovacic/
090914hazzrdsrestructuring.pdf.
    Commissioner Harbour takes no position on whether the current 
regulatory environment justifies the creation of a new consumer 
financial protection agency. If a new agency is established, 
Commissioner Harbour feels strongly that, at a minimum, the FTC should 
retain its current jurisdiction. Given the FTC's core expertise in 
consumer protection enforcement in financial services, Commissioner 
Harbour believes that it is important that the FTC continue to 
represent the interests of consumers.
---------------------------------------------------------------------------
VI. Conclusion
    The FTC appreciates the opportunity to update the Committee on its 
actions to help consumers who are suffering economically and offer 
thoughts on the possible impact of financial services regulatory reform 
legislation on the Commission's consumer protection work. With 
sufficient resources and authority, the FTC would be even more 
successful in protecting consumers of financial products and services. 
The FTC looks forward to working with the Committee on financial 
services regulatory reform.
                                 ______
                                 
     Appendix A--List of FTC Law Enforcement Actions Against Loan 
       Modification and Foreclosure Rescue Entities in 2008-2009
    FTC v. First Universal Lending, LLC, No. 09-CV-82322 (S.D. Fla. 
filed Nov. 24, 2009)
    FTC v. Truman Foreclosure Assistance, LLC, No. 09-23543 (S.D. Fla. 
filed Nov. 23, 2009)
    FTC v. Debt Advocacy Ctr, LLC, No. 1:09CV2712 (N.D. Ohio filed Nov. 
19, 2009)
    FTC v. Kirkland Young, LLC, No. 09-23507 (S.D. Fla. filed Nov. 18, 
2009)
    FTC v. 1st Guaranty Mortgage Corp., No. 09-DV-61846 (S.D. Fla. 
filed Nov. 17, 2009)
    FTC v. Washington Data Resources, Inc., No. 8:09-cv-02309-SDM-TBM 
(M.D. Fla. filed Nov. 12, 2009)
    FTC v. Federal Housing Modification Dep't, No. 09-CV-01753 (D.D.C. 
filed Sept. 16, 2009)
    FTC v. Infinity Group Servs., No. SACV09-00977 DOC (MLGx) (C.D. 
Cal. filed Aug. 26, 2009)
    FTC v. Loan Modification Shop, Inc., No. 3:09-cv-00798 (JAP) 
(D.N.J., amended complaint filed Aug. 4, 2009)
    FTC v. Apply2Save, Inc., No. 2:09-cv-00345-EJL-CWD (D. Idaho filed 
July 14, 2009)
    FTC v. Loss Mitigation Servs., Inc., No. SACV09-800 DOC(ANX) (C.D. 
Cal. filed July 13, 2009)
    FTC v. Sean Cantkier, No. 1:09-cv-00894 (D.D.C., amended complaint 
filed July 10, 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)
    FTC v. Freedom Foreclosure Prevention Specialists, LLC, No. 2:09-
cv-01167-FJM (D. Ariz. filed June 1, 2009)
    FTC v. Data Medical Capital, Inc., No. SA-CV-99-1266 AHS (Eex) 
(C.D. Cal., contempt application filed May 27, 2009)
    FTC v. Dinamica Financiera LLC, No. 09-CV-03554 CAS PJWx (C.D. Cal. 
filed May 19, 2009)
    FTC v. Federal Loan Modification Law Ctr., LLP, No. SACV09-401 CJC 
(MLGx) (C.D. Cal. filed Apr. 3, 2009)
    FTC v. http://bailout.hud-gov.us, No. 1:09-00535 (HHK) (D.D.C. 
filed Mar. 25, 2009)
    FTC v. Home Assure, LLC, No. 8:09-CV-00547-T-23T-Sm (M.D. Fla. 
filed Mar. 24, 2009)
    FTC v. New Hope Property LLC, No. 1:09-cv-01203-JBS-JS (D.N.J. 
filed Mar. 17, 2009)
    FTC v. Hope Now Modifications, LLC, No. 1:09-cv-01204-JBS-JS 
(D.N.J. filed Mar. 17, 2009)
    FTC v. National Foreclosure Relief, Inc., No. SACV09-117 DOC (MLGx) 
(C.D. Cal. filed Feb. 2, 2009)
    FTC v. United Home Savers, LLP, No. 8:08-cv-01735-VMC-TBM (M.D. 
Fla. filed Sept. 3, 2008)
    FTC v. Foreclosure Solutions, LLC, No. 1:08-cv-01075 (N.D. Ohio 
filed Apr. 28, 2008)
    FTC v. Mortgage Foreclosure Solutions, Inc., No. 8:08-cv-388-T-
23EAJ (M.D. Fla. filed Feb. 26, 2008)
    FTC v. Nat'l Hometeam Solutions, Inc., No. 4:08-cv-067 (E.D. Tex. 
filed Feb. 26, 2008)
    FTC v. Safe Harbour Foundation of Florida, Inc., No. 08-C-1185 
(N.D. Ill. filed Feb. 27, 2008).

    The Chairman. Thank you very much. It happens that the 
votes are going to start at 2:45. So it's now 2:45, so they 
haven't started.
    So why don't I call on myself to ask the first question. 
And that's simply going to be for you to explain something 
which you just referred to. And that is, I think, what at least 
we want to do, some of us, is to allow you to be able to use 
the Administrative Procedures Act. And please don't count me as 
being totally familiar with those instead of the Magnuson-Moss 
Act to promulgate rules under the FTC Act.
    Can you please explain? You referred to it as being 13th 
Century which is a definite characterization. I'd just like to 
know a little bit more about that.
    Mr. Leibowitz. The Magnuson-Moss Act. Under the Magnuson-
Moss Act, when we do a rulemaking rules, can take literally 8 
to 10 years. Entities that are opposed to the rules can ask for 
a sort of regulatory time out. They can ask for referees.
    As a result it's essentially a--it's almost an insurance 
that when we want to move nimbly or agilely on an issue of some 
importance, and again, where there's some opposition. And many 
rules that we try to do have some opposition. It's almost 
impossible to do that.
    And so our hope is that as legislation moves forward we get 
a clearer standard that is closer to or like the APA standard 
which is notice and comment rules. When we do those notice and 
comment rules, by the way, we take them very seriously. And we 
try to use--and we try to do them very judiciously.
    So for example, in the Omnibus Appropriations Act, Mr. 
Chairman, you and Senator Dorgan put a provision in that gave 
us authority to do APA rulemaking, specifically, for mortgages. 
And we have just announced the first prong of our mortgage 
modification rule. That's the ban on advanced fees. But it has 
taken us pretty close to a year to do that.
    So we're pretty thorough when we do these rules. We're 
pretty bipartisan. We're very bipartisan. But we do believe 
that if we have easier rulemaking we could move more nimbly on 
behalf of consumers.
    The Chairman. The vote has started. Can I just say that 
it's occurred to me just going through this material that most 
everything takes a long time?
    Mr. Leibowitz. That's right.
    The Chairman. I mean I was reading 10 years, 15 years. Is 
this the Department of Justice? Is this the nature of America 
or what?
    Mr. Leibowitz. Well, I would say when you're making--when 
you're doing a rulemaking, I don't know that it always takes 10 
or 15 years. But you want to do it right. Now ten or 15 years, 
it seems to me, is an excessive amount of time.
    In a year, 18 months, we can pretty much take comments from 
all the stakeholders; move forward where it's appropriate to do 
a rule. Of course, you can't solve every problem with a Federal 
Trade Commission rule, nor would we intend to. And try to move 
forward on behalf of consumers.
    So we think that with a little help from Congress, we can 
compact that timeframe. And we can continue to do good work. 
And set broad standards that make it easier to bring cases and 
easier for some companies that want to do the right thing not 
to feel like they're at a competitive disadvantage.
    The Chairman. Alright. Thank you.
    Mr. Leibowitz. Thank you.
    The Chairman. Senator Dorgan, would you Chair this? And a 
couple of us could go down and vote. The order of appearance is 
there.
    Senator Johanns, you'd be the first person to ask a 
question. So if you want to ask a question, here's your time. 
Right now.

                STATEMENT OF HON. MIKE JOHANNS, 
                   U.S. SENATOR FROM NEBRASKA

    Senator Johanns. I will keep this fairly short. But tell me 
the policy reason, originally, for why the FTC must use 
Magnuson-Moss instead of APA?
    Mr. Leibowitz. Well I think that's a really good question. 
And I'm not saying reasonable people can't disagree about this. 
Tim Muris, who was a terrific Chairman, the first Chairman 
under President Bush, believes that we shouldn't have APA 
rulemaking broadly. So does one of the Commissioners, who I 
respect enormously.
    But I think the original intent was that because we had 
broader--the original intent was that we were supposed to have 
very, very broad jurisdiction and limited remedies and since we 
covered so much of the waterfront of the economy that you 
wanted to place some restrictions on us. Now just by way of 
background, we have jurisdiction over unfair methods of 
competition which is actually broader than the antitrust laws, 
but having said that, I would make two points.
    One is that distinction has broken down over the years 
because we have been given APA rulemaking authority in many 
contexts, whether it's CAN-SPAM or whether it's Do Not Call or 
whether it's Children's Online Privacy Protection Act.
    And then two is in the economy we live in now and in the 
society we live in now, we need to move, I think, much faster 
than we did 95 years ago.
    And so that's why, on behalf of consumers, and so again, I 
think if you entrust us with the responsibility for being able 
to have APA rulemaking authority, I think we'll use it pretty 
judiciously.
    And the only other point I want to make is in the 1970s, 
particularly, because I know the 1970s history of our agency, 
when we were perceived to be doing things that Congress did not 
like. Congress understood exactly how to take away some of our 
jurisdiction. It wasn't in the rulemaking capacity.
    And so, I think if you give us this authority we'll have to 
use it very prudently because if we don't use it prudently and 
appropriately, we know it's not going to be there much longer.
    Senator Johanns. One thing I might ask and this would be 
just my last comment here. As you know the consumer piece of 
the proposed legislation is, the object of a big policy debate 
and how best to do it.
    Mr. Leibowitz. Sure.
    Senator Johanns. And I think it's a fair policy debate, 
personally. But one thing I would be very interested in is what 
you would like to do to help consumers, you know, maybe just a 
list of items that you can't do today or you feel you can't do 
today, that might aid us on this committee in trying to figure 
out next steps.
    Mr. Leibowitz. Alright. So that's a great--I mean, I'd like 
to get back to you with an answer.
    Senator Johanns. Yes.
    Mr. Leibowitz. I can give you a very short answer now, if 
you want.
    Senator Johanns. Yes.
    Mr. Leibowitz. So one thing we'd like to be able to do is 
have fining authority. You'd have to go to court to ask for it. 
Most state attorneys general, Senator Pryor knows, have this 
kind of authority because much of what we do is go after people 
who are engaging in fraud.
    We're bringing the case. It could be the Justice Department 
that brings it. It could be a state agency that's bringing it. 
But it's fraud. And although not everyone we go after has money 
at the end because we can get restitution for consumers or 
disgorged profits. But it is critical, I think, if we want to 
have a really strong deterrent to be able to propose fines if 
we bring a case.
    In terms of APA rulemaking, if you ask me what rules would 
we do, I could think of one that we would have done faster 
which is the mortgage rulemaking to which we're indebted to 
Senator Dorgan. I think we would have done that faster because 
we have had some discussions among commissioners about whether 
we could do rulemaking. We decided well, it's not APA 
rulemaking. It would take 10 years to do. It's not worth doing. 
Let's wait for Congress to do something.
    Maybe something I think we would consider and sometimes we 
would use is an advanced notice or notice of inquiry. I think 
we would consider doing a negative option rule because there 
are so many consumers who are being ripped off in small 
amounts, but in the aggregate, it's a huge amount of money on 
negative options. And then I'd say we'd really want to think 
and, you know, think for a while if we got this authority about 
what we wanted to do and what we wouldn't want to do because 
again, I tend to believe, I suspect you do to, you can't solve 
every problem by regulation. And you don't want to.
    Senator Johanns. No and yet as you were talking about the 
mortgage scams that are out there. It just so happens that 
probably every Senator could talk about this. It just so 
happens I have a friend, who needed money, had some equity in 
the house and you know what happened. And it's just a mess. I 
mean, it's just a mess.
    It's hard for us to figure out how to help. So it would be 
helpful if you'd give that some thought. Appreciate the answer 
you gave today. But give it some thought. Maybe supply the 
Committee with some additional thoughts.
    Mr. Leibowitz. Happy to do that, Senator.
    [The information referred to follows:]

    Although the Commission has a number of effective tools for 
stopping bad actors, certain holes in our authority make it more 
difficult--unnecessarily, in my opinion--to carry out our mission. The 
following four enhancements to the agency's authority would help 
substantially to fill those holes.

   APA Rulemaking: Because the Commission may not use the 
        ordinary Administrative Procedures Act (``APA'') notice-and-
        comment rulemaking procedures that most of our sister agencies 
        use, the Commission must do one of two things to promulgate a 
        rule: either obtain from Congress a specific grant of APA 
        rulemaking authority for a particular issue or use the 
        cumbersome and time-consuming Magnuson-Moss procedures. In my 
        view, either option is an inefficient and uncertain process for 
        addressing serious problems in a timely fashion, especially 
        those that can arise from emerging technologies or new 
        marketing practices. The Commission needs APA-style rulemaking 
        authority to be able to issue rules, when needed, in a 
        reasonable time and with a reasonable expenditure of resources.

   Civil Penalty Authority: The FTC currently lacks the 
        authority to seek civil penalties for violations of the FTC Act 
        itself. Although the Commission currently may seek penalties--
        through DOJ--in certain specified situations (e.g., for a 
        defendant's violations of an existing enforcement order or of 
        certain FTC rules), the ability to seek civil penalties for 
        knowing violations of the FTC Act itself would give the agency 
        an important tool for deterring unfair or deceptive practices. 
        This is especially important for cases in which obtaining 
        equitable remedies such as consumer restitution, rescission, or 
        disgorgement is impossible or impractical--because, for 
        example, victims cannot be identified or consumer injury and 
        wrongful profits cannot be quantified.

   Aiding and Abetting: The absence, outside of the 
        telemarketing context, of explicit authority to hold liable 
        those who aid and abet law violators hampers the Commission's 
        ability to take action against entities that do not themselves 
        deceive consumers, but supply knowing and substantial support 
        to those who do. In many cases, the aiders and abettors, by 
        providing essential services that the primary fraudsters could 
        not efficiently provide themselves, allow frauds to occur on a 
        much broader scale than would otherwise be possible.

   Independent Litigating Authority for Civil Penalty Actions: 
        It is anomalous that while the FTC is authorized to try its own 
        cases for a wide swath of remedies, including consumer redress 
        and disgorgement, it may not do so when seeking penalties. 
        Instead, the agency must refer cases to DOJ, wait up to 45 days 
        for DOJ to determine whether to take a case, and allow DOJ 
        staff time to learn the case and prepare. This requirement thus 
        entails duplication of efforts and slower enforcement. In 
        addition, it results at times in the agency having to choose 
        between obtaining early injunctive relief (for example, to halt 
        the violative practices and preserve assets for eventual 
        redress) or seeking penalties. Having the authority to litigate 
        civil penalty actions independently would allow cases to be 
        brought more quickly and effectively, without the disadvantages 
        occasioned by the referral obligation.

    Senator Johanns. OK.
    Mr. Leibowitz. Absolutely.
    Senator Johanns. Thank you.
    Senator Dorgan [presiding]. Senator Begich?

                STATEMENT OF HON. MARK BEGICH, 
                    U.S. SENATOR FROM ALASKA

    Senator Begich. Mr. Chairman, I'll be very brief, just kind 
of a general question. These folks that you are able to collect 
fines from, that you haven't processed, that you've gotten 
restitution from. If I turned on your page and went to the 
front page of it, is there a list of these companies and 
individuals that own or are a part of these companies that is 
in a way that I can easily access it?
    Mr. Leibowitz. You mean as sort of a black list 
essentially?
    Senator Begich. Yes. I'll tell you an example because I 
belong to a group, it's Angie's List, which is a list of 
subcontractors. I'm a member. And they put in there, here's the 
people, don't do business with them.
    Do you do that?
    Mr. Leibowitz. Well, when we have a settlement or when we 
bring a case it goes up on our website.
    Senator Begich. I know. But it's never legal.
    Mr. Leibowitz. No, no, no. And I--let me go back and let us 
think about that. It's a really--it's an interesting idea.
    You know, I'd have to talk to the other Commissioners about 
it. I think there's also the sort of notion on the other side, 
as I'm sure you know, that once you've paid your debt to 
society . . . But I also think consumers deserve notice and 
we're about notice in almost every context.
    Senator Begich. That's right. Because that record will 
always be in the court files. So all I'm saying is make the 
list.
    Mr. Leibowitz. Yes.
    Senator Begich. If you're going to do business, because 
I'll tell you one thing that changes businesses habits is when 
they're suddenly publicly noticed, not through a legal fine 
that most consumers will never go to the courthouse, but if 
they're going to the FTC because you've got some good 
educational materials here which I think are fantastic.
    Mr. Leibowitz. Yes, and let me tell you and just in a 
different context we used the same approach when we were 
starting to bring spyware cases and nuisance adware cases, the 
kind of adware that pops up on your computer.
    Senator Begich. Right, right.
    Mr. Leibowitz. You know, and you can't figure out how to 
uninstall it. We started going around talking about it and I 
thought, this is wonderful that we were going to publish the 
names of companies that whether knowingly or not knowingly paid 
the money that went to a company that went to an affiliate that 
went to another affiliate that ended up with someone being paid 
to put spyware in your computer. And that was very, very 
helpful in cleaning up that problem.
    Senator Begich. Could you get back to at least me and maybe 
the Committee just so----
    Mr. Leibowitz. Sure.
    [The information referred to follows:]

    You asked whether there is a list on the FTC's website of all the 
companies and individuals against whom the Commission has taken action 
that consumers could utilize in deciding with whom to do business. 
First, consumers can pull up on the website our extensive alphabetical 
list of all FTC cases since 1996. A second, and easier, way for 
consumers to locate relevant information is to search for the name of 
any company with which they are considering doing business. For 
example, if a consumer was considering hiring Hope Now Modifications to 
do a loan modification, he or she could quite easily put the phrase 
``Hope Now'' into our search function at www.ftc.gov, and the first 
link that appears is a press release titled ``Court Halts Bogus 
Mortgage Loan Modification Operations.'' We are considering additional 
ways to post the names of defendants in FTC actions.
    I would caution, however, against the description of our case list 
as a blacklist. Most FTC cases are settled, with no admission of 
liability on the part of the defendant and no formal finding of 
wrongdoing by the Commission or a court. Also, there are legitimate 
companies that the FTC has charged with violating the law in some 
respect, but that subsequently change their business practices to 
comply with the law.
    The best strategy to warn consumers about bad actors is through 
consumer education about bad business practices. That is why the FTC's 
multi-media consumer education campaigns give consumers the tools and 
information they need so that they can independently assess each 
company's marketing practices, spot red flags, and stop before paying a 
bad actor for any promised service that may not be provided.

    Senator Begich.--What your thought is? I just know when I 
was mayor we put the list of the people who owed money. And it 
was such an amazing thing when we not only did a press. It 
crashed the system because people were interested if they were 
on it, but they also wanted to see if anyone they knew was on 
it.
    Mr. Leibowitz. Well we've upgraded our computer system just 
recently.
    Senator Begich. OK. It's good to know that. Well I would be 
very interested as I've cut my time short only because of 
votes, but I would be very interested in this. I think it gets 
people to focus.
    Mr. Leibowitz. Yes, sir.
    Senator Begich. And it helps consumers. But just some 
feedback, that would be great.
    Mr. Leibowitz. We will do that. I'll go back and talk to my 
colleagues.
    Senator Begich. Great. Thanks.
    Mr. Leibowitz. Thank you.

                STATEMENT OF HON. BYRON DORGAN, 
                 U.S. SENATOR FROM NORTH DAKOTA

    Senator Dorgan. Chairman Leibowitz, we're going to have to 
recess in a few minutes. But let me say first of all that your 
announcement today is an enormous breath of fresh air. When I 
put the provision in the Appropriations bill that gives you the 
authority to direct you to take action on mortgage, it only 
gives you the authority to truncate that rulemaking process 
some.
    I'll tell you in the conference, trying to get this through 
conference, there were people having an epileptic seizure 
fighting like the devil to try to drop this provision. And we 
saved it. But, you know, this provision is a provision I put in 
because I wanted you to do exactly what you're doing and that 
is find the bad guys and take action.
    And I think what has happened in this country is 
unbelievable. There is unbelievable bottom feeding by greedy 
people who have gotten by with it for far too long. And it's 
also interesting to me today to see your agency taking action.
    I mean, I call some of these regulatory agencies the 
grateful dead, grateful that they get paid and dead from the 
neck up because they don't do a thing. And we've watched that 
for years and years and years. And you have decided to finally 
take some action in an area that desperately needs it. People 
have been fleeced for years and years and years now in these 
areas. So thanks for the work.
    Now let me just ask a quick question because I don't want 
to miss this vote. But my understanding is that probably up to 
80 percent of these mortgage relief groups are non-profits. Is 
that right? Non-profit status, so called non-profits?
    Mr. Leibowitz. Not in mortgage----
    Senator Dorgan. Which doesn't mean very much.
    Mr. Leibowitz. Not in mortgage modification.
    Senator Dorgan. OK.
    Mr. Leibowitz. Probably debt modification.
    Senator Dorgan. Debt modification.
    Mr. Leibowitz. And there's a--I don't know the percentage 
that that may well be right. And it's certainly high. Yes, it's 
certainly high.
    Go ahead, Senator.
    Senator Dorgan. Well----
    Mr. Leibowitz. It could be half. And it could be more.
    Senator Dorgan. You're right, probably debt relief. 
Obviously they are advertising, marketing aggressively, 
enrolling consumers into plans and so on. So it's a--I mean, 
non-profit status in those circumstances doesn't mean much to 
be in many cases. Some cases it probably does.
    But you work with many other Federal agencies I know in 
coordination on these issues. Can you describe your 
relationship with other agencies? I know there are some turf 
issues out there, but----
    Mr. Leibowitz. We're generally good. We're not perfect, but 
we're generally good at trying not to have too many turf issues 
in trying to work cooperatively. We play well with others I 
think is our reputation.
    And so for example, we're consulting on our mortgage 
modification rules and our mortgage rules both formally and 
informally with the Fed and with the banking agencies on the 
issue. By the way, on the issue of the rulemaking, we're 
keeping an open mind. We have a proposed rule. We're taking 
comments for 45 days that would prohibit advance fees.
    What I was struck by was that almost no one disagreed with 
this approach. And in fact I think even the American Bankers 
Association, I'll go back and check this and get back to you, 
called for a ban on advance fees.
    [The information referred to follows:]

    The American Bankers Association (``ABA'') submitted a comment that 
was supportive of the proposed Mortgage Assistance Relief Services 
rule. On review of the record, however, it appears that the ABA did not 
expressly state a position with respect to a ban on advanced fees. The 
only concern raised by the ABA was that ``the rules [the FTC] 
promulgates must be drawn so that they do not restrict the legitimate 
loss mitigation efforts of financial institutions and their affiliated 
mortgage servicers.''
    The following commenters expressly supported the ban on advanced 
fees: American Financial Services Association; California Reinvestment 
Coalition; Consumer Mortgage Coalition; Chase Home Finance, LLC; 
Housing Policy Counsel; Massachusetts Office of the Attorney General; 
National Association of Attorneys General; National Consumer Law 
Center; National Council of La Raza; New York City Department of 
Consumer Affairs; Office of the Minnesota Attorney General; Ohio 
Attorney General; and Sargent Shriver National Center on Poverty Law.

    Mr. Leibowitz. And that's comforting to us because you 
know, you want to be--you want to make sure that you bring 
stakeholders along and keep them company as we do it.
    Senator Dorgan. It's probably important to say there are 
some legitimate people.
    Mr. Leibowitz. Sure.
    Senator Dorgan. And interests that are doing good work for 
some vulnerable folks out there.
    Mr. Leibowitz. Oh, of course.
    Senator Dorgan. There are a lot of people that are preying 
on vulnerable folks and end up fleecing them. And so let me 
just say Senator Rockefeller, as you know, has had this 
committee investigating deceptive online charges and so on. I 
really appreciate what the Chairman has done.
    He's hired some folks that have the capability. Honest 
investigations. And I think that's very, very important. And as 
we look at E-commerce as a growing area for potential consumer 
harm and some of that exists. The question for us is what tools 
does the FTC need to be able to combat online fraud?
    What I would like you to do if you would, would be submit 
to this committee the kinds of tools you think are necessary. 
We'll determine what we think we can provide.
    Mr. Leibowitz. Of course.
    [The information referred to follows:]

    Since the emergence of the Internet as a channel of commerce, the 
Commission has conducted a vigorous and aggressive law enforcement 
program against online scams. The Commission shares your concern about 
the abundant and novel opportunities E-commerce presents for fraud. The 
Commission has targeted a broad spectrum of bad actors that use the 
Internet to victimize consumers. It has brought scores of cases against 
Internet scams, including on-line pyramid schemes, bogus ``government 
grant'' schemes, employment scams, and rogue Internet service providers 
whose primary activity was to provide an Internet portal for overseas 
fraud operators, pornographers, and identity thieves. Using both 
Section 5 and the CAN-SPAM Act, the FTC has pursued numerous deceptive 
spammers. This developing sector of the Nation's economy remains a high 
priority for the Commission in its enforcement and consumer and 
business education efforts.
    The following tools would assist in fighting online fraud:

   APA Rulemaking: Because the Commission may not use the 
        ordinary Administrative Procedures Act (``APA'') notice-and-
        comment rulemaking procedures that most of our sister agencies 
        use, the Commission must do one of two things to promulgate a 
        rule: either obtain from Congress a specific grant of APA 
        rulemaking authority for a particular issue or use the 
        cumbersome and time-consuming Magnuson-Moss procedures. In my 
        view, either option is an inefficient and uncertain process for 
        addressing serious problems in a timely fashion, especially 
        those that can arise from emerging technologies or new 
        marketing practices. The Commission needs APA-style rulemaking 
        authority to be able to issue rules, when needed, in a 
        reasonable time and with a reasonable expenditure of resources.

   Civil Penalty Authority: The FTC currently lacks the 
        authority to seek civil penalties for violations of the FTC Act 
        itself. Although the Commission currently may seek penalties--
        through DOJ--in certain specified situations (e.g., for a 
        defendant's violations of an existing enforcement order or of 
        certain FTC rules), the ability to seek civil penalties for 
        knowing violations of the FTC Act itself would give the agency 
        an important tool for deterring unfair or deceptive practices. 
        This is especially important for cases in which obtaining 
        equitable remedies such as consumer restitution, rescission, or 
        disgorgement is impossible or impractical--because, for 
        example, victims cannot be identified or consumer injury and 
        wrongful profits cannot be quantified.

   Aiding and Abetting: The absence, outside of the 
        telemarketing context, of explicit authority to hold liable 
        those who aid and abet law violators hampers the Commission's 
        ability to take action against entities that do not themselves 
        deceive consumers, but supply knowing and substantial support 
        to those who do. In many cases, the aiders and abettors, by 
        providing essential services that the primary fraudsters could 
        not efficiently provide themselves, allow frauds to occur on a 
        much broader scale than would otherwise be possible. Online 
        scams often have multiple players playing discrete roles--e.g., 
        advertisers, affiliate networks, affiliates, and search 
        consultants--most of whom have no direct contact or dealings 
        with the victims of the scam, but without whom the fraud could 
        not happen. Aiding and abetting authority would enable the 
        Commission to reach key players in these schemes who provide 
        knowing and substantial assistance.

   Independent Litigating Authority for Civil Penalty Actions: 
        It is anomalous that while the FTC is authorized to try its own 
        cases for a wide swath of remedies, including consumer redress 
        and disgorgement, it may not do so when seeking penalties. 
        Instead, the agency must refer cases to DOJ, wait up to 45 days 
        for DOJ to determine whether to take a case, and allow DOJ 
        staff time to learn the case and prepare. This requirement thus 
        entails duplication of efforts and slower enforcement. In 
        addition, it results at times in the agency having to choose 
        between obtaining early injunctive relief (for example, to halt 
        the violative practices and preserve assets for eventual 
        redress) or seeking penalties. Having the authority to litigate 
        civil penalty actions independently would allow cases to be 
        brought more quickly and effectively, without the disadvantages 
        occasioned by the referral obligation.

    Senator Dorgan. But I think all of us on this committee 
want the Federal Trade Commission to be active and aggressive 
on behalf of consumers. We're not interested in smothering 
people with regulations and all these. But we're interested in 
finding the bad people out there and making sure they are 
exposed.
    You mentioned a moment ago, I think, was it a $28 million 
settlement?
    Mr. Leibowitz. Yes.
    Senator Dorgan. And tell me the company involved?
    Mr. Leibowitz. The company involved was EMC. It's a 
subsidiary of Bear Stearns. Although in fairness to Bear 
Stearns, it bought the company, I think, after our 
investigation started.
    We alleged that they hid fees to consumers and late fees 
and other fees. And consumers didn't know about paying them. 
And then they were hit with multiple fees for not paying the 
fees they hadn't seen.
    We got a settlement for, I think 28,000 consumers. Now they 
each got about $350. But, you know, for a middle class family, 
that's meaningful.
    And again, you know, we believed, the company may still 
dispute this. I don't know if they do. But we believe they were 
ripped off. Because there were these embedded fees no one knew 
about and then they were compounded. And that's exactly what 
you don't want businesses to do.
    Senator Dorgan. Let me just say that I don't know Bear 
Stearns. I mean, I know the name of the company and the 
reputation, but if Bear Stearns buys a company I assume they do 
due diligence in who they're buying.
    Mr. Leibowitz. Sure.
    Senator Dorgan. And what the business practices are. And 
that's exactly what Senator Begich was talking about. I think 
people ought to have someplace where they can go and see who 
has been doing what. Who are the good actors and who are the 
bad actors out there?
    So, I encourage you to look into the recommendation and 
suggestion by Senator Begich.
    Mr. Leibowitz. We'll do that.
    Senator Dorgan. I'm going to have to go vote. We're going 
to--the Committee will be standing in recess. This vote will be 
about ending now and the second vote will occur immediately.
    So I think within 20 minutes the Committee will reconvene. 
The Committee is now in recess.
    [Recess.]
    The Chairman [presiding]. I apologize for the delay. There 
were two votes concerning confirmation. And I'll say no more.
    Let me ask you about your authority over financial products 
and services. In these very bad times it's obviously crucial 
that we're all doing everything we can to protect consumers who 
are struggling financially. It's particularly important that 
the FTC continue with aggressively enforcing laws within its 
jurisdiction to protect consumers.
    I mentioned within its jurisdiction part. I want you to 
explain that as you now see it. Since you became Chairman how 
has the FTC increased its enforcement activities, if you have, 
if you are able to? If there are others who are competing to 
try and take it from you? I want to know that and in the area, 
particularly, of financial practices and services.
    And also what else has the Commission done to make sure 
that consumers are protected during this economic downturn and 
beyond? In a sense what I really want you to talk about is what 
you want to do, what you can do, what you would like to do that 
you can't do, what you'd like to do that maybe you could do?
    Mr. Leibowitz. Right. And what we're doing now that we 
don't want to be taken away from us.
    The Chairman. That could be part of the question.
    Mr. Leibowitz. So let me just talk. I'll talk about each of 
those.
    So first, in terms of helping consumers who are victims of 
predatory financial instruments, we had been pretty good, I 
think, over the last few years about focusing on this. But, 
consumers are suffering, as we all know. And you know, if 
you're a victim of the economic downturn, we want to ensure 
that you're not also the victim of some scammer.
    So we have done--we've ratcheted up the level of activity 
in this area. We dedicated more attorneys. We've brought in the 
last, I think 10 months alone, about 40 cases involving 200 
defendants.
    And then we partner with state attorneys general which is 
critical because we're all under resourced. They are. We are. 
But when you work together you can be more effective. And you 
can also get the word out.
    So you do a press conference in Los Angeles--some of the 
worst malefactors in this area are actually based in Orange 
County. And you know, it's alerting consumers. And that's part 
of what we want to do.
    In terms of--and so we're going to keep on making this a 
major, major focus because predators, con artists, they go 
where the money is, right? I mean, the money now is on things 
like mortgage modification scams and credit card settlement 
scams. And so it's really important that we continue activity 
in this area.
    To make us more effective, we believe that things like APA 
rulemaking authority which you gave us for this specific 
purpose, but which we could use more broadly.
    The Chairman. How?
    Mr. Leibowitz. Judiciously. How? Well, I would say this.
    If we had APA rulemaking authority 2 years ago we probably 
would have, I believe, hindsight is always 20/20. But I believe 
we would have done a mortgage foreclosure rescue scam rule, 
like we've done now, sooner. And I think that would have been 
helpful to consumers.
    And then it just gives us the agility when the next 
problem----
    The Chairman. Right.
    Mr. Leibowitz. --for consumers comes up to move quickly.
    The Chairman. Right. And let me just put pressure on this 
point.
    Mr. Leibowitz. Definitely.
    The Chairman. Because you're underfunded. That's always 
going to be. When I said my opening statement that you'd 
brought 100 cases I was saying to myself as I was saying that, 
is that a lot of cases or is that very few cases?
    And so what I want to know is when you do work with an 
attorney general in Orange County or wherever, or where you 
enter, make your presence felt, it can either be known to a 
discreet audience which are those parties which are affected.
    Mr. Leibowitz. Right.
    The Chairman. And those who were working on it on both 
sides or it can have a larger effect. And what I want, of 
course, is to have a larger effect. But I don't know if that 
works in the real world. And I'm not a lawyer.
    Mr. Leibowitz. Well, I mean, here's how it does. And this 
is why rulemaking can be a critical tool in our arsenal. 
Because if you make it clear that here is the standard and you 
cannot fall below it, then I think a lot of companies that--and 
most companies are legitimate. But a lot of companies in the 
areas where we're seeing rip- offs of consumers will say, ok, 
we're not going to go below the standards that the FTC set. And 
they certainly won't feel like they're being dragged down by 
their competitors who are engaging in clearly unfair and 
deceptive acts or practices.
    The other thing is when you do a rule oftentimes our rules, 
and including the proposed ban on advanced fees, also has 
provisions that require clear disclosure. Now that's an area 
you've looked at in the negative option context, right, where 
consumers just don't know that these fees are embedded in their 
credit card bills. And so if you can force things like 
disclosure, you have a much wider effect because you educate 
consumers at the point of sale.
    The Chairman. But you can't make writing larger if it's 
literally small print.
    Mr. Leibowitz. Well, I would say if we pass a rule that 
says your disclosure has to be, as we--your disclosure has to 
be this large in this font. It can't be in a smaller font, a 
minute font compared to what your advertising is or your teaser 
rate of 1 percent mortgage for 15 years which we know is 
virtually, almost mathematically impossible. Yes, we can tell 
them you can't do that.
    And then if we see someone doing that, it's very easy to go 
to court to stop them. Assuming we can find them which usually 
we can. And so that's the kind of thing that our staff will 
consider doing.
    And then the other thing, of course, is we work with the 
stakeholders here, right? We work with industry to try to craft 
rules that aren't too burdensome on companies, but also protect 
consumers. And so rulemaking can be very, very helpful.
    The other thing I would say, and again, this is a--this was 
Caspar Weinberger's idea when he was the FTC Chairman. But I 
think it's a great one, is to have fining authority for 
violations. If we want to have real deterrent effect and if all 
we can do is disgorge profits then a company gets two shots, 
two bites at the apple.
    So, if we can say we're not only, to those companies that 
have money, we're not only going to get disgorgement for 
consumers, we're also going to ask for a fine from the court. I 
think that that gives us better leverage to protect consumers. 
And it's also a potential sanction that businesses will be 
aware of before they engage in questionable behavior.
    The Chairman. So that Senator Wicker, who is Ranking, can 
both make a statement if he wants and ask questions, I want to 
finish on this particular point because we're on it. And that's 
the so called rulemaking or reforms. There are proposals and at 
least--to make four significant changes in your act.
    One, it's rulemaking under the Administration--no, one 
there's a proposal to change the FTC's rulemaking authority to 
make it easier for the FTC to adopt rules prohibiting unfair, 
deceptive acts or practices. Do you think that reform is 
necessary? If so, how will it help consumers?
    Mr. Leibowitz. Yes, I think it will be very, very helpful. 
I think----
    The Chairman. Tell me why it will help and why it will help 
what you have.
    Mr. Leibowitz. It will help because under the Magnuson-Moss 
Act it sometimes takes us 8 to 10 years to do a rule.
    The Chairman. Ah ha.
    Mr. Leibowitz. By the time, you know, you fit--if it's a 
contested rule and most of--many rules are contested by one 
entity or another or a group. And so it would be very helpful 
to be able to do the rules in a year and a half. Again, it's 
notice and comment rulemaking.
    If you look at the mortgage rules that you and Senator 
Dorgan secured for us, we're doing a very deliberate, thorough 
job. We're bringing in stakeholders and so it's not willy-nilly 
overnight that we change the rule. We really listen to people.
    It takes a while. But you don't want rules to take eight to 
10 years. That's a glacial amount of time. And in the meanwhile 
bad guys might be ripping off consumers. So that's why APA 
rulemaking would be very helpful.
    The Chairman. Alright. Second, the Administration has 
proposed giving the FTC the authority to seek civil penalties 
for violations of the FTC Act, its prohibition against unfair 
and deceptive acts or practices. You don't have that now? How 
would that change the effect?
    Mr. Leibowitz. We have it under a few specific statutes 
like CAN-SPAM, Children's Online Privacy Protection Act, 
telemarketing sales or also Do Not Call. What we'd like it for 
or a majority of the Commission would like it for, is to be 
able to have a strong deterrent for violations of our bread and 
butter statute which is a prohibition on unfair or deceptive 
acts or practices. And the reason it will be helpful, speaking 
for myself and for a majority of the Commission, the reason it 
will be helpful is because sometimes you're not deterred if 
there's not a penalty.
    And again, sometimes we're really bringing fraud cases that 
could be brought criminally. If there's not a penalty, there's 
not a strong enough deterrent. And so we want that stronger 
deterrent.
    Again, Caspar Weinberger was the original author of this 
proposal. He testified before this Committee in the early 
1970s. It came out of this Committee.
    The Chairman. These are all on the House bill, I think.
    Mr. Leibowitz. What?
    The Chairman. These are all in the House bill.
    Mr. Leibowitz. And these are in the House bill and it has 
passed the House. That's exactly right.
    The Chairman. OK, third and Senator Wicker, I'm trying to 
hurry here. Currently you have to refer civil penalty cases to 
the Department of Justice.
    Mr. Leibowitz. Right.
    The Chairman. Which I generally think of as this giant mall 
from which you will emerge or not emerge ten or 15 years from 
now. No, you don't have to comment on that. There is a proposal 
to give the FTC independent authority to litigate civil penalty 
cases. Do you think this reform is necessary?
    Mr. Leibowitz. Oh, I think this is an absolutely critical 
reform. I don't believe there are many objections to it. But 
right now the Justice Department, it doesn't take ten or 15 
years, it maybe takes a few months to ramp up to speed.
    But if we're going after someone who is say, violating the 
Do Not Call rule, which is one of those rare instances where we 
can get fining--where we have fining authority. But there's 
also ongoing harm because this malefactor is calling people up 
all the time using predictive dialers, calling tens of 
thousands of people up a day. We have a choice right now. We 
can either go to court and shut them down very quickly, 
sometimes with a temporary restraining order or we can give it 
to the Justice Department and wait 6 weeks or 3 months or 
longer to have them take the case.
    Now the FCC already--so we should be able to do both. The 
FCC has this authority. The CFTC has this authority.
    I don't believe anyone opposes it. I think in the past the 
Justice Department might have. I don't believe they oppose it 
now. So we're hoping, I think, that there will be unanimity to 
move forward with independent litigating authority.
    The Chairman. And that too is in the House bill.
    Mr. Leibowitz. And that too is in the House bill, that's 
correct. It passed the House.
    The Chairman. And that will--actually those are, I think I 
skipped one.
    Mr. Leibowitz. You might have--it might have been the 
aiding and abetting.
    The Chairman. Yes, it is. To give you the authority to 
bring enforcement actions against entities for aiding and 
abetting, others who are engaged in unfair and deceptive 
practices, explain the need for that. That's also in the House 
bill.
    Mr. Leibowitz. And that's also in the House bill. And 
again, this one has stirred up some small amount of controversy 
or push back. I sometimes think that the push back comes from 
the Washington people rather than the companies themselves, but 
the folks in DC who are in the business of raising concerns 
about issues here.
    First of all, we already have this authority in the 
telemarketing sales rule. So if someone aids and abets a Do Not 
Call violation, we can go after those folks. We used to have 
this authority for everything else up until the 1997 decision 
called Denver Bank. And then Congress restored this authority 
for the SEC but not for the FTC.
    And the reason we want it is this. A lot of times there's a 
malefactor, someone who is a bad actor, who is ripping off 
consumers. But someone like a credit card processor, not a 
credit card company, but a credit card processor is 
facilitating it because consumers are charging back 40 percent 
or 50 percent or more of all the charges. And the credit card 
processor which makes money on each processing, doesn't do 
anything about it.
    Now if we have aiding and abetting authority, that's the 
kind of instance in which we would use it. And there are plenty 
of good credit card processors, but we've certainly seen some 
bad apples.
    The Chairman. I apologize to my colleagues, but it is 
interesting the way in certain parts of your jurisdiction you 
have authorities and in certain parts you don't have 
authorities and that's all kind of disturbing to me as I try to 
learn more about it.
    I call now on Senator Wicker.

              STATEMENT OF HON. ROGER F. WICKER, 
                 U.S. SENATOR FROM MISSISSIPPI

    Senator Wicker. Well thank you very much, Mr. Leibowitz and 
Mr. Chairman.
    Well let me ask about the litigation authority. As I 
understand it there are two things we're talking about.
    One is going in and getting an immediate injunctive relief, 
a TRO.
    Mr. Leibowitz. Yes.
    Senator Wicker. And you could do that now.
    Mr. Leibowitz. We can do that now.
    Senator Wicker. And then on the civil penalties and I think 
you mentioned for example, the Do Not Call rule.
    Mr. Leibowitz. Right.
    Senator Wicker. As an example. You would like to have 
independent authority to go in and sue for civil penalties 
without consulting the Department of Justice.
    Mr. Leibowitz. Right, just as the SEC does.
    Senator Wicker. OK. But now the Chairman was concerned that 
the Department of Justice would be this black hole where it 
would be lost forever. In your testimony you said, that's not 
true. It's a matter of 6 weeks or so.
    Mr. Leibowitz. Well it could be a matter of 6 weeks. It 
could be a matter of a little bit longer. But the point is and 
I'm not saying that they don't do a very good job in their 
Office of Consumer Litigation to try to move our cases.
    But having said that, if there's ongoing harm and a company 
who is flagrantly violating the law, we believe, and this is, 
the Commission is unanimous on this, we believe we ought to be 
able to go to court as quickly as we possibly can for a TRO. 
And then later try to get fines after we litigate the case or 
settle the case because fines, as you know, are a way in which 
you can effectively deter people from engaging in law 
violations.
    Senator Wicker. OK. Well it seems to me that, 
realistically, you are able to do that now. And I thought it 
was a 45 day window after which DO----
    Mr. Leibowitz. That's a great question.
    Senator Wicker. OK. Well, let's check on that and take that 
for the record because I could be corrected also.
    But it was my understanding that in order for you to pursue 
civil damages----
    Mr. Leibowitz. Right.
    Senator Wicker. --that there was merely a 45 day window 
after which if DOJ had not acted----
    Mr. Leibowitz. Right.
    Senator Wicker. --the FTC could go ahead.
    Mr. Leibowitz. So that's a great question. And some of this 
also relates to some of the iterations or versions of the 
Consumer Financial Protection Act. So there's a 45 day window 
for them to decide whether to take the case.
    Senator Wicker. Right.
    Mr. Leibowitz. They invariably do. I think I can count one 
exception in my 5 years on the Commission. They invariably take 
the case, but they don't decide for 45 days. Then the process 
moves forward.
    We also, almost invariably, once they take the case, we 
deploy, we send an FTC person over to the Department of Justice 
to help them litigate the case because, of course, we know the 
case. We did the investigation. We've been looking at it for a 
long time. So it's terribly inefficient.
    And one of the things that I think the House corrected in 
the CFPA legislation was in the original version as introduced 
it required us to, I think, give the proposed new Consumer 
Financial Protection Agency 120 days in some circumstances, but 
I think 120 days advance notice and let them wait.
    Senator Wicker. OK.
    Mr. Leibowitz. So that was a problem too for us and the 
House corrected that.
    Senator Wicker. OK. I'm still not sure that it's something 
that egregious that needed to be corrected. But let me get back 
to the main point.
    Mr. Leibowitz. Sure.
    Senator Wicker. And I hope the Chairman will indulge me for 
a moment or two.
    The FTC has broad jurisdiction over the economy. And this 
Magnuson-Moss Act was enacted in an effort to sort of reign in 
FTC which at the time the Congress felt had become, some people 
would say, a fourth branch of government. So I will tell you, 
quite frankly from the outset, I'm concerned about the House 
passed bill.
    And with regard to the rulemaking you want under the 
Administrative Procedures Act, what that does is take you out 
from the requirement of proof of substantial evidence in 
support of the Commission's action. Is that correct?
    Mr. Leibowitz. Let me get back to you on that technical 
definition.
    [The information referred to follows:]

    Should we be fortunate enough to obtain relief from Magnuson Moss's 
burdensome procedures, the Commission's fact finding in rulemaking must 
remain subject to thorough judicial review, and I would be happy to 
discuss with members of the Committee the appropriate standard of 
review for FTC rules.
    Under the APA, a court can invalidate a rule if it finds that it is 
arbitrary and capricious. Under Magnuson-Moss, a court can invalidate a 
rule if it finds that it is not supported by substantial evidence. Some 
courts have interpreted the standards for review of APA rulemaking and 
Magnuson-Moss rulemaking similarly. In Consumers Union of U.S. v. FTC, 
801 F.2d 417, 422 (D.C. Cir. 1986), the court (opinion by then-Judge 
Scalia) held that the FTC Act's ``substantial evidence'' standard for 
judicial review of a Magnuson-Moss rule does not call for a more 
intensive review than the ``arbitrary and capricious'' standard for 
notice-and-comment rules under the APA, but rather requires the same 
degree of evidentiary support; see also, e.g., Eagle Broadcasting 
Group, Ltd. v. FCC, 563 F.3d 543, 551 (D.C. Cir. 2009) (explaining that 
the ``substantial evidence'' standard for review of ``formal'' 
rulemaking under the APA--the same language adopted by Magnuson-Moss--
is the same as the ``arbitrary and capricious'' standard for notice-
and-comment rules). Thus, some have posited that if a rule's factual 
underpinnings are not supported by substantial evidence, it is 
arbitrary.
    On the other hand, many who were present at the enactment of the 
Magnuson-Moss Act believe the substantial evidence standard should be 
higher.

    Senator Wicker. OK.
    Mr. Leibowitz. I mean you're absolutely right that we have 
very broad jurisdiction. I mean, so does the Fed, so does the 
FCC and they're not under Magnuson-Moss. But, and my 
understanding--and again, when we do a Magnuson-Moss rulemaking 
it can take an awful long amount of--it can take a terribly 
long amount of time to do a rulemaking. As a result we don't do 
a lot of rulemakings.
    And when we've done APA rulemaking and you've given us APA 
rulemaking for certain things like mortgages, as you did in the 
Omnibus bill, we're pretty thoughtful. And we're pretty 
deliberative in the way we move forward.
    So I certainly believe reasonable people can disagree when 
the FTC was created about this issue, and Tim Muris, a terrific 
Chairman, first Chairman under President Bush and Bill Kovacic, 
who is one of my colleagues on the Commission now, certainly 
take the view that you do that because we have broad 
jurisdiction we should have limited remedies. But I also 
think----
    Senator Wicker. Under the APA the burden would simply be 
that you not be arbitrary and capricious, that would be the 
burden. And that concerns me in an agency that is potentially 
as powerful as the FTC.
    I'm intruding on my time. And we have another questioner. 
But let me ask you this.
    Mr. Leibowitz. Sure.
    Senator Wicker. This will be my final question, Mr. 
Chairman. This eight- to ten-year process that it can take to 
do a rule, I think really what you're saying is you don't even 
try now to do rules.
    Mr. Leibowitz. Sometimes we will.
    Senator Wicker. Very rarely.
    Mr. Leibowitz. But rarely.
    Senator Wicker. I guess there's testimony and comment to 
analyze, and that takes staff time. What if you put more staff 
on a rule and still had to show to the American people and to 
Congress that there's substantial evidence to justify this 
rule? And what if we gave you a little more personnel to work 
on that? Wouldn't that speed things along also? And still be 
satisfied about this burden?
    Mr. Leibowitz. We would certainly take more personnel and 
you know, in 1979 when the population of the United States was 
225 million we had 1,800 employees, maybe a little bit more. 
Now we have just about 1,100 and the population is over 300 
million. And we've been--because I think we have been a 
consistently effective agency, you've made us the lead 
enforcement agency on COPPA and CAN-SPAM.
    So I do worry that--and I appreciate that the quality of 
our work is being strained by the quantity of demands placed 
upon us. And I think more personnel would help. But I also 
think it's partly the amount of personnel who are doing rules. 
It's also partly that under the Magnuson-Moss Act sometimes if 
you're in opposition to Magnuson-Moss rule you can call for a 
time out. You can call for an independent referee.
    Now, yes, Congress, I think at that time when Magnuson-Moss 
was passed wanted to design a cumbersome system. But I also 
think you ask us to do a lot more now. And I don't think 
anyone, even the Wall Street Journal which had an editorial 
saying they didn't want to give us most of this authority. They 
didn't say that about independent litigating authority, by the 
way.
    I think they believe that we're a pretty responsible 
agency. We're a very bipartisan agency. I'm the only Democrat 
at the FTC now. We're hoping to get two more Commissioners 
soon.
    But we're pretty thorough. We're pretty deliberative. And I 
just think for the things that you want us to do in terms of 
protecting consumers, some relief from Magnuson-Moss and 
something like APA rulemaking would be very, very helpful.
    Senator Wicker. On the record, sir, would you supply us 
with examples of rules that took too long to make it?
    Mr. Leibowitz. Yes, I can.
    Senator Wicker. And give us some historic data on the staff 
devoted to the rulemaking effort.
    Mr. Leibowitz. Yes, be glad to do that. Give me a few days 
to get that information back to you. I think that would--I'd be 
happy to do that.
    [The information referred to follows:]

    Three examples of Magnuson-Moss rules that took too long are the 
Credit Practices Rule and the Used Car Rules, each of which took almost 
9 years, and the Funeral Services Rule, which took more than 7 years.
    Other rulemakings that did not ultimately result in rules but 
nonetheless went on for many years include: Mobile Homes (almost 12 
years); Hearing Aids (over 10 years); Health Spas (over 10 years); 
Protein Supplements (almost 9 years); OTC Antacids (over 8\1/2\ years); 
and Food Advertising (over 8 years).
    With respect to the number of staff devoted to Magnuson-Moss 
rulemakings, all of the rulemakings using those procedures to create 
new rules were conducted more than 25 years ago.\1\ Also, all of the 
rules were initiated prior to the 1980 amendment to the FTC Act 
requiring an advanced notice of proposed rulemaking and a determination 
that the practice addressed is prevalent. Staff has gleaned from some 
of the post-hearing staff reports illustrative staffing information:
---------------------------------------------------------------------------
    \1\ Eight Magnuson-Moss rules have been amended, also using 
Magnuson-Moss procedures. Building on existing rules, amendment 
proceedings involved fewer issues than did the original promulgations, 
and they were typically more lightly staffed. In these eight instances, 
interested parties generally did not demand hearings to deliver their 
oral presentations--although most, if not all, amendment proceedings 
involved one or more public workshops to develop a full record.

   Mobile Homes: At least 13 staff members worked on the post-
---------------------------------------------------------------------------
        hearing staff report.

   Used Cars: More than 14 staff members worked on the post-
        hearing staff report.

   Funeral Industry: At least 16 staff members worked on the 
        post-hearing staff report.

    These numbers do not include the Presiding Officer (who was 
obligated to produce a separate report) or his staff, Bureau of 
Consumer Protection management reviewers, Office of General Counsel 
advisors, or the Commissioners' offices. Staff familiar with the 
rulemaking proceedings inform me that these staffing levels were 
typical.

    The Chairman. Thank you, Senator. And now former 
prosecutor, Senator Klobuchar.

               STATEMENT OF HON. AMY KLOBUCHAR, 
                  U.S. SENATOR FROM MINNESOTA

    Senator Klobuchar. Thank you very much.
    Thank you, Commissioner Leibowitz for your leadership as 
Chair. We've worked together on several things. I really 
appreciated the way the FTC pursued the Ovation case in 
Minnesota when I brought it to your attention at a hearing 
about the price jacking up with the drug how quickly the FTC 
responded and actually brought a lawsuit that's pending right 
now in Minnesota as far as I know. So thank you for that work.
    The subject I wanted to follow up a little bit with what 
Senator Wicker was talking about. And I would also appreciate 
those specific examples.
    Mr. Leibowitz. I'll send them back to the Committee.
    Senator Klobuchar. OK, very good. And is there something in 
between the APA rulemaking and Magnuson-Moss that would be 
helpful to you?
    Mr. Leibowitz. I am sure there is. And we can think about 
that. I believe there are in some areas, types of rulemaking 
where you bring the stakeholders together. And I'm sure there 
is something between the sort of draconian, medieval Magnuson-
Moss Act and the thorough----
    Senator Klobuchar. Do you want to comment more on that?
    Mr. Leibowitz. No, no, no. I just--I want to use objective 
criteria. I don't want to get too--I don't want to be 
subjective about my views on Magnuson-Moss or the Commission's, 
the majority of the Commission's views on Magnuson-Moss.
    But I'm sure there are ways to modify Magnuson-Moss 
rulemaking to make it more useable for the Commission while 
ensuring that the rulemaking is thorough. But I'd also say if 
you look at the APA rulemakings we've done because you 
specifically gave them to us in some instances, we're pretty 
thorough in the--when we do it that way as well.
    Senator Klobuchar. Very good.
    In your testimony you stated that should we decide to 
change our current system of consumer financial protection the 
FTC's authority and ability to protect consumers should not be 
eroded or made unclear. Do you see specific threats on these 
fronts from any of the current proposals from Congress?
    Mr. Leibowitz. Well I would say that the--and I think that 
the Commission believes that the legislation as it passed, the 
CFPA, as it passed the House did a very good job in ensuring 
that we can still protect consumers. Essentially while it took 
away our rulemaking authority for, which is Magnuson-Moss 
rulemaking, for financial services, it would leave us with the 
authority to bring cases.
    And the other area where we were very concerned was the 
area--was the notion that we would have to wait, as we have to 
do with the Justice Department, 120 days depending on which 
duration for the new agency if it's created, to decide whether 
to take a case. And of course, if there's ongoing harm like, 
you know if there was a bad actor engaging in financial fraud 
but doing it by robo calls, we wouldn't want to have to wait 
that long. I think that the version as passed by the House as 
moved has made a lot of progress in minimizing those concerns, 
from the Commission's perspective.
    Senator Klobuchar. Thank you.
    As a former prosecutor, as Senator Rockefeller mentioned, I 
understand the benefit of being able to reach not only the 
direct perpetrators, but also those bad actors that support and 
enable others to violate the law. I recognize that absent 
direct statutory authority to go after these aiders and 
abettors, the FTC has developed alternative assistance legal 
theories to reach secondary actors. Can you discuss the success 
and shortcomings of these alternatives theories and the first 
question? Second, how would specific statutory authority 
improve the FTC's law enforcement in this area?
    Mr. Leibowitz. Well, I would say the specific statutes or 
let me answer your second question first. The specific 
statutory authority makes it clear that we can do this. And 
really all it does is restore the authority that we had before 
the Denver Bank case. And make it consistent with the authority 
we have under the Telemarketing Sales Rule. Senator Rockefeller 
mentioned the crazy quilt patchwork of laws that we're under.
    And so we have tried alternative theories. And sometimes 
they are successful. I think we had a payment processing case 
in which we won in district court and was appealled last year.
    But there are people, there are entities that are aiding 
and abetting fraud or aiding and abetting unfair and deceptive 
acts or practices. And we protect a bunch of consumers by going 
after those folks. And I don't understand why there has been 
some amount of opposition to this because, you know, we're in 
the business of protecting consumers. And we're in the business 
of trying to bring actions against people who are ripping off 
Americans.
    And so I think clarifying the standard would be much better 
and much more useful to us and much more useful to consumers 
basically.
    Senator Klobuchar. Thank you.
    The Chairman. Go ahead.
    Senator Klobuchar. I have to go back to another hearing. 
But I want to thank you for letting me ask questions.
    The Chairman. Of course because of your interest.
    Senator Klobuchar. Thank you. I'll await the answers about 
the specific examples instead of going----
    Mr. Leibowitz. That would be great. And we'll also give you 
specific examples on alternative theories that we've used.
    [The information referred to follows:]

    There are instances in which the Commission can allege that those 
who assist scammers have violated section 5 of the FTC Act. For 
example, the Commission is able to take action against those who 
knowingly assist telemarketing scammers. In the Telemarketing and 
Consumer Fraud and Abuse Prevention Act, Congress gave the Commission 
explicit aiding and abetting authority with respect to telemarketing. 
This authority has proven very useful in prosecuting numerous bad 
actors, but it does not allow the Commission to reach those who 
knowingly assist scammers defrauding consumers over the Internet or 
through the mail or other means that do not involve telemarketing.
    In some instances, the facts permit the Commission to allege that 
the assistor provided the scammer with the ``means and 
instrumentalities'' of the fraud scheme. Under the ``means and 
instrumentalities'' theory, a person or entity that places in the hands 
of another a means of consummating a fraud has directly violated the 
FTC Act. This occurs, for instance, when the assistor provides the 
scammer with counterfeit products to be sold as genuine goods. The 
means and instrumentalities theory is, however, generally limited to 
instances in which the fraud assistor has provided an inherently 
deceptive thing that is then used to deceive consumers.
    In other instances, the facts permit the Commission to allege that 
the assistor engaged in ``unfair'' conduct by assisting the scammer. An 
act or practice is ``unfair'' if it is proven to: (1) cause substantial 
injury to consumers, (2) that they cannot reasonably avoid themselves, 
and (3) is not outweighed by countervailing benefits to consumers or 
competition. In a case that is currently on appeal, the Commission 
alleged that the defendant's payment processing business made 
unauthorized debits to consumers' bank accounts on behalf of a scammer. 
While we believe that it is appropriate in this instance, the use of 
the Commission's unfairness authority in this fashion does not have the 
long jurisprudential history associated with the concept of aiding and 
abetting and involves proving the unfairness elements described above 
rather than focusing on the assistor's relationship with and knowledge 
of the fraudster's activities.
    Furthermore, in some instances, facts permit the Commission to 
allege that an entity is part of a common enterprise with the scammer. 
A common enterprise exists where factors such as commingling of assets, 
common ownership, shared locations, and other considerations 
demonstrate that apparently independent companies are part of the same 
enterprise. It is not necessary or even typical, however, for assistors 
to be so closely affiliated with scam perpetrators.

    Senator Klobuchar. OK, very good. Thank you.
    The Chairman. OK. That's the first time in the history of 
the Commerce Committee that a Chairman's ever been turned down 
for another question.
    [Laughter.]
    The Chairman. I was just handed a note. Thank you, Senator 
Klobuchar, very much.
    I was just handed a note which interests me. It says even 
at the height of the FTC's resources/staffing, 1975 to 1985 
basically, it still took 10 years to pass consumer protection 
rules like the ones on credit practices. Can you explain that 
to me because I'm really having a hard time between the sort of 
45 days things that he's talking about and what----
    Mr. Leibowitz. Alright. We do many things and we try to act 
holistically, but think of them as different buckets. When we 
want to bring a civil penalty case, this is the 45 days, in 
those few instances Children's Online Privacy Protection Act, 
Telemarketing Sales Rule, Do Not Call, CAN-SPAM, we must go to 
the Justice Department.
    The Justice Department then has 45 days to decide whether 
to take our case. In most instances they take 45 days. And in 
virtually every instance they then take the case. So we have to 
wait. There's a lag time.
    And even though they do a good job, it's not 10 or 15 
years. They do a good job of trying to move forward on our 
cases. There's a lag time.
    Now when we're confronting ongoing harm to consumers, like 
someone who is spamming consumers or someone who is violating 
the do not call rule and calling up a bunch of consumers or 
making robo calls, we want to be able to do both. And we think 
we should because we want to stop ongoing harm. And we want to 
try to get fines against folks who are deliberately violating 
the law.
    Now the ten years for rulemaking is when we have to use 
Magnuson-Moss. Magnuson-Moss--so rulemaking is different than 
fining. And when we use Magnuson-Moss it sometimes, I'd say two 
things.
    As Senator Wicker mentioned, sometimes we know it's going 
to take so long to do a Magnuson-Moss rule that we just don't 
do it. And we had talked a lot about mortgage modification 
scams among Commissioners, we had actually brought the Fed in 
for two meetings and had two Commission meetings to talk about 
what we could do in this area in late 2008, early 2009. And we 
knew that we could not do a rulemaking here.
    So we just hoped that Congress would do something for us. 
Fortunately you and Senator Dorgan did.
    When we do do rulemakings and again we've done only a few 
Magnuson-Moss rules since I've come to the Commission. And I've 
been there 5 years. Mostly they had started before I got there. 
It takes a really long time.
    And you know, when there's opposition and again, I hate to 
sound like a broken record, but when you're doing a tough rule 
sometimes there is opposition. Sometimes businesses have 
entrenched business practices which may not be beneficial to 
consumers. Then, you know, it is just very hard to enact a 
rule.
    And so, you know, as you pointed out we deal with a kind of 
a crazy quilt patchwork of statutory authority. We try to do 
the best we can. But as we think through and again not, this is 
as we think through how we can be more effective, how we can be 
more effective with fewer employees than we had.
    One of the ways we can do that, Mr. Chairman, is to have 
this expanded authority. And we don't take it lightly. And we, 
you know, when we do do this notice and comment APA rulemaking 
it's not on a whim. It's not a notice and comment for 15 days 
and then we're done.
    We do workshops. We meet with stakeholders. We take 
submissions. We read the submissions. We incorporate thinking 
because we know we're not perfect here. We learn about 
industries. And then we do our rulemakings.
    And so we are not perfect but we believe we can be more 
effective this way. And even, I should say, even one of my 
colleagues, Bill Kovacic, the former Chairman, now a 
Commissioner, believes that it's appropriate to have APA 
rulemaking and civil penalty authority on a case by case basis. 
So it's not as if anyone thinks we're going to try to change 
the world with this rulemaking.
    We're going to be very deliberative. We're going to be very 
thoughtful if we're fortunate enough to get it.
    The Chairman. Alright. Let me switch to a final set of 
questions. In comes the President and he suggests the creation 
of something called the Consumer Financial Protection Agency, 
CFPA. And that is obviously a good idea. I think it's better to 
have two cops on the beat than one.
    Mr. Leibowitz. Right.
    The Chairman. But it also raises potential conflicts, 
misinterpretations of jurisdiction, so to speak. So if the CFPA 
is created how do you envision the two of you working together?
    And then more than that, the Administration proposal gives 
the FTC backstop authority, whatever that means, to enforce 
various important consumer protection laws currently enforced 
by the FTC including the Truth in Lending Act, the Fair Debt 
Collection Practices Act and the Fair Credit Reporting Act. 
Does it make sense for the FTC to have something called 
backstop enforcement authority for those ``enumerated consumer 
laws?'' Why don't you?
    Mr. Leibowitz. It's a great question. And I would say----
    The Chairman. I don't know what enumerated consumer laws 
are. I guess it's a variety.
    Mr. Leibowitz. --who would be each of the--it would be 
specific laws that we enforce beyond Justice.
    The Chairman. But again, picking and choosing.
    Mr. Leibowitz. Right.
    The Chairman. Here you can, there you can't.
    Mr. Leibowitz. So, in some iterations, particularly the 
earlier draft proffered by the Administration--and this is in 
the context of I support the creation of a Consumer Financial 
Protection Agency--I agree with you. It's better to have two 
cops on the beat, particularly in a critical area where state 
agencies and this agency, are picking and choosing which cases 
to bring because we don't have enough--we can't put enough--we 
can put a lot of people on, in this area during financial 
practices cases but, and predatory financial interest cases, 
we'll never have enough.
    But we were very concerned about what we would call 
boundary issues which is would we have to wait?
    Would they take away jurisdiction where we're doing a 
pretty good job?
    Would the new agency--would we have to wait, as we do with 
the Justice Department, you know, a certain amount of time for 
them to determine whether they wanted to take a case while 
there was ongoing harm?
    How do we handle these boundary issues?
    I think the way the House and my colleagues--I believe, 
agree with this--the way the House passed the Consumer 
Financial Protection Agency it allowed us to retain our 
jurisdiction for the most part and allowed the new agency to 
have overlapping jurisdiction. And the way we would work 
through that, I think, is the same way we do with the Justice 
Department. We'll pick and choose in the--context, we will take 
some cases. They will take other cases. And we would work 
through a manner in which it's most efficient.
    But I agree with you it's better to have two cops on the 
beat. We are hopeful that as the Senate moves forward and under 
your leadership and the leadership of this Committee, we can 
solve the boundary issues or the enumerated statute issues sort 
of consistent with the way the House did.
    The Chairman. OK. Well, let me----
    Mr. Leibowitz. Sure.
    The Chairman. I mean what I really want to say is in the 
minds of those that have created this new agency do they trump 
you? And let me just before you answer, I want you to answer 
that. But some of the CFPA's proposal would require the FTC to 
give substantial advance notice.
    Mr. Leibowitz. Right.
    The Chairman. To the CFPA, before bringing in enforcement 
action under its backstop authority, again that word. Other 
proposals shorten or eliminate the advanced notice requirement 
which I guess is more flexible. Again, I'm confused by sort 
of----
    Mr. Leibowitz. We believe----
    The Chairman. --are you equal partners or are you not?
    Mr. Leibowitz. Let me just say I like to think that we will 
be equal partners if that agency is created. And I certainly 
hope it's created. I like to think that the way the House 
resolved this issue is a good template for the way perhaps that 
the Senate will and ultimately conference committee.
    In that instead of having the FTC giving substantial 
advance notice to the new agency, each agency would essentially 
let the other agency know under symmetrical terms that we're in 
the process of investigating this entity or these companies. 
And so we would be talking all the time.
    And we wouldn't have an overlap of two agencies going after 
the same entity. But we would be co-equals. And I think that's 
an important component of the way our agency and really the way 
both agencies can most effectively serve consumers.
    The Chairman. Well, let me ask it another way. In your 
judgment, unbiased, why were they created?
    Mr. Leibowitz. Why was?
    The Chairman. CFPA.
    Mr. Leibowitz. Well I think it was created because there--
you know as we saw the economic downturn. And we saw a lot of 
the reasons for it. I think there is a real sense that we want 
to make sure it doesn't happen again.
    And there is a concern by some, I don't know whether it's 
accurate or not, that, particularly with respect to the banking 
agencies they weren't doing a good enough job to protect 
consumers. In part because the banking agencies care primarily 
about making sure the economy is healthy to the extent they 
can, safety and soundness of banks. And so consumer protection 
was sort of an orphan stepchild in the banking agencies.
    And also because on the banking side, you know, there are 
several different agencies, banking agencies, the Fed, OCC, 
that have a piece of this. And then we have jurisdiction over 
banks. And then we have jurisdiction over non-bank financial 
instruments.
    So I think there's a--it is clear that there is a 
balkanization of jurisdiction as the law is now. And so I think 
the proposal is done for all the best reasons which is really 
to make sure that you, that someone focuses entirely on 
consumer protection in the financial sector. And I applaud the 
President for his leadership there.
    But I do think the way to make it--but I also believe 
there's a--what is the adage? If it's not broke, don't fix it. 
And so, you know, from our perspective as an agency, I think we 
do, not a perfect, but a pretty good job in this area. I think 
if we get this expanded authority we'll be able to do even 
more.
    The President in his 2011 budget gave us a substantial 
increase which we will use. And it sounds like Senator Wicker 
also wants to give us a substantial increase in personnel which 
we will use to bring more cases. And so I think the--in 
particularly in the financial services area, but not only in 
the financial services area--I think the goal of the House is 
to make this new agency effective but keep the FTC as an 
effective agency as well.
    The Chairman. Yes, because the House gave you the full 
enforcement authority under financial products and services.
    Mr. Leibowitz. That's correct.
    The Chairman. Yes.
    Mr. Leibowitz. That's correct.
    The Chairman. Well, let's watch this closely. And we will. 
It's interesting that, I'm just ruminating here, but how little 
people out across the country and up until this year, that 
included certainly myself, are aware number one of what is 
being done to them in HDTV or just regular TV or in all kinds 
of other scams that can be done in so many ways. And it never 
really makes the headlines very much.
    And so they are innocent, sometimes. We're going to be 
dealing shortly with a WellPoint issue which is very, very 
interesting, how they sort of always ended up as the vendor 
although nobody ever asked that they be the vendor. And yet 
then beyond the complexity of being tricked or not being 
handled fairly the agencies which are/reside in the Federal 
Government maybe in state governments to whatever extent that 
they're effective on this, how interstitial they are and how 
complicated they are in how the rules of authority and the so 
called backstop authority which I'll probably dream about 
tonight because it just haunts me.
    I have no idea what it means. It sounds to me like it's a 
put down. You're saying no. We're equal partners.
    Mr. Leibowitz. No, no, no. Let me clarify that.
    The Chairman. Yes.
    Mr. Leibowitz. I think the backstop authority was 
problematic. I think it was modified as the House passed it. 
Well, hopefully you won't have to dream about backstop 
authority because the way the legislation comes out we'll have 
co-equal authority.
    The Chairman. But I won't know that.
    Mr. Leibowitz. It won't become a term of our--what?
    The Chairman. I won't know that tonight so I may.
    Mr. Leibowitz. You won't know that tonight, that's right.
    The Chairman. In any event it's incredibly important what 
you do. And this whole subject, for those of us who are non-
lawyers, and I think for all should come much more to the front 
because as we're now in an era in this country where we're 
really concentrating on huge issues like health care, the 
economy, jobs programs, financial restructuring, all the rest 
of it. And so there's a real chance for these people to keep 
operating in the bliss of darkness because all the space is 
being taken up by so called large national problems which 
indeed they are. But it makes agencies like yours so much more 
important.
    So with that I thank you very much.
    Mr. Leibowitz. Thank you.
    The Chairman. I apologize for the various delays. And I 
hope we can get your two colleagues.
    Mr. Leibowitz. Thank you so much, Mr. Chairman.
    The Chairman. Done. Thank you. Hearing is adjourned.
    [Whereupon, at 3:57 p.m. the hearing was adjourned.]
                            A P P E N D I X

           Prepared Statement of Hon. Kay Bailey Hutchison, 
                        U.S. Senator from Texas
    Thank you for holding today's hearing. The Federal Trade Commission 
(FTC) is an important agency charged with protecting consumers from 
unfair and deceptive trade practices.
    The actions of the FTC have become even more critical during this 
economic downturn. Too many vulnerable consumers have been preyed upon 
by entities seeking to profit from fraudulent activities masquerading 
as offers to assist them with debt and credit issues.
    The FTC has worked to provide consumer education and to use its 
enforcement authority to compel those engaged in fraud to halt their 
activity. I commend Chairman Leibowitz and his fellow commissioners for 
their vigilance during these difficult times.
    I do appreciate that Chairman Leibowitz would like for Congress to 
provide the FTC with expanded authority in a number of areas including 
streamlined rulemaking authority and the ability to take action against 
individuals and businesses for aiding and abetting fraud and deceptive 
practices.
    However, I believe we should proceed with extreme caution to ensure 
we do not provide an agency with an already extremely broad mission 
with authority that is more expansive than necessary.
    In the past, Congress has granted the agency streamlined rulemaking 
authority and other enhanced enforcement tools in very narrow areas to 
address particularly pervasive fraud and consumer harm, rather than 
enacting these changes across the agency's entire jurisdiction.
    Proceeding in this manner has helped to ensure that the FTC, with 
its extraordinarily broad jurisdiction, is taking the time to consider 
all of the potential ramifications of new regulations in areas where it 
may have limited experience or technical capacity while at the same 
time allowing the agency to act quickly where there is a need.
    That said, I am concerned about other efforts underway, including 
the Consumer Financial Protection Agency legislation, that would remove 
aspects of the FTC's current authority and give them to a new agency 
that does not have the experience that the FTC does.
    Creating a new regulator rather than refining the authority of an 
experienced consumer protection agency does not make sense to me. I 
think it is important that the FTC retain its existing authority and 
continue to pursue bad actors in the areas under its jurisdiction.
    Mr. Chairman, I look forward to the discussion and debate on FTC 
authority that we will have, and to working with you in the months 
ahead to provide additional resources for the FTC and sensible changes 
to its enforcement and consumer protection authority.
    Thank you again for holding this hearing.
                                 ______
                                 
                                                  February 22, 2010
Michael C. Dillon
Manchester, NH

Senator Jay Rockefeller,
Chairman,
Commerce, Science, and Transportation Committee,
Washington, DC.

Re: Financial Services and Products: The Role of the Federal Trade 
            Commission in Protecting Consumers

Dear Mr. Chairman:

    While I fully applaud and support your commitment and that of the 
Committee to the strengthening of consumer protection issues, as a 
consumer directly affected by the actions of the Federal Trade 
Commission and after watching the Committee proceedings and FTC 
Chairman Jon Leibowitz's testimony before the Committee on Feb. 4, 
2010, I feel it necessary to bring several concerns to your attention.
    To assist in placing my views in perspective, I am one of the 
original 281,100 victims of Fairbanks Capital Corp. n/k/a Select 
Portfolio Servicing Inc. as certified by the Federal Trade Commission 
for USA/Curry v. Fairbanks.\1\ I opted out of that action as I felt 
that it simply did not provide adequate protection or relief for me. In 
2006, I decided to make my situation with Fairbanks/SPS \2\ publicly 
known via the Internet and have since heard from many other Fairbanks/
SPS victims who also either opted out, knowingly opted in or never 
received notification of the class action settlement. Those who never 
received notification of the settlement were automatically opted in to 
the settlement by default thereby giving up any and all legal rights to 
either defend themselves against or seek restitution for any action 
committed against them by Fairbanks/SPS during the proscribed period of 
time covered by the settlement agreement.
---------------------------------------------------------------------------
    \1\ See http://www.ftc.gov/fairbanks.
    \2\ See http://www.getdshirtz.com.
---------------------------------------------------------------------------
    The Federal Trade Commission protects American ``consumers'' as 
opposed to the American ``consumer.'' The number of Fairbanks/SPS 
victims that have contacted the FTC both pre- and post USA/Curry v. 
Fairbanks settlement literally begging for help to halt potentially 
fraudulent foreclosure actions at the hands of the company is, to my 
mind, both heartbreaking and staggering. I say this because I had 
virtually the same experience that each and every one of them must have 
had when I was first starting down the road of looking for assistance 
to help stop what a NH Superior Court ruled a fraudulent 
foreclosure.\3\ Upon finally arriving on the FTC's doorstep, borrowers, 
including myself, were informed that the FTC ``does not take action on 
behalf of individual consumers.''
---------------------------------------------------------------------------
    \3\ See http://www.getdshirtz.com/orderonthemerits.html.
---------------------------------------------------------------------------
    Apparently, judging from information I have obtained through a FOIA 
request, the FTC and associated Federal agencies and entities had been 
``investigating'' then Fairbanks Capital Corp. beginning in 1999. And 
yet, it took another 4 years to bring only civil action against the 
mortgage servicer. I note this specifically because it also appears, 
again via FOIA obtained information, that a criminal investigation was 
quashed as part of the civil settlement. And for those 4 years of 
``investigation'' and each year subsequent to the USA/Curry settlement, 
homeowners have been losing their homes to allegedly fraudulent 
foreclosures initiated by Fairbanks/SPS. This continues to this day, 
despite the Federal Trade Commission re-visiting and modifying the 
terms of the USA/Curry v. Fairbanks settlement in 2007--at the request 
of Fairbanks/SPS.
    I strongly suspect that the Federal Trade Commission had in it's 
possession at the time of the settlement of USA/Curry, enough evidence, 
including testimony of kickbacks, to actually close the corporation 
permanently. I also have in my possession a letter from FTC Inspector 
General John Seeba in response to an inquiry sent to his office by NH 
Senator Jeanne Shaheen on my behalf in which Inspector Seeba states 
that ``The settlement negotiated between the FTC and Fairbanks Capital 
Corp. was appropriate given the under-capitalization condition of 
Fairbanks Capital at the time.'' Other affidavits and declarations 
produced as part of the USA/Curry v. Fairbanks litigation appears to 
support the Inspector's opinion.
    There are several issues regarding this sentiment that have 
concerned me for some time. The vast majority of the settlement funds 
recovered by the FTC were guaranteed by either Fairbanks then majority 
or minority shareholders. The PMI Group guaranteed $35 million of the 
settlement funds and Financial Security Assurance another $10 million. 
Ignoring for a moment, that for a corporation at one time pulling in at 
minimum $100 million per month, a $55 million ``fine'' is nothing more 
than the cost of doing business, with guarantees of $45 million from 
it's parent corps., Fairbanks only had to relinquish $10 million of 
it's own money. And of the entire $55 million, it is still unknown what 
amount, if any was covered by any insurance policies that Fairbanks 
and/or it's parent corps. may have had in place for just such a 
scenario.
    Separately, but directly related, approximately 6 months after the 
settlement of USA/Curry v. Fairbanks it became publicly known that 
Credit Suisse First Boston intended to purchase Fairbanks Capital Corp, 
known as of July 1, 2004 as Select Portfolio Servicing Inc., and on 
August 12, 2005 it was announced that CSFB agreed to purchase 100 
percent of outstanding stock of SPS Holding Corp. for approximately 
$144 million. Upon the finalization of that purchase, SPS obtained 
upwards of $6 Billion in servicing portfolios. That said, and given the 
fact that the FTC modified the terms of the settlement in 2007, the FTC 
could have easily sought additional restitution, or at the very least 
made specific provisions in the original settlement to recover 
additional restitution for the victims should Fairbanks/SPS ``recover'' 
financially, but this obviously was not done.
    To this day, through my website and other Internet venues, I hear 
from both old and new victims of Fairbanks/SPS. Some complain of 
identical issues that were supposedly settled in 2004, some bring new 
issues to my attention including issues surrounding loan modifications. 
Through the FOIA information, I have learned that at least one victim 
did not receive their 2004 settlement check until sometime in 2008. 
Fortunately or unfortunately, the overall settlement amount of the 
check was not enough to affect her life in any major manner either 
positively or negatively because if the $40 million specifically 
available to the roughly 272,000 victims who were not foreclosed upon 
was equally distributed across the class each class member would have 
received approximately $147.00 each.
    I would also like to note, Mr. Chairman, that in 2003, separate 
from any FTC action, a West Virginia court felt it necessary to issue a 
temporary injunction for the entire state of West Virginia in order to 
protect homeowners of the state from the unscrupulous and fraudulent 
actions being perpetrated by then Fairbanks Capital Corp. Regardless of 
any past civil action, this corporation is still harming the American 
consumer to a large degree, the FTC continues to receive complaints 
about the corporation, and no further civil or, more appropriately, 
criminal action appears to be forthcoming.
    Federal Trade Commission Chairman Leibowitz made it a point to 
specifically cite FTC v. EMC Mortgage and Bear Stearns \4\ in both his 
oral and written testimony. It was apparent, by his oral testimony, 
that Chairman Leibowitz was not wholly familiar with the history of EMC 
Mortgage as he stated, at roughly 47 minutes into the hearing, that 
Bear Stearns purchased EMC Mortgage after the FTC's investigation 
began.'' In fact, EMC Mortgage has been a subsidiary of the Bear 
Stearns Corporation since 1990 \5\ when David M. Lehman, a senior 
managing director of Bear Stearns founded EMC to service loans procured 
from the Resolution Trust Corporation and served as EMC's Chief 
Executive Officer.\6\ That notwithstanding, the charges brought in FTC 
v. EMC/Bear are virtually identical to those brought by the FTC in USA/
Curry v. Fairbanks. FTC. v. EMC/Bear was settled in September 2008, 
nearly 4 years after the settlement of USA/Curry v. Fairbanks but, as 
apparent by the necessity for the FTC to bring this action, the 
mortgage servicing industry did not learn any lessons despite USA/Curry 
and its' ``Best Practices'' guidelines being heralded as a supposed 
harbinger for the entire servicing industry.
---------------------------------------------------------------------------
    \4\ See http://www.ftc.gov/opa/2008/09/emc.shtm.
    \5\ See http://www.encyclopedia.com/doc/1G1-46692811.html.
    \6\ See http://www.linkedin.com/pub/david-m-lehman/10/287/4a.
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    Interestingly enough, I had placed a telephone call to the FTC 
several days before the EMC settlement was made public simply to 
inquire about the terms of the settlement. I received a return call 
from Lucy Morris' office informing me the FTC had settled with EMC for 
$28 Million. I then asked how many victims the FTC had certified for 
the action and was told that they had not yet certified a class but 
expected that there would be ``tens of thousands'' of victims involved. 
I immediately asked how it was possible to determine a settlement 
amount in a class action when it was not yet possible to determine how 
many victims a corporation had negatively affected and was simply given 
``I don't know.'' for an answer. Eventually, it was disclosed that 
86,000 EMC victims were included in that action, although how many 
actually opted in to the action I do not know.
    Regardless, once again, even assuming that all 86,000 opted in and 
restitution was distributed equally across the class, a whopping 
$325.58 would have been returned to each of the 86,000. Most of these 
victims most likely suffered far greater financial damage than that 
restitution amount simply from any credit reporting executed by EMC let 
alone any other financial, emotional, physical or psychological damage 
almost certainly incurred. I am aware of one former Fairbanks/SPS 
victim whose note was supposedly sold to EMC Mortgage after the 
homeowner entered into a settlement agreement with Fairbanks/SPS to 
halt a fraudulent foreclosure initiated by Fairbanks/SPS. EMC Mortgage 
is currently attempting to foreclose on just the mortgage, as opposed 
to the note, as EMC cannot produce the original note. EMC is also 
contending that Fairbanks/SPS never had the servicing rights to the 
victim's note despite the victim having proof of payment to and monthly 
statements from Fairbanks/SPS going back approximately 10 years.
    Obviously, the necessity for the Federal Trade Commission to bring 
a virtually identical case against a second mortgage servicer within 5 
years of their ``largest action against a mortgage servicer'' (USA/
Curry) demonstrates that the civil penalties levied against Fairbanks/
SPS in USA/Curry v. Fairbanks simply were not enough of a deterrent for 
other mortgage servicers in the industry to abide by state and Federal 
laws and the terms of individual mortgage agreements. Which brings me 
to yet another point that Chairman Leibowitz chose to make.
    At approximately 84 minutes into the hearing, Chairman Leibowitz 
stated that ``Sometimes we're bringing fraud cases that could be 
brought criminally. If there is not a penalty there is not a strong 
enough deterrent.'' I am in possession of evidence that shows that a 
criminal investigation into Fairbanks/SPS' actions was being conducted 
at least as far back as 2003. Unfortunately, as part of the civil 
settlement, the criminal investigation was terminated despite ever 
mounting evidence of potentially criminal wrongdoing by the company. In 
my own case, I can demonstrate instances of mail and wire fraud, 
fraudulent documents being filed at my county registry of deeds and, if 
given access to knowledgeable individuals, quite possibly evidence of 
tax, insurance and securities fraud among other charges. To date, I 
have found no state or Federal agency or authority willing to even 
examine my evidence to make a determination of any kind of fraudulent 
action despite being awarded a civil injunction in 2005 and contempt 
order in 2006 against Fairbanks/SPS quashing a fraudulent foreclosure.
    Many Mortgage Servicing Fraud victims and their attorneys have 
repeatedly attempted to bring racketeering charges against mortgage 
servicers. To the best of my knowledge, none have been successful to 
date despite having mountains of evidence showing that each entity 
involved in each case had knowledge--or should have had knowledge--of 
the actions complained about in virtually every civil action brought. I 
have personally spoken and/or communicated with FBI, Secret Service, 
USDOJ, U.S. Postal Inspection, the NH Banking Dept., NH Attorney 
General, Office of Comptroller of Currency, Office of Thrift 
Supervision, SIGTARP, HUD-OIG, FinCen, FCIC, COP and the Federal Trade 
Commission. I am currently awaiting a response from the Financial Fraud 
Task Force but have been waiting for that response for several months 
and am not at all optimistic.
    The bottom line, Mr. Chairman, is that there are, unfortunately, 
more than enough legitimate foreclosures taking place across the United 
States to allow even a single property owner anywhere in the country to 
suffer a fraudulent or manufactured foreclosure at the hands of 
unscrupulous and greedy mortgage servicers. As if Fairbanks/SPS and EMC 
victims have not already been insulted enough, as of today Fairbanks/
SPS has received more than $900 million and EMC Mortgage more than $1.2 
Billion through the HAMP program respectively for loan modifications. 
As of the January 2010 Making Home Affordable Report,\7\ Fairbanks/SPS 
estimates that 62,041 60+ day delinquent borrowers were eligible for at 
least a trial loan modification. To date, only 6,761 modifications have 
been made permanent by Fairbanks/SPS. According to the same January 
report, no accurate figures are available for EMC Mortgage because EMC 
is reported as part of J.P Morgan Chase's figures. So how are these two 
corporations using nearly $2 Billion of American taxpayer money to help 
homeowners? When will any state or Federal law enforcement or 
regulatory entity step up and actually protect the American homeowner?
---------------------------------------------------------------------------
    \7\ See http://www.financialstability.gov/docs/press/January 
percent20Report percent20FINAL percent2002 percent2016 percent2010.pdf.
---------------------------------------------------------------------------
    Mortgage Servicing Fraud is an extremely serious issue that can and 
does affect literally anyone with a mortgage, especially if that 
mortgage note has been securitized. Mr. Chairman, if you or any members 
of this Committee or any of your family members have mortgaged 
properties you could fall victim to this fraudulent scheme just as 
easily as any other homeowner in the country. Mortgage Servicing Fraud 
does not appear to discriminate. Unfortunately, as recent history has 
demonstrated, civil penalties simply are not enough of an incentive for 
mortgage servicers to operate within the boundaries of state and 
Federal law. The Federal Bureau of Investigation's 2008 Mortgage Fraud 
Report ``Year In Review'' \8\ projects that for Fiscal Year 2009, 
Suspicious Activity Reports (SARs) will exceed 70,000. That is more 
than 70,000 reported incidents of mortgage fraud being committed 
against loan originators. When is mortgage fraud and mortgage servicing 
fraud committed against the borrower going to be taken seriously by 
state and Federal agencies?
---------------------------------------------------------------------------
    \8\  See http://www.fbi.gov/publications/fraud/
mortgage_fraud08.htm.
---------------------------------------------------------------------------
    Mr. Chairman, it is well beyond the time for criminal 
investigations to begin and charges to be brought against any servicer 
refusing to deal with homeowners fairly and properly. You stated, in 
your opening for this hearing, ``When I took over this Committee a year 
ago, I vowed to make this Committee protect the consumer.'' I would ask 
nothing more of you and the Committee than to continue to make good on 
that vow. Please take a hard look at Mortgage Servicing Fraud, how it 
devastates the American homeowner, the far-reaching effects that it has 
on the mortgage, insurance and securities industries, the overall 
economy of the United States and what state and Federal law enforcement 
regulators and legislators can finally do to protect the American 
homeowner, both civilly and criminally, from fraudulent foreclosures 
once and for all. Because while the Federal Trade Commission is now 
familiar with and can describe what Mortgage Servicing Fraud can 
entail, \9\ after settling civil actions against two national mortgage 
servicers within 4 years, involving a collective 367,100 victims and 
recovering $83 million in restitution, civil actions and the Federal 
Trade Commission are obviously not enough of an incentive for mortgage 
servicers to operate within the parameters of state and Federal law.
---------------------------------------------------------------------------
    \9\ See ``Mortgage Servicing: Making Sure Your Payments Count'', 
http://www.ftc.gov/bcp/edu/pubs/consumer/homes/rea10.shtm.
---------------------------------------------------------------------------
    I thank you for your time and attention, Mr. Chairman, and I would 
be more than happy to answer any questions that you and/or the 
Committee may have to the best of my ability. Please do not hesitate to 
contact me.
            Sincerely,
                                          Michael C. Dillon
Cc: SIG-TARP
Chris Schloesser
Brandy Messer
                                 ______
                                 
          Additional Prepared Statement of Hon. Jon Leibowitz
    A number of questions raised by the Committee touch upon the 
differences between the Magnuson-Moss and Administrative Procedures Act 
(``APA'') rulemaking processes. Before I address the Committee's 
specific questions, I would like to provide an overview of those two 
processes.
    Magnuson-Moss Rulemaking: There are numerous steps that must be 
taken to issue a rule under Magnuson-Moss procedures, including the 
following:

   prepare an Advance Notice of Proposed Rulemaking (``ANPR'') 
        describing the area of inquiry under consideration, the 
        objectives the FTC seeks to achieve, and possible regulatory 
        alternatives under consideration;

   submit the ANPR to House and Senate oversight committees;

   publish the ANPR in the Federal Register for public comment;

   receive public comments on the ANPR for 30 days or longer;

   analyze comments received in response to the ANPR;

   determine that the acts or practices at issue appear to be 
        widespread and prevalent;

   prepare an initial Notice of Proposed Rulemaking (``NPR'') 
        that: (a) summarizes and addresses the comments, (b) sets forth 
        specific proposed rule text, (c) explains the legal and factual 
        basis for the proposed rule provisions, (d) includes, if 
        applicable, an initial analysis under the Regulatory 
        Flexibility Act (``Reg Flex'') based on the anticipated effects 
        of the rule on small entities and an analysis under the 
        Paperwork Reduction Act (``PRA'') of any disclosure, reporting, 
        or recordkeeping requirements the rule would impose, and (e) 
        sets forth a preliminary Regulatory Analysis of anticipated 
        effects of the rule, both positive and negative;

   submit the NPR to House and Senate oversight committees 30 
        days before publishing it;

   publish the NPR in the Federal Register for public comment;

   receive public comments on the NPR, usually for 60 days or 
        more;

   provide an opportunity for a public oral hearing before a 
        presiding officer,\1\ and if any member of the public requests 
        such hearing:
---------------------------------------------------------------------------
    \1\ In some instances, the FTC has conducted public workshops for 
interested parties and the public at large to discuss those issues 
arising from the written comments about which there are varying or 
conflicting points of view. This does not substitute for providing the 
hearing opportunity described with its attendant requirements. However, 
in some less controversial matters interested persons participating in 
such a workshop have not sought the oral hearing available under the 
statute.

---------------------------------------------------------------------------
     appoint a presiding officer;

     designate disputed issues of fact to be addressed at 
            the hearing;

     decide petitions to designate fact issues as disputed 
            for the hearing;

     accord to (potentially numerous) interested persons 
            rights to examine, rebut, and cross-examine witnesses;

     determine which among those persons have similar 
            interests;

     allow each group of persons with similar interests to 
            choose a representative;

     appoint a representative if the group cannot choose 
            one;

     decide appeals from determinations on which persons 
            have similar interests;

     prepare and publish a second NPR addressing all these 
            issues;

     hold the hearings;

     make complete transcripts of all testimony and cross-
            examinations available to the public;

   analyze the record amassed, and prepare a staff report that 
        summarizes and analyzes the record and sets forth the final 
        rule text recommended for adoption by the Commission;

   if hearings have been held, the Presiding Officer must 
        prepare a report with his or her summary and analysis of the 
        record amassed and recommendations as to adoption of final rule 
        provisions;

   publish a Federal Register notice seeking comments on the 
        staff report and on the Presiding Officer's report, if any;

   receive public comments for 60 days or more;

   obtain OMB approval for any disclosure, reporting, or 
        recordkeeping requirement;

   prepare a Final Rule and Statement of Basis and Purpose that 
        sets forth a summary and analysis of the record, sets forth the 
        text of the recommended final rule, explains that the practices 
        addressed by the recommended final rule are prevalent, explains 
        the legal and evidentiary basis for each provision, includes a 
        Final Regulatory Analysis, includes a Final Reg Flex, if 
        applicable, and sets forth an effective date;

   publish the Final Rule and Statement of Basis and Purpose in 
        the Federal Register;

   submit a notification to Congress pursuant to the Small 
        Business Regulatory Enforcement Fairness Act (``SBREFA''), 
        initiating a period during which Congress can invalidate the 
        rule by legislation.

   issue compliance guides if required under SBREFA.\2\
---------------------------------------------------------------------------
    \2\ SBREFA requires compliance guides for small businesses for 
certain rules; the FTC typically issues compliance guides, for both 
small and large businesses, for other rules as well.

    Magnuson-Moss rulemaking has frequently taken eight or more years. 
(See table page 13, infra).
    APA Rulemaking: Although APA rulemaking is certainly less laborious 
and time-consuming than the cumbersome and complex Magnuson-Moss 
procedures, it still mandates a set of rigorous procedures that are 
designed to ensure that interested parties have early notice of the 
proceeding and ample opportunity to have their views considered, as 
well as to create a comprehensive record for judicial review.
    Specifically, APA rulemaking must proceed through the following 
steps:

   The rulemaking agency must prepare and publish in the 
        Federal Register an NPR that: (a) sets forth either the terms 
        or substance of the proposed rule or a description of the 
        subjects and issues involved;'' \3\ (b) explains the legal and 
        factual basis for the proposed rule provisions; and (c) 
        includes, if applicable, a Reg Flex analysis based on the 
        anticipated effects of the rule on small entities, and an 
        analysis under the PRA of any disclosure, reporting, or 
        recordkeeping requirements the rule would impose. In addition, 
        the proposed legislation would retain the current FTC Act 
        requirement that, for rules under the Act, the NPR also must 
        set forth a preliminary Regulatory Analysis of anticipated 
        effects of the rule, both positive and negative.
---------------------------------------------------------------------------
    \3\ As a matter of practice, the NPRs issued by the FTC routinely 
propose actual rule text.

   The agency then must accept public comments on the NPR for a 
---------------------------------------------------------------------------
        period of 30 days or more.

   The agency must also obtain OMB approval of any disclosure, 
        reporting, or recordkeeping requirements in the rule.

   After considering the comments, the agency then must prepare 
        and publish in the Federal Register a Statement of Basis and 
        Purpose, setting forth the final rule provisions and ``a 
        concise general statement of their basis and purpose.'' This 
        statement provides a summary and analysis of the record; an 
        explanation of the legal and evidentiary basis for the rule 
        provisions adopted; a final Reg Flex Analysis, if applicable; 
        and an effective date for the rule. Also, under the current FTC 
        Act requirement that would be retained by the proposed 
        legislation, the Statement of Basis and Purpose of rules must 
        set forth a final Regulatory Analysis.

   Subsequently, the agency submits a notification to Congress 
        pursuant to the SBREFA, initiating a period during which 
        Congress can invalidate the rule by legislation. The agency 
        also commonly issues compliance guides.

   The final rule can be challenged in Federal court and will 
        be set aside if the court determines that the Commission's 
        findings are ``arbitrary, capricious, an abuse of discretion, 
        or otherwise not in accordance with law.''

    The FTC has often implemented additional procedural safeguards and 
opportunities for public input when Congress has given it APA authority 
in specific areas.

   First, in many instances, the Commission has published an 
        ANPR, providing even earlier notice of the proceeding and 
        opportunity to comment. See, e.g., http://www.ftc.gov/opa/2009/
        05/decepmortgage.shtm (ANPR issued by the Commission initiating 
        its mortgage practices rulemakings). Although they increase the 
        time it takes to promulgate the ultimate rule, ANPRs have 
        proven useful in situations where the Commission lacks 
        sufficient experience or knowledge in a particular area to 
        formulate a proposed rule.

   Second, in some cases, the FTC has held public workshops 
        during the course of the rulemaking proceeding, enriching the 
        record and providing additional opportunities for those who 
        might be affected by the rule to express their views, provide 
        data, and address the assertions of other participants. See, 
        e.g., http://www.ftc.gov/opa/2009/08/tsrforum.shtm (announcing 
        public forum to discuss proposed debt relief amendments to the 
        Commission's Telemarketing Sales Rule.)

   Third, to further ensure that its decisions are fully 
        informed, the Commission often has conducted informal, but 
        extensive, outreach to affected parties. For example, the FTC 
        participated in or conducted a number of rulemakings as 
        required by the FACT Act. For most of these rules, the FTC 
        (with its sister agencies in some cases) solicited data and 
        opinions in addition to the formal request for comments, and 
        often on multiple occasions, from industry groups, legal 
        practitioners, consumer advocates, and others.

   Fourth, the Commission has an ongoing program of reviewing 
        all of its rules periodically, seeking public comment on them, 
        and revising or repealing them as appropriate.

    In sum, the legal requirements of the APA, enhanced where 
appropriate by these additional FTC practices, accomplish the same 
goals as the more cumbersome and time consuming Magnuson-Moss 
procedures, without those procedures' built-in time lags and myriad 
opportunities to slow down a proceeding.
    Finally, there have been substantial changes in the regulatory 
picture since Congress originally enacted FTC-specific rulemaking 
procedures in the Magnuson-Moss Act; these changes would provide 
further assurance that FTC rulemaking under the APA would be carefully 
tailored to minimize unnecessary burdens, especially on small 
businesses. These changes include:

   further refinements in the deception and unfairness 
        standards, including the Commission's policy statement defining 
        ``deceptive'' acts and practices and a statutory definition of 
        ``unfair'' practices added as Section 5(n) of the FTC Act;

   the preliminary and final Regulatory Analyses for FTC Act 
        rules;

   the preliminary and, where appropriate, final Reg Flex 
        analyses;

   the public comment and OMB review of relevant provisions 
        under the PRA; and

   the SBREFA provisions for notice to Congress and opportunity 
        for it to invalidate a rule.

    Standard for review: The standard of review for a rule developed 
using either procedure is the same. In Consumers Union of U.S. v. FTC, 
801 F.2d 417, 422 (D.C. Cir. 1986), the court (opinion by then-Judge 
Scalia) held that the FTC Act's ``substantial evidence'' standard for 
judicial review of a Magnuson-Moss rule does not call for a more 
intensive review than the ``arbitrary and capricious'' standard for 
notice-and-comment rules under the APA, but rather requires the same 
degree of evidentiary support. That view stands today; see, e.g., Eagle 
Broadcasting Group, Ltd. v. FCC, 563 F.3d 543, 551 (D.C. Cir. 2009) 
(explaining that the ``substantial evidence'' standard for review of 
``formal'' rulemaking under the APA--the same language adopted by 
Magnuson-Moss--is the same as the ``arbitrary and capricious'' standard 
for notice-and-comment rules). If a rule's factual underpinnings are 
not supported by substantial evidence, it is arbitrary.
                                 ______
                                 
    Response to Written Question Submitted by Hon. Byron Dorgan to 
                           Hon. Jon Leibowitz
    Question . In the FTC bill I introduced last Congress, we added 
501(c)(3) non-profit entities to the FTC's jurisdiction. I know the FTC 
issued a proposed rule last summer to address the sale of debt relief 
services. I understand that eighty-eight percent of the debt relief 
industry, which advertises, markets, sells and enrolls consumers into 
Debt Management Plans (DMPs), consists of non-profit providers. These 
entities generate millions of dollars in fees from consumers by selling 
debt relief services. As we consider FTC Reauthorization in the context 
of financial reform, do you believe the FTC Act should be updated so 
that the FTC has the appropriate authority to regulate nonprofit 
entities, like those that offer debt relief services?
    Answer. Currently, the FTC lacks jurisdiction under the FTC Act 
over entities that do not carry on business for their own profit or 
that of their members. The Commission can, however, reach ``sham'' non-
profits, such as shell non-profit corporations that funnel profits to 
their owner, officers, or others or for-profit entities falsely 
claiming to be affiliated with charitable organizations. Further, the 
Commission has jurisdiction over organizations such as trade 
associations that engage in activities that ``provide [ ] substantial 
economic benefit to its for-profit members,'' for example, by providing 
advice and other arrangements on insurance and business matters or 
engaging in lobbying activities. The Commission also has jurisdiction 
over non-profits under certain consumer financial statutes, such as the 
Truth in Lending Act and the Equal Credit Opportunity Act.
    In April 2008, the Commission testified in support of legislation 
to extend its jurisdiction to certain non-profit entities, and I 
continue to agree with that position. In health care, an area in which 
the Commission takes the lead to maintain competition, the agency's 
inability to reach conduct of various non-profit entities has prevented 
the Commission from stopping anticompetitive conduct of non-profits 
engaged in business. Also, many major data security breaches have 
involved nonprofit entities outside of the Commission's jurisdiction; 
Commission authority in such circumstances may be valuable.
    With respect to the debt relief industry, as you note, there are 
both for-profit and non-profit entities. Consistent with the FTC's 
current jurisdiction, the proposed amendments to the TSR for the debt 
relief industry would not cover true non-profits. Should Congress grant 
the Commission authority over non-profits, we would certainly want to 
consider whether the TSR amendment should cover those entities as well.
                                 ______
                                 
  Response to Written Questions Submitted by Hon. Claire McCaskill to 
                           Hon. Jon Leibowitz
    Question 1. One financial product that I have raised repeated 
concerns about is the reverse mortgage. As you know, a reverse mortgage 
is secured with a senior's home. The lender extends a lump sum or 
monthly payment to the borrower (who must be over 62). The loan must be 
repaid when the borrower moves or dies, usually from the proceeds of 
selling the house. I have concerns about the program because the 
Federal Government insures these loans and is on the hook for any 
losses. But I am also concerned about the way they are being marketed 
and sold to seniors. There are advertisements that imply a government 
endorsement of the product for all seniors. Sometimes they imply that a 
reverse mortgage is an entitlement like Social Security or Medicare. 
Reverse mortgages are expensive, with big upfront fees and interest 
costs that can dwarf the amount the borrower receives over the life of 
the loan. Despite legislation Congress enacted in 2008 that prevent 
reverse mortgage lenders from cross-selling other insurance or 
financial products along with reverse mortgages, there are reports that 
insurance agents and financial advisors are now selling reverse 
mortgages. The FTC has a very helpful page on its website that explains 
reverse mortgages to seniors.
    Under the 2009 Omnibus bill, the FTC has been granted 
Administrative Procedures Act (APA) authority to issue rules regarding 
addressing unfair or deceptive acts or practices by mortgage lenders. 
Are you planning to address reverse mortgages? What is the FTC doing to 
crack down on aggressive marketing practices? How has it pursued 
financial advisors who peddle these products inappropriately?
    Answer. The FTC shares your concern about possible unfair or 
deceptive practices in the promotion and sale of reverse mortgages, and 
the risk these practices pose for elderly consumers. Reverse mortgages 
are complex financial products with high fees. A reverse mortgage 
entails a lien on an elderly consumer's home, frequently the consumer's 
most valuable asset. Some elderly consumers may not understand these 
complex products and the fees associated with them, or may be deceived 
by claims lenders make about them. Accordingly, the FTC has taken a 
number of steps to protect consumers from unfair or deceptive reverse 
mortgage practices.
    First, pursuant to the Omnibus Appropriations Act of 2009, as 
clarified by the Credit Card Accountability Responsibility and 
Disclosure Act of 2009, the Commission in June 2009 issued an Advance 
Notice of Proposed Rulemaking (``ANPR'') focusing on unfair and 
deceptive mortgage practices. The ANPR specifically sought comment on 
possible unlawful practices in the promotion and sale of reverse 
mortgages. The FTC hopes to publish a Notice of Proposed Rulemaking 
(``NPR'') in this proceeding in the near future.
    Second, the FTC continues to monitor the reverse mortgage market, 
as well as consumer complaints received by our Consumer Response 
Center. The Commission is prepared to initiate law enforcement actions 
in appropriate cases where reverse mortgage lenders are engaged in 
unfair or deceptive practices or are violating the Truth-in-Lending 
Act. In particular, the agency on an ongoing basis scrutinizes reverse 
mortgage advertising for deceptive claims about the terms and 
consequences of the loans, as well as the lender's purported 
affiliation with government agencies or programs. It should be noted, 
however, that many lenders that offer reverse mortgages, including 
banks, thrifts, and Federal credit unions, are outside the Commission's 
authority.
    Third, the FTC has spearheaded Federal-state efforts to coordinate 
and cooperate on reverse mortgage issues. In the fall of 2008, the 
Commission organized the Federal-State Reverse Mortgage Law Enforcement 
Working Group to strengthen the ability of law enforcers to take rapid, 
effective, and coordinated action against instances of reverse mortgage 
fraud. The Working Group, which meets on a regular basis, is comprised 
of over one hundred representatives from 40 states, the District of 
Columbia, and Puerto Rico, as well as several other Federal agencies, 
including the Department of Housing and Urban Development (``HUD'') and 
the Department of Justice (``DOJ'').
    Fourth, the Commission has provided assistance to Federal and state 
agencies in developing and implementing standards of appropriate 
conduct for providers of reverse mortgages. In late 2009, the Federal 
Financial Institutions Examination Council (``FFIEC'') \1\ published 
proposed guidance on reverse mortgages, covering, among other topics, 
the importance of avoiding deceptive claims. Earlier this month, the 
FTC staff filed a comment with FFIEC supporting its efforts to prevent 
deception and assist consumers in making better-informed decisions 
about reverse mortgages.
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    \1\ FFIEC is comprised of the Federal bank regulatory agencies, the 
National Credit Union Administration, and three associations of state 
supervisors of financial institutions.
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    Fifth, as you mention, the Commission is reaching out to elderly 
consumers to educate them about the risks and benefits of reverse 
mortgages. The Commission's most recent brochure, ``Reverse Mortgages: 
Get the Facts Before Cashing in on Your Home's Equity,'' is available 
at http://www.ftc.gov/bcp/edu/pubs/consumer/homes
/rea13.shtm. The FTC also has a new pamphlet for reverse mortgage 
housing counselors on how to spot and report potentially deceptive 
claims or other unlawful conduct. The pamphlet can be accessed at 
http://www.ftc.gov/bcp/edu/pubs/business/alerts/alt158.shtm. The 
Commission has distributed this pamphlet throughout HUD's network of 
housing counselors.
    Finally, your question refers to reports that insurance agents and 
financial advisors are selling reverse mortgages, even though Congress 
enacted legislation in 2008 prohibiting those who sell reverse 
mortgages from cross-selling insurance or other financial products. The 
Housing and Economic Recovery Act of 2008 (``HERA'') prohibits cross-
selling insurance and other financial products in connection with 
reverse mortgages offered under the Home Equity Conversion Mortgage 
program, administered by HUD. HUD, rather than the FTC, enforces HERA's 
prohibition on cross-selling.

    Question 2(a). As you know, there are conflicting viewpoints about 
whether Congress should expand APA rulemaking authority to the FTC, 
which would grant the Commission civil penalty authority and other 
expanded tools. One of my chief concerns in addressing consumer 
protections, whether it be in financial services or elsewhere, is 
finding the most efficient ways to do so with little or no overlap 
between competing agencies and in a manner where agency authority is 
properly utilized. In addition, I have some concerns about whether the 
FTC would be able to take on expanded authority given the staff 
reductions that have occurred over the years. What do you feel are the 
most effective tools and practices that the FTC currently has to 
address bad actors? What do you feel is working?
    Answer. The FTC has a number of effective consumer protection 
tools. Most notably, the Commission can file and litigate cases against 
those who engage in practices that are unfair or deceptive, or violate 
other statutes or rules enforced by the FTC. In addition, the 
Commission's education and outreach programs help empower consumers 
with information and tools they can use to avoid scams, and help 
achieve compliance by providing guidance to businesses about their 
obligations under the law.
    Under Section 13(b) of the FTC Act, 15 U.S.C.  53(b), the 
Commission is empowered to file and litigate actions in Federal 
district court whenever a defendant ``is violating, or is about to 
violate, any provision of law enforced by the Federal Trade 
Commission'' including rules under those laws. These laws include the 
FTC Act, which prohibits unfair or deceptive practices. The Commission 
can seek temporary restraining orders and other types of preliminary 
relief to halt ongoing violations and preserve the status quo pending a 
full adjudication of the case (including freezing a defendant's assets 
in appropriate cases). Remedies available to the FTC in such actions 
include monetary redress for consumers who incurred injury as a result 
of a defendant's violations, as well as other equitable remedies such 
as rescission of victims' contracts and disgorgement of defendants' 
ill-gotten gains. In the past decade, the Commission has brought over 
600 consumer protection law enforcement actions using Section 13(b), 
most of which sought consumer redress; through these cases, courts have 
ordered approximately $3 billion in redress for injured consumers.\2\
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    \2\ The Commission also has, of course, authority to conduct 
administrative adjudications, and uses it for consumer protection 
matters particularly where it believes its own expert determination is 
important to help develop and clarify the law. However, given the 
availability of monetary redress remedies and penalties only through a 
court action, the Commission more commonly brings its consumer 
protection actions in court.
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    The Commission's authority to issue rules using APA procedures 
under a number of specific laws, such as the telemarketing law, has 
itself been a crucial tool for clearly identifying and halting a 
variety of harmful practices, providing standards and clarity for 
businesses, the agency, and the courts.\3\ The Commission's authority 
to issue APA rules relating to home mortgages under the Omnibus 
Appropriations Act of 2009, such as with respect to third-party 
mortgage assistance relief providers, has the potential to be such a 
powerful tool for consumers.
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    \3\ Since the promulgation in 1996 of the Telemarketing Sales Rule 
(``TSR''), which for the past several years has included the National 
Do Not Call Registry, the Commission has filed 271 telemarketing cases 
aimed at halting various telemarketing frauds, including the 
unauthorized debiting of consumers' financial accounts, as well as the 
deceptive marketing of such goods and services as fraudulent work-at-
home opportunities; advance-fee credit cards; phony government grants, 
and sweepstakes and prize promotions. Many of these cases have targeted 
not only fraudulent telemarketers, but also the third-parties that 
assist them, as specifically authorized by the TSR.
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    In addition, the FTC's consumer education efforts have been highly 
successful in reaching consumers with the information and advice they 
need to recognize and avoid fraud. Among many other examples, in 
response to the recent economic downturn, the FTC developed several 
outreach initiatives to help people manage their financial resources 
and spot traditional and emerging scams. We share our consumer 
education materials with a multitude of Federal, state, and local 
government agencies, and frequently partner with private and nonprofit 
organizations to increase the ``reach'' of our educational efforts.
    The FTC's robust business education efforts are very helpful in 
fostering compliance with the various laws the Commission enforces. 
These efforts, which come in many different forms and are disseminated 
through many types of media, provide practical, straightforward, and 
often industry-specific information and guidance.
    Finally, the Commission's authority to conduct workshops, research 
and studies, often involving its broad consumer protection, 
competition, and economic expertise, is an essential part of developing 
appropriate approaches to problems. The information developed through 
such activities assists in focusing enforcement efforts, identifying 
successful remedies, and formulating appropriate standards, as well as 
providing broader knowledge for the business and consumer communities 
and for policymakers. For example, the Commission staff recently held a 
series of three public roundtable discussions on the consumer 
protection problems existing in the system whereby debt collection 
cases are litigated and arbitrated. The information we obtained in 
those discussions will be extremely useful in determining law 
enforcement strategies going forward, and in formulating 
recommendations on actions that government and the private sector can 
take to ensure that the litigation and arbitration processes function 
more fairly for consumers.

    Question 2(b). What do you feel is not working?
    Answer. Although the Commission has a number of effective tools for 
stopping bad actors, certain holes in our authority make it more 
difficult--unnecessarily, in my opinion--to carry out our mission. The 
following four enhancements to the agency's authority would help 
substantially to fill those holes.

   APA Rulemaking: Because the Commission may not use the 
        ordinary Administrative Procedures Act (``APA'') notice-and-
        comment rulemaking procedures that most of our sister agencies 
        use, the Commission must do one of two things to promulgate a 
        rule: either obtain from Congress a specific grant of APA 
        rulemaking authority for a particular issue or use the 
        cumbersome and time-consuming Magnuson-Moss procedures. In my 
        view, either option is an inefficient and uncertain process for 
        addressing serious problems in a timely fashion, especially 
        those that can arise from emerging technologies or new 
        marketing practices. The Commission needs APA-style rulemaking 
        authority to be able to issue rules, when needed, in a 
        reasonable time and with a reasonable expenditure of resources.

   Civil Penalty Authority: The FTC currently lacks the 
        authority to seek civil penalties for violations of the FTC Act 
        itself. Although the Commission currently may seek penalties--
        through DOJ--in certain specified situations (e.g., for a 
        defendant's violations of an existing enforcement order or of 
        certain FTC rules), the ability to seek civil penalties for 
        knowing violations of the FTC Act itself would give the agency 
        an important tool for deterring unfair or deceptive practices. 
        This is especially important for cases in which obtaining 
        equitable remedies such as consumer restitution, rescission, or 
        disgorgement is impossible or impractical--because, for 
        example, victims cannot be identified or consumer injury and 
        wrongful profits cannot be quantified.

   Aiding and Abetting: The absence, outside of the 
        telemarketing context, of explicit authority to hold liable 
        those who aid and abet law violators hampers the Commission's 
        ability to take action against entities that do not themselves 
        deceive consumers, but supply knowing and substantial support 
        to those who do. In many cases, the aiders and abettors, by 
        providing essential services that the primary fraudsters could 
        not efficiently provide themselves, allow frauds to occur on a 
        much broader scale than would otherwise be possible.

   Independent Litigating Authority for Civil Penalty Actions: 
        It is anomalous that while the FTC is authorized to try its own 
        cases for a wide swath of remedies, including consumer redress 
        and disgorgement, it may not do so when seeking penalties. 
        Instead, the agency must refer cases to DOJ, wait up to 45 days 
        for DOJ to determine whether to take a case, and allow DOJ 
        staff time to learn the case and prepare. This requirement thus 
        entails duplication of efforts and slower enforcement. In 
        addition, it results at times in the agency having to choose 
        between obtaining early injunctive relief (for example, to halt 
        the violative practices and preserve assets for eventual 
        redress) or seeking penalties. Having the authority to litigate 
        civil penalty actions independently would allow cases to be 
        brought more quickly and effectively, without the disadvantages 
        occasioned by the referral obligation.

    Question 2(c). If you had more resources could you issue rules 
under the current Magnuson-Moss procedures?
    Answer. While more staff on a rulemaking may help, most of the 
built-in time lags involved in Magnuson-Moss rulemaking cannot be 
eliminated by additional staffing. There are numerous steps that must 
be taken to issue a rule under Magnuson-Moss procedures:

   prepare an ANPR describing the area of inquiry under 
        consideration, the objectives the FTC seeks to achieve, and 
        possible regulatory alternatives under consideration;

   submit the ANPR to House and Senate oversight committees;

   publish the ANPR in the Federal Register for public comment;

   receive public comments on the ANPR for 30 days or longer;

   analyze comments received in response to the ANPR;

   determine that the acts or practices at issue appear to be 
        widespread and prevalent;

   prepare an initial NPR that: (a) summarizes and addresses 
        the comments, (b) sets forth specific proposed rule text, (c) 
        explains the legal and factual basis for the proposed rule 
        provisions, (d) includes, if applicable, an initial analysis 
        under the Regulatory Flexibility Act (``Reg Flex'') based on 
        the anticipated effects of the rule on small entities and an 
        analysis under the Paperwork Reduction Act (``PRA'') of any 
        disclosure, reporting, or recordkeeping requirements the rule 
        would impose, and (e) sets forth a preliminary Regulatory 
        Analysis of anticipated effects of the rule, both positive and 
        negative;

   submit the NPR to House and Senate oversight committees 30 
        days before publishing it;

   publish the NPR in the Federal Register for public comment;

   receive public comments on the NPR, usually for 60 days or 
        more;

   provide an opportunity for a public oral hearing before a 
        presiding officer, and if any member of the public requests 
        such hearing,\4\
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    \4\ In some instances, the FTC has conducted public workshops for 
interested parties and the public at large to discuss those issues 
arising from the written comments about which there are varying or 
conflicting points of view. This does not substitute for providing the 
hearing opportunity described with its attendant requirements. However, 
in some less controversial matters interested persons participating in 
such a workshop have not sought the oral hearing available under the 
statute.

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     appoint a presiding officer;

     designate disputed issues of fact to be addressed at 
            the hearing;

     decide petitions to designate fact issues as disputed 
            for the hearing;

     accord to (potentially numerous) interested persons 
            rights to examine, rebut, and cross-examine witnesses;

     determine which among those persons have similar 
            interests;

     allow each group of persons with similar interests to 
            choose a representative;

     appoint a representative if the group cannot choose 
            one;

     decide appeals from determinations on which persons 
            have similar interests;

     prepare and publish a second NPR addressing all these 
            issues;

     hold the hearings;

     make complete transcripts of all testimony and cross-
            examinations available to the public;

   analyze the record amassed, and prepare a staff report that 
        summarizes and analyzes the record and sets forth the final 
        rule text recommended for adoption by the Commission;

   if hearings have been held, the Presiding Officer must 
        prepare a report with his or her summary and analysis of the 
        record amassed and recommendations as to adoption of final rule 
        provisions;

   publish a Federal Register notice seeking comments on the 
        staff report and on the Presiding Officer's report, if any;

   receive public comments for 60 days or more;

   obtain OMB approval for any disclosure, reporting, or 
        recordkeeping requirement;

   prepare a Final Rule and Statement of Basis and Purpose that 
        sets forth a summary and analysis of the record, sets forth the 
        text of the recommended final rule, explains that the practices 
        addressed by the recommended final rule are prevalent, explains 
        the legal and evidentiary basis for each provision, includes a 
        Final Regulatory Analysis, includes a Final Reg Flex, if 
        applicable, and sets forth an effective date;

   publish the Final Rule and Statement of Basis and Purpose in 
        the Federal Register;

   submit a notification to Congress pursuant to the Small 
        Business Regulatory Enforcement Fairness Act (``SBREFA''), 
        initiating a period during which Congress can invalidate the 
        rule by legislation.

   issue compliance guides if required under SBREFA.\5\
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    \5\ SBREFA requires compliance guides for small businesses for 
certain rules; the FTC typically issues compliance guides, for both 
small and large businesses, for other rules as well.

    Magnuson-Moss rulemaking has frequently taken eight or more years.
    Because most of these steps must be taken sequentially in a 
specified order, even additional resources would not allow the 
Commission to utilize existing Magnuson-Moss rulemaking authority 
effectively.

    Question 2(d). Or with APA authority?
    Answer. APA rulemaking requires significantly fewer resources and 
less time than Magnuson-Moss rulemaking. Still, the Commission needs 
more resources. Today, the Commission has only about 1,100 full-time 
equivalents (``FTEs''). This is considerably fewer than it had at its 
peak in 1979, when the Commission had nearly 1,800 FTEs. But in the 
past decades, the demands placed on the agency have continued to grow 
with the advent of the Internet and e-commerce, and a variety of 
significant new laws and regulations that the FTC is charged, at least 
in part, with implementing and enforcing, such as the CAN-SPAM Act, the 
Fair and Accurate Credit Transactions Act, the Do Not Call provisions 
of the TSR, the Children's Online Privacy Protection Act, and the 
Gramm-Leach-Bliley Act (``GLB''). In 1979, when the Commission's FTEs 
were at their peak, the U.S. population was approximately 225 million. 
It is now 30 percent greater, and although the agency is always 
striving to do more with less, the size of the agency has not kept pace 
with the growth in the population and the sophistication of the 
marketplace.

    Question 3(a). To follow up, what enforcement and regulation of 
financial services activities currently work best at the FTC?
    Answer. As described in the answer to Question 2 above, the 
Commission has used its existing authority as effectively as possible 
to protect consumers of financial services. The available tools include 
law enforcement under the FTC Act and several other financial statutes, 
consumer and business education, and rulemaking in those instances in 
which Congress has mandated or authorized the FTC to use APA 
procedures.
    The Commission has a long history of protecting consumers at every 
stage of their relationship with financial services companies. The FTC 
is primarily a law enforcement agency, and it has used its authority 
aggressively to seek temporary restraining orders, asset freeze orders, 
and other immediate relief to stop financial scams in their tracks and 
preserve assets, and then to obtain permanent relief and provide 
redress to victims. Over the past 5 years, the FTC has filed over 100 
actions against providers of financial services, and in the past 10 
years, the Commission has obtained nearly half a billion dollars in 
redress for consumers of financial services.
    Most recently, the Commission's highest priority has been targeting 
frauds that prey on consumers made vulnerable by the economic crisis. 
For example, the FTC launched an aggressive, coordinated enforcement 
crackdown on mortgage loan modification scams and foreclosure rescue 
scams perpetrated on homeowners having difficulty making their mortgage 
payments. The purveyors of these schemes purport to assist consumers in 
avoiding foreclosure or renegotiating mortgage terms with the 
consumers' lenders or servicers, but frequently fail to deliver what 
they promise. In the past year, the FTC has brought 17 cases against 
more than 90 defendants charging that they were involved in foreclosure 
rescue and mortgage modification frauds; and we have partnered with 
state and Federal law enforcement agencies that have brought scores of 
additional cases under their own statutes. The FTC also is actively 
targeting other practices that prey on consumers in financial distress, 
including debt relief services, credit repair, advance fee and subprime 
credit card scams, payday loans, and abusive debt collection practices.
    Commission rulemaking activities, pursuant to specific statutes 
authorizing APA procedures, have resulted in a number of valuable 
consumer protection rules relating to financial practices, including a 
rule under GLB on the safeguarding of sensitive consumer financial 
data; a number of rules under the Fair Credit Reporting Act that, among 
other things, provide consumers with greater protections against 
identity theft and enable them to correct mistakes in their credit 
reports; and rules of broader scope that apply to both financial and 
nonfinancial firms, such as the TSR.
    The Commission augments its law enforcement with far-reaching 
consumer and business education campaigns that help consumers manage 
their financial resources and avoid fraudulent and deceptive schemes 
and help businesses comply with the law. For example, the FTC recently 
has undertaken a major consumer education initiative related to 
mortgage loan modification and foreclosure rescue scams, including the 
release of a suite of mortgage-related resources for homeowners. These 
resources are featured on a new web page, www.ftc.gov/MoneyMatters. The 
FTC encourages wide circulation of this information: consumer groups 
and nonprofit organizations distribute FTC materials directly to 
homeowners, while some mortgage servicers are communicating the 
information on their websites, with billing statements, and over the 
telephone.
    Finally, the Commission's research and policy development work 
fosters dialogue on important consumer issues and frequently informs 
and improves the agency's ability to protect consumers through law 
enforcement and rulemaking. For example, a series of landmark studies 
conducted by the FTC's Bureau of Economics on mortgage transactions 
showed that the disclosures that lenders currently are required to make 
to borrowers about the terms of a loan are generally ineffective and 
may even be counterproductive. The findings of these studies have not 
only helped the Commission formulate its enforcement strategies, but 
also have influenced other Federal agencies in their efforts to make 
the mortgage origination process more ``consumer-friendly.''

    Question 3(b). Conversely, what types of financial services 
regulation and enforcement do you struggle with?
    Answer. As noted above, the Commission has had a great deal of 
success in its efforts to stop deceptive and unfair practices in the 
segments of the financial services industry as to which it has 
jurisdiction. And, we have worked cooperatively and productively with 
the Federal bank regulatory agencies, with whom we share jurisdiction 
in the financial services sector, to achieve consistent approaches to 
problems arising in both bank and nonbank sectors of the industry.
    Certain limitations on our authority have made our job of 
protecting consumers more difficult, however. First, the lack of APA 
authority for FTC Act rules has, as a practical matter, made it 
impossible for the FTC to issue consistent and binding standards for 
the financial entities over which it has jurisdiction, except in the 
limited situations where Congress has authorized or mandated specific 
APA authority. Moreover, the Commission lacks general authority to 
promulgate rules under some of the financial statutes it enforces, such 
as the Fair Debt Collection Practices Act and Fair Credit Reporting 
Act, in some cases despite the fact that the agencies with which the 
FTC shares enforcement responsibilities do have such authority. 
Furthermore, the Commission's inability to obtain civil penalties for 
FTC Act violations, or to bring its own civil penalty cases in those 
situations where it does have civil penalty authority, makes it more 
difficult in some cases to protect consumers from ongoing harm or to 
achieve adequate deterrence. Finally, uncertainties in the Commission's 
authority to prosecute aiders and abettors of financial fraud or 
deception can lead to difficulties in some cases in getting to the 
``root'' of a problem.

    Question 3(c). Would it be better to have the latter overseen in 
another agency?
    Answer. I do not believe that any of the Commission's current 
duties for financial services regulation and enforcement would be 
better overseen by another agency. Indeed, I believe that limiting the 
Commission's current authority over financial services would result in 
decreased consumer protection activity in many areas, broad-ranging 
jurisdictional disputes and litigation, and more complicated and 
potentially conflicting regulation of marketing practices that span 
financial and nonfinancial sectors alike. Accordingly, I believe that 
the Commission should continue to have at least concurrent authority 
over the financial entities now within its jurisdiction.
                                 ______
                                 
Response to Written Questions Submitted by Hon. Kay Bailey Hutchison to 

                           Hon. Jon Leibowitz
    Question 1(a). The FTC has current authority to impose penalties on 
fraudulent or deceptive practices when an entity violates a rule or 
consent order, yet you are advocating for more expansive authority to 
impose civil penalties. If granted this new authority, in what specific 
areas or types of cases would the Commission attempt to collect civil 
penalties that it currently cannot?
    Answer. In many cases involving fraud, the equitable remedies of 
redress and disgorgement allow the FTC to reach the defendant's assets 
and thus provide some deterrent effect. In other cases, disgorgement or 
redress remedies are not practicable. For example, in many privacy-
related cases, including those involving malware/spyware, data 
security, and telephone records pretexting, both the harm to consumers 
and the ill-gotten gains received by defendants may be difficult to 
measure, thus making it difficult or impossible to obtain meaningful 
redress or disgorgement. Thus, an appropriately large award of civil 
penalties may be the only effective deterrent for these kinds of 
misconduct. In still other cases, profits for disgorgement are hard to 
calculate because lawful and unlawful conduct is mixed.

    Question 1(b). Has the FTC approached Congress and asked for 
authority to collect civil penalties for these specific types of cases?
    Answer. Yes, on a number of occasions, including:

   Prepared Statement of the Federal Trade Commission, 
        ``Federal Trade Commission Reauthorization,'' Before the Senate 
        Commerce, Science, and Transportation Committee, 110th Cong., 
        April 8, 2008 (``As the Commission has previously testified, 
        however, in certain categories of cases restitution or 
        disgorgement may not be appropriate or sufficient remedies. 
        These categories of cases, where civil penalties could enable 
        the Commission to better achieve the law enforcement goal of 
        deterrence, include malware (spyware), data security, and 
        telephone records pretexting.'')

   Prepared Statement of the Federal Trade Commission, 
        ``Federal Trade Commission Reauthorization,'' Before the Senate 
        Commerce, Science, and Transportation Committee, 110th Cong., 
        April 10, 2007 (``We believe the Commission's ability to 
        protect consumers from unfair or deceptive acts or practices 
        would be substantially improved by legislation, all of which is 
        currently under consideration by Congress, to provide the 
        Commission with civil penalty authority in the areas of data 
        security, telephone pretexting and spyware.'')

   Prepared Statement of the Federal Trade Commission, ``Data 
        Breaches and Identity Theft,'' Before the Senate Commerce, 
        Science, and Transportation Committee, 109th Cong., June 16, 
        2005 (``The FTC also would seek civil penalty authority for its 
        enforcement of these [data security] provisions. A civil 
        penalty is often the most appropriate remedy in cases where 
        consumer redress is impracticable and where it is difficult to 
        compute an ill-gotten gain that should be disgorged from a 
        defendant.'')

    Question 2(a). The FTC currently has the ability to take 
enforcement action against entities that aid or abet violations in very 
narrow circumstances. One of the concerns expressed regarding the 
possible expansion of this authority to the Commission's entire 
jurisdiction is confusion about the level of knowledge necessary to 
support a charge for aiding and abetting. What is the level of 
knowledge that would have to be met for the aiding/abetting provision 
to apply? How would the FTC define the following: ``substantial 
assistance,'' ``knowing,'' and ``consciously avoiding?''
    Answer. Proposed section 5(o) of the FTC Act would establish 
liability for an FTC Act violation for anyone who ``knowingly or 
recklessly . . . provide[s] substantial assistance'' to another who 
violates the FTC Act or any other act enforced by the Commission 
relating to unfair or deceptive acts or practices. This standard 
derives from similar aiding and abetting authority provided to the SEC 
under its statute. See 15 U.S.C.  78t(e). The application of the 
proposed standard requires a careful examination of the facts of each 
specific case. Over many years, the courts have developed a significant 
body of case law to address the substantial assistance and state of 
mind requirements imposed under securities law, and the Commission 
would anticipate tapping into that case law as guidance for any case 
that the Commission might bring in the future under its new aiding and 
abetting authority. Similarly, the Commission would look to its 
Telemarketing Sales Rule, which prohibits any person from providing 
``substantial assistance or support'' to a seller or telemarketer when 
the person ``knows or consciously avoids knowing'' that the seller or 
telemarketer is violating certain provisions of the rule standards. 
These standards draw from SEC law and from tort liability.

    Question 2(b). You state in your testimony that the FTC is able to 
work around the Supreme Court decision Central Bank of Denver v. First 
Interstate Bank of Denver, to penalize those who provide ``knowing 
assistance'' to violators. How does the FTC do this, and why is this 
ability not sufficient to support the Commission in targeting 
individuals and entities that provide affirmative assistance to those 
engaged in fraud and deceptive acts?
    Answer. Notwithstanding Central Bank of Denver, there are instances 
in which the Commission can directly or indirectly allege that those 
who assist scammers have violated section 5 of the FTC Act. For 
example, the Commission is able to take action against those who 
knowingly assist telemarketing scammers. In the Telemarketing and 
Consumer Fraud and Abuse Prevention Act, Congress gave the Commission 
explicit aiding and abetting authority with respect to telemarketing. 
This authority has proven very useful in prosecuting numerous bad 
actors, but it does not allow the Commission to reach those who 
knowingly assist scammers defrauding consumers over the Internet or 
through the mail or other means that do not involve telemarketing.
    In some instances, facts permit the Commission to allege that the 
assistor provided the scammer with the ``means and instrumentalities'' 
of the fraud scheme. Under the ``means and instrumentalities'' theory, 
a person or entity that places in the hands of another a means of 
consummating a fraud has directly violated the FTC Act. This occurs, 
for instance, when the assistor provides the scammer with counterfeit 
products to be sold as genuine goods. The means and instrumentalities 
theory is, however, generally limited to instances in which the fraud 
assistor has provided an inherently deceptive thing that is then used 
to deceive consumers.
    In other instances, facts permit the Commission to allege that the 
assistor engaged in ``unfair'' conduct by assisting the scammer. An act 
or practice is ``unfair'' if it is proven to: (1) cause substantial 
injury to consumers, (2) that they cannot reasonably avoid themselves, 
and (3) is not outweighed by countervailing benefits to consumers or 
competition. In a case that is currently on appeal by the defendants to 
the Ninth Circuit, the Commission alleged that the defendant's payment 
processing business made unauthorized debits to consumers' bank 
accounts on behalf of a scammer. While we believe that it is 
appropriate in this instance, the use of the Commission's unfairness 
authority in this fashion does not have the long jurisprudential 
history associated with the concept of aiding and abetting and involves 
proving the unfairness elements described above rather than focusing on 
the assistor's relationship with and knowledge of the fraudster's 
activities.
    Finally, in some instances, facts permit the Commission to allege 
that an entity is part of a common enterprise with the scammer. A 
common enterprise exists where factors such as commingling of assets, 
common ownership, shared locations, and other considerations, 
demonstrate that apparently independent companies are part of the same 
enterprise. It is not necessary or even typical, however, for assistors 
to be so closely affiliated with scam perpetrators.

    Question 2(c). How would industries such as the media be affected 
by an aiding and abetting provision? Could a newspaper or magazine be 
held liable if the FTC determined it had run a fraudulent 
advertisement?
    Answer. The purpose of seeking the aiding and abetting provision is 
not to pursue the media for disseminating deceptive advertising. 
Proposed section 5(o) of the FTC Act would establish liability for 
anyone who ``knowingly or recklessly . . . provide[s] substantial 
assistance'' to another who violates the FTC Act or any other act 
enforced by the Commission relating to unfair or deceptive acts or 
practices. This provision (like other provisions of the FTC Act, cf. 
Section 12 regarding disseminating or causing the dissemination of 
false advertising relating to food, drugs, devices, cosmetics, or 
services) could arguably apply to a media outlet such as a newspaper or 
magazine, depending on the circumstances. The Commission, however, is 
mindful of First Amendment concerns and has never imposed a general 
duty upon newspapers, magazines, or other media to screen advertising. 
Commission staff has worked with members of the media to encourage 
voluntary media screening of facially deceptive advertisements and 
published several guidance documents to assist the media. See, e.g., 
http://www.ftc.gov/bcp/edu/pubs/business/adv/bus36.shtm.

    Question 2(d). There is a clear distinction between having active 
knowledge of a fraudulent and misleading advertisement, for example, 
and choosing to run it anyway and running an advertisement you have no 
reason to expect is fraudulent or deceptive. Do you believe newspapers, 
and to an extent Internet sites, have an obligation to investigate the 
veracity of claims made in advertising that they make available in 
their papers/sites before publishing them?
    Answer. As you say, there is indeed a distinction between a media 
outlet running an ad that it actively knows to be fraudulent or 
misleading, and running one that it has no reason to believe is 
deceptive. Media outlets can play an important role in protecting 
consumers from deception by preventing the dissemination of fraudulent 
ads in the first place. However, I do not believe that proposed section 
5(o) would impose a general obligation on media outlets to investigate 
the veracity of claims that they disseminate.

    Question 2(e). Would failure to affirmatively investigate and 
verify claims made in advertising represent ``consciously avoiding'' 
knowledge?
    Answer. No, section 5(o) would not impose a general duty on media 
outlets to investigate the veracity of claims that they disseminate. 
Media outlets, however, can play an important role in protecting 
consumers from deception by preventing the dissemination of fraudulent 
ads in the first place.
                                 ______
                                 
    Response to Written Questions Submitted by Hon. John Ensign to 
                           Hon. Jon Leibowitz
    Question 1(a). Mr. Chairman, in your testimony, you mentioned 
several ways in which you are asking for Congressional approval to 
expand the FTC's authority. Specifically, you mentioned replacing the 
Magnuson-Moss rules process with one using the Administrative 
Procedures Act (APA); explicit authority to pursue enforcement action 
against parties that ``aided or abetted'' a violation of the FTC Act; 
the authority to collect civil penalties for violations of the FTC Act; 
and independent litigating authority. Congress chose to place those 
limits, and others, on the FTC to ensure there are proper checks and 
balances on the agency's enforcement and rulemaking power, and I am 
concerned that these new powers would result in an overly burdensome 
regulatory regime for all industries, financial or otherwise, that fall 
within the FTC's especially broad consumer protection mandate.
    A number of concerns have been raised with respect to the potential 
over-regulatory impact on our economy by a new Consumer Financial 
Protection Agency (CFPA), and the corresponding effect it could have on 
stifling innovation and costing American jobs. These concerns are 
particularly important to me given that the unemployment rate in Nevada 
is among the highest in the country. In what ways would the FTC's new 
powers, as you've proposed, differ from those proposed for the CFPA?
    Answer. The powers sought for the FTC also would be granted to the 
CFPA in both the Administration proposal and H.R. 4173. These powers 
would enhance the FTC's ability to fulfill its longstanding statutory 
responsibility to prevent unfair and deceptive commercial practices, 
and would be exercised within the framework of nearly a hundred years 
of jurisprudence. Unlike the CFPA, the FTC would not be authorized to 
exercise these powers with respect to ``abusive'' practices, but would 
continue to operate within the established, carefully-defined 
parameters of unfair or deceptive practices.\1\ Also, the FTC would not 
be authorized to exercise these powers within a supervisory/examiner 
regulatory role such as that anticipated for the CFPA.
---------------------------------------------------------------------------
    \1\ Under Section 5 of the FTC Act, 15 U.S.C.  45, an act or 
practice (usually an express or implied representation or omission) is 
deceptive if it is: (1) likely to mislead consumers who are (2) acting 
reasonably under the circumstances (3) about a material fact. An act or 
practice is material if it is likely to affect consumers' conduct or 
decisions with respect to the product or service at issue. FTC Policy 
Statement on Deception, appended to Cliffdale Associates, Inc., 103 
F.T.C. 110, 174 (1984). An act or practice is unfair if it causes or is 
likely to cause injury to consumers that: (1) is substantial; (2) is 
not outweighed by countervailing benefits to consumers or to 
competition; and (3) is not reasonably avoidable by consumers 
themselves. 15 U.S.C.  45(n).

    Question 1(b). How would your proposals to increase the FTC's 
powers in similar ways to the CFPA avoid or mitigate these same 
concerns about the potential negative impact on our economy?
    Answer. In answering this question, it is important to provide 
context about the function and role of the FTC. The FTC is the only 
Federal agency with jurisdiction over the financial sector whose sole 
mission is protecting consumers. Moreover, the FTC is unique in its 
combination of consumer protection and competition missions, informed 
by its economic expertise. These missions work in tandem to protect 
consumer sovereignty within our competitive market system. Thus, the 
Commission has long-standing experience and expertise in weighing the 
impacts of its enforcement and regulatory actions on our economy, and 
it would bring that expertise to bear in employing the four 
enhancements of authority it seeks.

        Aiding and abetting: The proposal to grant aiding and abetting 
        authority to the FTC is subject to important constraints. 
        Specifically, aiders and abettors would be liable only if they 
        provided substantial assistance to a wrongdoer, and only then 
        if they actually knew that, or acted with reckless disregard 
        for whether, the practices they were assisting violated the FTC 
        Act. The proposed provision would give the FTC comparable 
        authority to that long held by the SEC and the Commodity 
        Futures Trading Commission over aiding and abetting of 
        violations.

        Civil penalties: The proposed authority to seek civil penalties 
        for violations of the FTC Act also would be constrained. The 
        Commission could obtain such penalties only if it proved to a 
        Federal court that the defendant engaged in unfair or deceptive 
        practices with actual knowledge or knowledge fairly implied on 
        the basis of objective circumstances that the conduct violated 
        the law. This is the same standard that the Commission must 
        satisfy currently in bringing an action for civil penalties for 
        violation of an FTC trade regulation rule. In addition, the FTC 
        Act directs a court determining the amount of any such civil 
        penalty to take into account the degree of culpability, any 
        history of prior such conduct, ability to pay, effect on 
        ability to continue to do business, and such other matters as 
        justice may require.

        APA rulemaking authority: It is important at the outset to 
        dispel any misimpression that the APA procedures are in any 
        sense truncated or expedited; in fact, the APA provides for 
        numerous procedural and substantive safeguards and 
        requirements, with ample opportunity for all stakeholders to 
        participate and be heard. (Please see the discussion of APA 
        Rulemaking in my additional statement). Over the last two 
        decades the Commission has promulgated numerous rules using APA 
        procedures pursuant to statutes other than the FTC Act. 
        Finally, it is worth noting that many other Federal agencies 
        have authority to issue under APA procedures rules implementing 
        broadly stated standards that have substantial and widespread 
        effects on major economic sectors, including the SEC, CFTC, 
        Federal Communications Commission and the Federal bank 
        regulatory agencies (three of which may issue APA rules 
        applying the FTC Act's own deception and unfairness standards).

        Independent litigating authority: The proposed authority would 
        fill a problematic gap in the FTC's long-held, independent 
        litigating authority. The FTC currently has, and routinely 
        exercises, the power to initiate litigation in the Federal 
        courts in its own name and with its own attorneys to pursue 
        violations of all the laws it is charged with enforcing. The 
        FTC has this power to carry out its most basic and essential 
        consumer protection functions under the FTC Act: to obtain 
        injunctive and other relief, including consumer redress for 
        violations of the FTC Act. The FTC has used this power 
        appropriately and effectively. Only if it seeks civil penalties 
        may the FTC not bring suit independently. Other independent law 
        enforcement agencies, such as the SEC, currently have the power 
        to obtain civil penalties on their own in Federal district 
        court.

    Question 2(a). You are proposing a drastic expansion of the FTC's 
authority. In fact, former FTC Chairman Timothy Muris has said your 
proposals represent ``the most significant expansion of the FTC since 
its inception.'' Further, former FTC Chairman Jim Miller has said the 
proposals are ``like putting the FTC on steroids.'' This is certainly 
not a small request you are asking of Congress. Given the breadth of 
your agency's jurisdiction and the significance of the proposed 
changes, what specifically has the FTC done to get input from 
businesses that could be impacted by the new authority?
    Answer. The FTC maintains a continuous and comprehensive dialogue 
on matters that affect its stakeholders who might be impacted by FTC 
actions, including the business community, consumer advocates, the 
private bar, and sister Federal and state enforcement agencies. The 
Commission conducts outreach, provides guidance, and seeks input 
through a variety of informal channels (such as speeches at 
conferences, business and consumer education, and responses to queries 
and requests for advice), as well as through more formal processes 
(such as public comment periods on regulatory proposals and public, 
FTC-sponsored workshops and forums examining specific consumer 
protection issues). In addition, although not legally required to do 
so, the Commission frequently seeks public comment on proposals for 
enforcement policy statements and other types of nonregulatory guidance 
it issues.
    With respect to the current proposals, FTC officials at every level 
have communicated with business representatives and other interested 
parties to hear their views and engage in dialogue. It should be noted 
that the Commission has recommended iterations of all four proposals in 
Congressional testimony and elsewhere since at least 2008.

    Question 2(b). With a more streamlined approach under APA 
rulemaking, I worry that the parties affected by the rule would not 
have a proper opportunity to voice their concerns. Should Congress 
agree with your proposals, what steps would you take to ensure that 
does not happen?
    Answer. Please see the discussion of APA Rulemaking in my previous 
statement.
                                 ______
                                 
     Response to Written Questions Submitted by Hon. John Thune to 
                           Hon. Jon Leibowitz
    Question 1. Chairman Leibowitz, in your testimony you mentioned 
that the FTC would benefit from the ability to use APA-style rulemaking 
rather than the Magnuson-Moss rulemaking process that it is currently 
required to use. Is this still a priority for the FTC when the CFPA 
proposals would take over a significant portion of consumer protection 
rulemaking?
    Answer. Having the ability to issue rules in a reasonable time with 
a reasonable expenditure of resources would greatly improve the 
Commission's ability to address common consumer protection problems. 
New scams continually emerge that exploit technological advances and 
marketplace developments. For example, in the past year or two, frauds 
targeting financially-distressed consumers have blossomed, including 
mortgage rescue fraud, job scams, and phony government grants. The 
dozens of enforcement actions we have brought are making an impact. 
Nevertheless, for some types of fraudulent, deceptive or unfair 
practices, bringing case after case may not be as useful as 
promulgating a rule, which would allow the Commission to establish 
clear standards for industry while making enforcement more efficient 
and effective. The current requirement to use Magnuson-Moss procedures 
effectively precludes the Commission from issuing such rules.
    Furthermore, the CFPA's authority would reach only financial 
activities and entities. The Commission needs to be able to issue rules 
in a reasonable time and with a reasonable expenditure of resources--
that is, APA-style rulemaking--across the broader spectrum of 
commercial activities that fall within its jurisdiction, including 
practices that are not financial activities (such as negative option 
marketing \1\), practices of any entities that may be specifically 
excluded from the CFPA's authority (such as the exclusion in the House 
bill, H.R. 4173, of the practices of retailers and auto dealers), and 
practices involving both nonfinancial and financial aspects or entities 
(such as the Commission's Funeral Rule).
---------------------------------------------------------------------------
    \1\ ``Negative option marketing'' refers to a category of 
commercial transactions in which customers are charged for goods or 
services if they do not take an affirmative action to reject an offer 
or cancel an agreement.
---------------------------------------------------------------------------
    Authority to use APA rulemaking rather than the much more 
cumbersome and time-consuming Magnuson-Moss procedures would enhance 
the FTC's ability to fulfill its statutory responsibilities more 
effectively.

    Question 2. If the FTC was forced to defer to the CFPA for 120-days 
before litigating any consumer financial protection cases, how would 
that affect the FTC's current enforcement efforts? Would this undercut 
the FTC's ability to quickly respond to certain deceptive practices and 
fraud in areas currently under its jurisdiction?
    Answer. For many FTC cases, particularly those involving fraud, 
rapid action is often necessary to obtain preliminary relief to stop 
the practices quickly and limit the harm, as well as to preserve assets 
for possible return to consumers. Having to wait 120 days for a CFPA 
decision before filing a case not only would allow the violations to 
continue an extra 4 months, resulting in additional consumer injury, 
but could seriously hamper the Commission's ability to obtain 
preliminary relief, thus weakening our ability to protect consumers in 
these circumstances. The approach taken in H.R. 4173, essentially 
providing the FTC with concurrent enforcement authority, would ensure 
that the Commission's law enforcement efforts to protect consumers 
remain effective.

    Question 3. Do you believe that the CFPA and FTC can concurrently 
manage consumer protection or do you believe that there will be 
inherent conflicts with this structure?
    Answer. Based on our many years of experience in sharing 
jurisdiction with numerous other Federal agencies with respect to large 
portions of the Commission's jurisdiction, I am confident that the FTC, 
should it have concurrent enforcement authority, would work 
cooperatively and effectively with the CFPA.
    The FTC, for example, has concurrent authority for stopping unfair 
or deceptive practices with respect to the marketing of foods, drugs, 
devices, alcoholic beverages, and pesticides (with the Food and Drug 
Administration; Department of Agriculture; Bureau of Alcohol, Tobacco, 
and Firearms; and Environmental Protection Agency); the securities 
industry (with the Securities and Exchange Commission); mail fraud 
(with the U.S. Postal Inspection Service); mortgage-related activities 
(with the Department of Housing and Urban Development); certain 
financial entities (with the Federal bank regulatory agencies); and a 
host of others. With respect to its antitrust mission, the Commission's 
authority is almost completely co-extensive with that of the Department 
of Justice.
    In each of these instances, the Commission and its sister agencies 
have developed effective methods of coordination tailored to the 
individual circumstances. For example, the concurrent jurisdiction of 
the FTC and FDA with respect to the marketing of foods, OTC drugs, and 
devices is handled through a formal Memorandum of Understanding that, 
among other things, makes the FDA primarily responsible for overseeing 
product labeling and the FTC primarily responsible for non-label 
advertising. In some cases, the FTC defers to another agency, such as 
the SEC, when that agency has specialized expertise relevant to the 
matter. In other situations, the Commission and other agencies 
coordinate through less formal means, including ongoing consultation, 
as circumstances dictate.
                                 ______
                                 
  Response to Written Questions Submitted by Hon. Roger F. Wicker to 
                           Hon. Jon Leibowitz
    Question 1. If you were granted APA rulemaking authority today, 
what rulemaking would you initiate?
    Answer. The Commission's record for more than two decades 
demonstrates that it views rulemaking as a tool to be used very 
judiciously and only where there are clear indications that other 
remedial approaches are not effective. The Commission has not made any 
decisions about any particular rulemaking it would undertake.
    One area I think might be appropriate for rulemaking under APA 
procedures is the use of negative option marketing in Internet sales. 
Despite the many Commission law enforcement actions targeting schemes 
that unfairly or deceptively exploit this sales technique, abuses 
persist. It may be possible to benefit both consumers and industry by 
developing bright-line standards for how to use this technique fairly 
and without deception. Such rules should enable consumers to more 
easily identify and avoid sellers that make unscrupulous use of the 
technique.
    For another, in a 2009 report on debt collection, the Commission 
recommended that Congress grant it APA rulemaking authority under the 
Fair Debt Collection Practices Act. I continue to believe that a debt 
collection rulemaking would be useful.

    Question 1(a). If there are any rules you would initiate 
immediately under APA rulemaking, please include evidence of your 
rationale for expedited rulemaking, including any action taken against 
bad actors.
    Answer. Let me note initially that notice-and-comment APA 
rulemaking is the standard government rulemaking procedure, rather than 
expedited rulemaking.\1\ The APA mandates a set of rigorous procedures 
that are designed to ensure that interested parties have early notice 
of the proceeding and ample opportunity to have their views considered, 
as well as to create a comprehensive record to afford thorough judicial 
review. Please see the discussion of APA Rulemaking in my additional 
statement.
---------------------------------------------------------------------------
    \1\ Although the APA does provide for expedited rulemaking without 
notice-and-comment when an agency for good cause finds that such a 
procedure is ``impracticable, unnecessary, or contrary to the public 
interest,'' the courts have construed this exception narrowly. The 
Commission has only engaged in such rulemaking to fix minor errors in a 
rule or make very non-substantive, technical, or non-discretionary 
amendments.
---------------------------------------------------------------------------
    As noted above, the Commission has not made any decision about what 
rulemakings it would conduct in the event of the elimination of the 
cumbersome Magnuson-Moss rulemaking procedures. I would consider 
discretionary rulemaking only where unfair or deceptive practices cause 
significant harm to consumers, where setting standards would likely 
improve industry practices (particularly where law enforcement efforts 
have not provided adequate guidance or prevented the practices and 
where malfeasance is common), where remedies could be crafted within 
the framework of FTC jurisprudence, and where the anticipated burdens 
are reasonable in light of the anticipated benefits of the rule.

    Question 1(b). You discussed a few instances where APA rulemaking 
authority would have benefited the FTC's ability to protect consumers. 
Did the FTC request from Congress the specific authority to use 
expedited rulemaking for these instances?
    Answer. Yes. For example, in a 2009 report on debt collection, the 
Commission recommended that Congress grant it APA rulemaking authority 
under the Fair Debt Collection Practices Act.
    A major problem with needing to seek statutory authority for APA 
rulemaking for each specific need is that business practices change 
constantly and quite rapidly in response to technological advances and 
market innovation. Both consumers and industry members can often 
benefit from the establishment of standards that can be revised as 
needed to keep current and effective. If a rule is no longer needed, it 
can similarly be withdrawn after notice-and-comment under such a 
flexible regime. This process is more responsive to a dynamic economy 
than enacting new legislation.

    Question 1(c). Please detail any requests the Commission made to 
Congress for expedited rulemaking on specific rules since 1990.
    Answer. When Congress is considering directing the Commission to 
conduct rulemaking, FTC staff routinely suggest that any statute 
provide expressly for APA rulemaking authority. Unlike Magnuson-Moss 
rulemaking, APA rulemaking is an efficient and effective means to 
conduct rulemaking proceedings. Examples of legislation that then 
provided APA rulemaking authority include:

   Telephone Disclosure and Dispute Resolution Act of 1992

   Telemarketing and Consumer Fraud and Abuse Prevention Act

   The Children's Online Privacy Protection Act

   Fairness to Contact Lens Consumers Act

   Controlling the Assault of Non-Solicited Pornography and 
        Marketing Act of 2003

   Omnibus Appropriations Act, 2009

    In addition, in a 2009 report on debt collection, the Commission 
recommended that Congress grant it APA rulemaking authority under the 
Fair Debt Collection Practices Act.

    Question 2. Can you please provide data from the Commission related 
to the staffing associated with the following stages of rules, for each 
rule promulgated under your current rulemaking authority:

   staff detailed to assist in the preparation of the advanced 
        notice,

   staff assigned to review comments from the advance notice of 
        proposed rulemaking,

   staff assigned to formulate the determination that unfair or 
        deceptive acts or practices are prevalent,

   staff assigned to draft the notice of proposed rulemaking, 
        and

   staff assigned to draft the staff report required under 
        Commission Rule 1.13.

    Answer. All of the trade regulation rulemaking proceedings using 
the Magnuson-Moss procedures to create new rules were conducted over 25 
years ago.\2\ Also, all of the rules were initiated prior to the 1980 
amendment to the FTC Act requiring an advanced notice of proposed 
rulemaking and a determination that the practice addressed is 
prevalent.
---------------------------------------------------------------------------
    \2\ Eight Magnuson-Moss rules have been amended, also using 
Magnuson-Moss procedures. Building on existing rules, amendment 
proceedings involved fewer issues than did the original promulgations 
and they were typically more lightly staffed. Generally, interested 
parties did not demand hearings to deliver their oral presentations--
although most, if not all, amendment proceedings involved one or more 
public workshops to develop a full record.
---------------------------------------------------------------------------
    The records available do not include information sufficient to 
respond to the request in full. Staff has gleaned from some of the 
post-hearing staff reports illustrative staffing information:

   Mobile Homes: At least 13 staff members worked on the post-
        hearing staff report.

   Used Cars: More than 14 staff members worked on the post-
        hearing staff report.

   Funeral Industry: At least 16 staff members worked on the 
        post-hearing staff report.

    These numbers do not include the Presiding Officer (who was 
obligated to produce a separate report) or his staff, Bureau management 
reviewers, Office of General Counsel advisors, or the Commissioners' 
offices. Staff familiar with the rulemaking proceedings inform me that 
these staffing levels were typical.

    Question 3. Please provide the timing associated with informal 
hearings held under  57a(c), by each rule.
    Answer. Staff attempted to identify Magnuson-Moss rulemaking 
proceedings to promulgate new rules that included hearings held under  
57a(c). The table below sets forth those identified, together with the 
number of days of hearings themselves; the time taken by all of the 
steps associated with the hearing process, and the length of the 
proceeding from ANPR or initial NPR until promulgation of a rule or the 
closing of the proceeding.

------------------------------------------------------------------------
                                                 Time
                       Year     Number  of    Associated     Length of
       Rule         Initiated     Hearing    with Hearing    Rulemaking
                                   Days        Process*      Proceeding
------------------------------------------------------------------------
Vocational               1974   44          2 years, 1     4 years, 4
 Schools                                     month          months**
------------------------------------------------------------------------
Food Advertising         1974   48          3 years, 1     8 years, 1
 (nutrition)                                 month          month**
------------------------------------------------------------------------
Mobile Homes             1975   40          5 years        11 years, 11
                                                            months**
------------------------------------------------------------------------
Credit Practices         1975   51          5 years        8 years, 10
                                                            months
------------------------------------------------------------------------
Hearing Aids             1975   58          2 years        10 years, 3
                                                            months**
------------------------------------------------------------------------
Funeral Services         1975   52          2 years, 4     7 years, 1
                                             months         month
------------------------------------------------------------------------
Protein                  1975   26          3 years, 9     over 9
 Supplements                                 months         years**
------------------------------------------------------------------------
Health Spas              1975   30          3 years, 6     over 10
                                             months         years**
------------------------------------------------------------------------
OTC Drugs                1975   23          3 years, 4     5 years, 5
                                             months         months**
------------------------------------------------------------------------
Ophthalmic               1975   32          1 year, 2      2 years, 7
 Practices                                   months         months
------------------------------------------------------------------------
Used Cars                1975   35          2 years, 8     8 years, 10
                                             months         months
------------------------------------------------------------------------
OTC Antacids             1976   23          3 years, 5     8 years, 8
                                             months         months**
------------------------------------------------------------------------
Insulation (R-           1977   17          7 months       1 year, 9
 Value)                                                     months
------------------------------------------------------------------------
Children's               1978   30***       N/A            3 years, 5
 Advertising                                                months**
------------------------------------------------------------------------
Development/Use          1978   57          N/A****        2 years, 2
 of Standards and                                           months**
 Certification
------------------------------------------------------------------------
* The time periods associated with the hearing process start when the
  Commission either issued an NPR or first extended the initial comment
  period for comments on hearing-related matters, and end when the
  Presiding Officer or the staff released a report.
The numerous hearing-related steps include: comment period extensions
  relating to designating disputed factual issues to be addressed at the
  hearing or to determination of similar interests of interested
  persons; designating the disputed issues; grouping interested persons
  with similar interests; allowing each group to appoint a
  representative; appointing a representative if a group cannot agree;
  resolving petitions about disputed issues or representation; preparing
  and publishing a final NPR or other notice addressing all these issues
  and scheduling hearings; holding hearings, which include examination
  and cross-examination by interested persons or their representatives;
  making transcripts of all testimony and cross-examinations available
  to the public; digesting, summarizing, and analyzing the record
  amassed at the hearings; and preparing a staff report and a Presiding
  Officer report containing those summaries and analyses.
** Closed without promulgating a rule.
*** This number represents the first round of hearings, which did not
  include examination by interested parties. A second round of hearings
  for examination by interested parties was planned but had not yet
  taken place when the Commission suspended and then closed the
  rulemaking proceeding.
**** The staff report and the Presiding Officer's report had not been
  completed when the Magnuson-Moss (unfair or deceptive practices)
  aspect of the proceeding was closed pursuant to the 1980 amendments to
  the FTC Act.

    Question 4. I understand that several steps associated with the 
Commission's rulemaking authority are required under the Commission's 
Rules. Can you please provide the history of adoption of these rules?
    Answer. The Commission adopted rules of practice implementing the 
requirements of the Magnuson-Moss Act shortly after the law was enacted 
in 1975. The Commission issued further rules in 1980 and 1981 after the 
passage of the FTC Improvements Act of 1980. There have also been 
several revisions of discrete provisions in the late 1970s and in 1989 
and 1998. Most of the provisions in the rules are required by these 
laws.
    In addition to the statutory requirements, the rules provide that 
FTC staff shall make recommendations to the Commission in a report on 
the rulemaking record, and that the public have an opportunity to 
comment on both the staff report and the Presiding Officer's report. 
The staff report requirement ensures that the staff's expertise is 
provided to the Presiding Officer, the Commission, and the public.
    Another provision in the Commission's rules not required by the 
statutes establishes a procedure for oral presentations to the 
Commission after the close of the hearing record. This procedure is 
optional and the Commission, in its discretion, may determine that 
``such presentations would not significantly assist it in its 
deliberations.'' The Commission adopted these provisions in 1977 in 
response to public comments that there should be a procedure for direct 
access to the Commission.

    Question 4(a). Also, can you please detail the process the 
Commission must initiate to amend these rules?
    Answer. The Commission's procedural rules implementing the 
statutory requirements are rules of agency practice. Under the 
Administrative Procedure Act, an agency may issue rules of practice and 
any amendments thereto by publication in the Federal Register; a 
comment period is not required. See 5 U.S.C. 553(a)(2).

    Question 4(b). What steps has the Commission taken to streamline 
Commission Rules related to the rulemaking process?
    Answer. The statutory requirements limit the Commission's ability 
to streamline the procedural steps in its rules. The statutory 
provisions allowed some minor streamlining in 1981 that had little 
effect on burden or time.

    Question 5. Would additional resources allow you the opportunity to 
effectively utilize your existing rulemaking authority? If so, has the 
FTC made this clear in your recent budget proposals?
    Answer. While more staff on a rulemaking may help, most of the 
built-in time lags involved in Magnuson-Moss rulemaking cannot be 
eliminated by additional staffing. There are numerous steps that must 
be taken to issue a rule under Magnuson-Moss procedures. Please see the 
discussion of Magnuson-Moss Rulemaking on pages 1 to 2, supra. Because 
most of these steps must be taken sequentially in a specified order, 
even additional resources would not allow the Commission to utilize 
existing Magnuson-Moss rulemaking authority effectively.

    Question 6. Do you believe the evidential hearings and opportunity 
to cross examine is an unnecessary step in the formal rulemaking 
process?
    Answer. Input from parties impacted by a proposed rulemaking is 
essential in developing a full record and ensuring fairness and 
transparency. All FTC rules, whether conducted pursuant to Magnuson-
Moss or APA procedures, have been based on comprehensive records 
developed through open and impartial processes that provided ample 
opportunities for any interested parties to communicate information or 
opinions. The creation of such a record both leads to an informed 
decisional process and is integral to satisfying the courts that the 
agency fulfilled its responsibilities.
    In some cases, it may be useful to supplement the written record by 
providing an opportunity for stakeholders to transmit their views 
orally. Doing so may be helpful in resolving difficult or contentious 
issues that would benefit from having opposing positions discussed and 
debated in a public setting. That is why the FTC frequently solicits 
oral input during APA rulemakings, either through workshops or outreach 
by FTC staff to knowledgeable parties. Indeed, in many of the 
Congressionally-mandated APA rulemakings, staff has affirmatively 
reached out to stakeholders who for whatever reason did not avail 
themselves of the opportunities to provide written comments.
    Nevertheless, I do not believe that requiring formal ``hearings'' 
with a hearing examiner and cross-examination is generally necessary or 
beneficial. It is a formal, time-consuming, and rigid proceeding that 
delays completion of the rulemaking and may not be conducive to the 
free-flowing discussion that may be what is most useful in a particular 
case. Less formal mechanisms often are more efficient and helpful.

    Question 7. Given the Commission's broad authorities, regulatory 
action should be limited to only those areas where substantial evidence 
can support the action. The existing FTC rulemaking authority required 
proof of substantial evidence in support of the Commission's action, 
and this requirement is consistent with the heightened burden of 
substantial evidence proof required under judicial review. Is it your 
intent that the Commission also adopt the less burdensome arbitrary and 
capricious standard of review if provided across-the-board APA 
rulemaking authority?
    Answer. The standard for judicial review under the two formulations 
is the same. Please see the discussion of the standard for review on 
page 4, supra.

    Question 8. Have you consulted with the Department of Justice (DOJ) 
regarding your desire to litigate independently of them? If so, have 
they formally supported your proposal?
    Answer. There have been informal discussions, but to our knowledge 
DOJ has taken no position on the issue.

    Question 9. The Commission has the authority to seek an injunction 
immediately, on its own behalf, to stop the bad acts. Also, should the 
Commission choose to collect civil penalties, the law requires a 45-day 
window in which the DOJ can decide whether to act on behalf of the FTC. 
If the DOJ chooses not to, then the FTC can file in its own name. In 
your testimony you mentioned that you may not be able to pursue the 
injunction on your own behalf while working with the DOJ to pursue 
civil penalties. Can you please explain why you are unable to seek an 
injunction to stop the bad acts immediately, while working through the 
DOJ process to collect civil penalties?
    Answer. The FTC Act does not currently permit the FTC to commence 
an action to seek preliminary injunctive relief, including a temporary 
restraining order, if the action will ultimately involve a civil 
penalty. The FTC may file for injunctive relief for a claim only if it 
is not seeking any civil penalty for it.

    Question 9(a). Can you also provide the following information--the 
number of times the FTC notified the DOJ of interest in collecting 
civil penalties over the past decade?
    Answer. From FY 2000 through FY 2010 to date, the Commission has 
notified DOJ of 171 matters in which the Commission wished to obtain 
civil penalties. This includes both instances in which the Commission 
staff had negotiated a settlement calling for payment of civil 
penalties prior to issuance of a complaint, as well as instances in 
which no settlement was reached but a complaint was approved by the 
Commission for referral and filing by DOJ in order to obtain civil 
penalties.

    Question 9(b). Of these notifications, how often did the DOJ decide 
to pursue the action within the 45-day period?
    Answer. From FY 2000 through FY 2010 to date, the DOJ decided to 
file referred complaints approved by the Commission in all but two 
instances.

    Question 9(c). When the DOJ chose not to pursue action, how often 
did the FTC initiate action?
    Answer. In both of the cases when DOJ declined a referred 
complaint, the FTC initiated action.

    Question 9(d). If the DOJ chooses to pursue the action, do they 
cover the costs related to the action?
    Answer. Yes, generally. However, much of the work that underlies a 
civil penalty action is conducted prior to a referral to DOJ, and then, 
after a referral, FTC staff often provides substantial litigation 
support and assistance at the FTC's expense.
                                 ______
                                 
    Response to Written Questions Submitted by Hon. David Vitter to 
                           Hon. Jon Leibowitz
    Question 1. Chairman Leibowitz, your letter to the House Energy and 
Commerce Committee in October 2009 noted that most people regard your 
agency as an effective consumer protection agency. I would agree that 
we should work to ensure that assertion remains true and that any areas 
in which the commission is currently hindered in protecting consumers 
should be closely considered. With that mind, I have some questions 
about current requirements of the FTC under the Magnuson-Moss 
rulemaking procedures and proposals to change how the FTC functions. Do 
you believe that public advanced notice of proposed rulemakings, which 
provide Congressional committees with an appropriate view into the 
FTC's agenda, do not serve a positive function?
    Answer. I believe that ANPRs do serve a useful purpose in some 
cases. When the agency lacks sufficient law enforcement experience and 
expertise in the subject matter of the prospective rule, it often makes 
sense to publish an ANPR, without any proposed rule text, to obtain 
general input and information about the need for a rule and, if so, 
what provisions it should include. Thus, with respect to several of the 
FTC's rules promulgated pursuant to specific Congressional grants of 
APA authority, the Commission issued ANPRs to commence the proceeding. 
In other situations, the FTC has convened public workshops or conducted 
informal outreach in lieu of an ANPR to gain the requisite knowledge 
and expertise.
    Although ANPRs are appropriate and useful in some circumstances, 
often the Commission already has the experience and expertise it needs 
to draft a proposed rule. In these cases, proceeding with an ANPR first 
is unnecessary and duplicative, resulting in what can be a several-
month delay in completing the rule. Of course, whether or not it issues 
an ANPR, the Commission's practice is to ensure that stakeholders have 
meaningful notice and opportunities to provide information and express 
their views for consideration, both formally during the comment period 
on the proposed rule and through other means.

    Question 2. Do you believe that providing the text of the proposed 
rule in notice of proposed rulemaking does not provide value to the 
public? Doesn't the inclusion of the text of the proposed rule and any 
alternatives provide the public with an opportunity to prepare for 
compliance with the new rule, as well as to provide input regarding its 
potential effects, possible improvements, and other concerns through 
the process and in public meetings?
    Answer. Generally speaking, I think there is great value in 
providing proposed rule text when publishing an NPR. Indeed, the FTC 
routinely includes the text of the proposed rule in its NPRs, including 
for APA rulemakings where it is not required. I would anticipate that 
we would continue to do so.

    Question 3. Particularly in the current economic situation with 
many businesses struggling to keep their employees employed, should all 
businesses across the U.S. be burdened with the cost of specific 
regulation to prevent unfair or deceptive practices that are not 
prevalent or that are very rare in the marketplace?
    Answer. I cannot imagine a situation in which the Commission would 
promulgate a rule addressing practices that are very rare, and I do not 
believe it has ever done so. We recognize the importance of using our 
rulemaking authority very judiciously, and in a manner that minimizes 
compliance costs, to tackle persistent and common problems for which 
individual case enforcement may be ineffective or inefficient. My 
concern, however, is with the concept of ``prevalence,'' a finding of 
which is required for Magnuson-Moss rulemaking. The threshold at which 
a practice becomes ``prevalent'' is undefined in the statute or, to my 
knowledge, in any case law. Thus, the Commission is faced with the 
choice of exhaustively cataloguing the incidence of the challenged 
practice, at significant cost in time and resources, or building a less 
exhaustive record and risking that the rule would be overturned if 
challenged in court.

    Question 4. I know we all want to protect consumers effectively. 
With that in mind, please explain the details of any situations where 
you feel the FTC has been unable to act effectively because of the 
current requirements for the FTC's procedures. Please also highlight if 
you have seen specific types of harm that the FTC has been unable to 
address under its current authority and procedural requirements.
    Answer. There are many instances in which the FTC has been hindered 
in its ability to protect consumers due to the absence of the four 
enhancements to the agency's authority that we are seeking.
    The inability to promulgate a rule under the FTC Act without 
complying with the unwieldy and burdensome Magnuson-Moss procedures--
procedures that typically lead to 8-10 year proceedings--as a practical 
matter has resulted in a virtual absence of FTC rulemaking except in 
specific areas in which Congress has authorized or mandated a rule 
using APA procedures. Thus, for example, the Commission continues to 
attack the problem of deceptive negative option marketing on a case-by-
case basis, rather than through a rule that would establish common 
standards and ease our enforcement burden. Moreover, as new forms of 
illegal practices quickly become common, it is simply not useful to 
initiate an 8-10 year rulemaking proceeding; by the time the rule would 
become effective, the illegal practice may have disappeared, only to be 
replaced by a new one.
    The absence of civil penalty authority in cases involving 
violations of the FTC Act has limited the Commission's ability to 
establish effective deterrence in certain areas. For example, the FTC 
has brought numerous cases against companies that failed to undertake 
reasonable measures to protect consumers' sensitive personal 
information from possible identity thieves. In these cases, consumer 
redress generally is not a practicable remedy, because identifying 
injured consumers and determining their loss is frequently impossible. 
Similarly, disgorgement of illicit profits may be an unavailable remedy 
as the defendant may not have profited from its negligence or profits 
may not be calculable. Similar problems arise in cases involving 
illegal spyware and malware--the impracticality of obtaining consumer 
redress or disgorgement, in the absence of civil penalty authority, has 
weakened the FTC's ability to prevent future violations.
    The inability of the Commission to litigate its own civil penalty 
cases has in some instances limited its effectiveness in stopping 
ongoing fraud. For example, in cases where effective consumer 
protection depends on obtaining preliminary relief halting ongoing 
violations and/or preserving assets for consumers, the Commission may 
have to forgo seeking civil penalties in order to avoid the delay 
caused by the 45-day referral period to DOJ.
    Finally, the lack of clear ``aiding and abetting'' authority has 
forced the Commission in some cases either to forgo prosecution of 
certain entities, such as credit card processors or billing 
aggregators, or undertake the complex and uncertain task of proving 
that the entities' practices meet the ``unfairness'' standard in 
Section 5(n) of the FTC Act.

                                  
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