26130 Federal Register / Vol. 74, No. 103 / Monday, June 1, 2009 / Proposed Rules 

114 See note 102, supra. 

types of loans? What are the costs and 

benefits of mandating its disclosure? 

iii. What would be the effect on 

competition and consumers if the 

Commission were to require non-bank 

financial companies to make these 

disclosures, but banks, thrifts, and 

federal credit unions were not similarly 

required to do so? 

18. Should the FTC consider 

prohibiting or restricting as unfair or 

deceptive certain acts and practices 

related to mortgage servicing fees or 

related charges, such as: 

a. charging fees not authorized under 

the mortgage contract; 

b. charging fees not authorized by 

state law; 

c. charging for ‘‘estimated’’ attorney 

fees or other fees for services not 

rendered; 

d. charging late fees that are not 

permitted under the service agreement 

or that are otherwise improper (other 

than ‘‘fee pyramiding,’’ which is already 

prohibited under the Board’s Regulation 

Z amendments114 ); 

e. failing to disclose and itemize 

adequately fees in billing statements or 

other relevant communications with 

borrowers; or 

f. forcing consumers to buy insurance 

on their homes when the servicer knows 

or should know that insurance is 

already in place? 

Identify any such act or practice, and 

for each, please answer the following 

questions: 

i. Why is it unfair or deceptive under 

Section 5 of the FTC Act? 

ii. Should it be prohibited or 

restricted? If so, how? For all loans or 

only certain types of loans? What are the 

costs and benefits of such prohibitions 

or restrictions? 

iii. What would be the effect on 

competition and consumers if the 

Commission were to prohibit or restrict 

non-bank financial companies with 

respect to the act or practice, but banks, 

thrifts, and federal credit unions were 

not similarly prohibited or restricted? 

19. Should the FTC consider 

prohibiting or restricting as unfair or 

deceptive certain acts and practices 

related to how mortgage servicers 

handle payments, amounts owed, or 

consumer disputes, such as: 

a. failing to post payments in a timely 

and proper manner (beyond the new 

prohibition under the Board’s 

Regulation Z amendments); 

b. mishandling of partial payments or 

suspense accounts; 

c. misrepresentation of amounts owed 

or other account terms or the status of 

the account; 

d. making claims to borrowers about 

their loan accounts without a reasonable 

basis (i.e., lack of substantiation); 

e. failing to have a adequate 

procedures to ensure accuracy of 

information used to service loans; or 

f. failing to maintain and provide 

adequate customer service to handle 

disputes? 

Identify any such act or practice, and 

for each, please answer the following 

questions: 

i. Why is it unfair or deceptive under 

Section 5 of the FTC Act? 

ii. Should it be prohibited or 

restricted? If so, how? For all loans or 

only certain types of loans? What are the 

costs and benefits of such prohibitions 

or restrictions? 

iii. What would be the effect on 

competition and consumers if the 

Commission were to prohibit or restrict 

non-bank financial companies with 

respect to the act or practice, but banks, 

thrifts, and federal credit unions were 

not similarly prohibited or restricted? 

20. Should the FTC consider 

prohibiting or restricting as unfair or 

deceptive certain acts and practices 

related to how mortgage servicers 

handle loan performance and loss 

mitigation issues, such as: 

a. taking foreclosure action without 

first verifying loan information and 

investigating any disputes; 

b. taking foreclosure action without 

first giving the consumer an opportunity 

to attend foreclosure counseling or 

mediation; 

c. requiring consumers to release all 

claims (or other requirements, such as 

requiring binding arbitration 

agreements) in connection with loan 

modifications or other workout 

agreements/repayment plans; or 

d. making loan modifications or other 

workout agreements/repayment plans 

without regard to the consumer’s ability 

to repay? 

Identify any such act or practice, and 

for each, please answer the following 

questions: 

i. Why is it unfair or deceptive under 

Section 5 of the FTC Act? 

ii. Should it be prohibited or 

restricted? If so, how? For all loans or 

only certain types of loans? What are the 

costs and benefits of such prohibitions 

or restrictions? 

iii. What would be the effect on 

competition and consumers if the 

Commission were to prohibit or restrict 

non-bank financial companies with 

respect to the act or practice, but banks, 

thrifts, and federal credit unions were 

not similarly prohibited or restricted? 

21. Should the FTC consider 

prohibiting or restricting as unfair or 

deceptive certain acts and practices 

related to servicing of mortgage loans in 

connection with bankruptcy 

proceedings, such as: 

a. failing to disclose fees incurred 

during a Chapter 13 bankruptcy case 

and then seeking to collect them from 

the consumer after discharge/dismissal? 

b. filing of proofs of claim or other 

bankruptcy filings without a reasonable 

basis (i.e., impose a substantiation 

requirement beyond Rule 11 of the 

Federal Rules of Civil Procedure); 

c. failing to apply properly payments 

in bankruptcy to pre-petition/postpetition categories of the consumer’s 

debts; or 

d. charging of specific unnecessary or 

excessive fees in bankruptcy cases (e.g., 

duplicative attorneys’ fees)? 

Identify any such act or practice, and 

for each, please answer the following 

questions: 

i. Why is it unfair or deceptive under 

Section 5 of the FTC Act? 

ii. Should it be prohibited or 

restricted? If so, how? For all loans or 

only certain types of loans? What are the 

costs and benefits of such prohibitions 

or restrictions? 

iii. What would be the effect on 

competition and consumers if the 

Commission were to prohibit or restrict 

non-bank financial companies with 

respect to the act or practice, but banks, 

thrifts, and federal credit unions were 

not similarly prohibited or restricted? 

22. Do any recent reports, studies, or 

research provide data relevant to 

mortgage servicing rulemaking? If so, 

please provide or identify such reports, 

studies, or research. 

By direction of the Commission. 

Donald S. Clark 

Secretary 

[FR Doc. E9–12595 Filed 5–29–09: 8:45 am] 

BILLING CODE 6750–01–S 

FEDERAL TRADE COMMISSION 

16 CFR Parts 321 and 322 

[RIN 3084-AB18] 

Advance Notice of Proposed 

Rulemaking: Mortgage Assistance 

Relief Services 

AGENCY: Federal Trade Commission 

(FTC or Commission) 

ACTION: Advance Notice of Proposed 

Rulemaking; request for comment 

SUMMARY: President Obama signed the 

2009 Omnibus Appropriations Act on 

March 11, 2009. Section 626 of the Act 

directed the Commission to initiate, 

within 90 days of the date of enactment, 

a rulemaking proceeding with respect to 

Federal Register / Vol. 74, No. 103 / Monday, June 1, 2009 / Proposed Rules 26131 

1 The comment must be accompanied by an 

explicit request for confidential treatment, 

including the factual and legal basis for the request, 

and must identify the specific portions of the 

comment to be withheld from the public record. 

The request will be granted or denied by the 

Commission’s General Counsel, consistent with 

applicable law and the public interest. See FTC 

Rule 4.9(c), 16 CFR 4.9(c). 

2 Omnibus Appropriations Act of 2009, Pub. L. 

No. 111-8, § 626, 123 Stat. 524 (Mar. 11, 2009). 

3 5 U.S.C. 553. Section 626 of the Omnibus 

Appropriations Act of 2009 authorizes use of these 

procedures in lieu of the procedures set forth in 

Section 18 of the FTC Act, 15 U.S.C. 57a. Note that, 

because this rulemaking is not undertaken pursuant 

to Section 18, 15 U.S.C. 57a(f), federal banking 

agencies are not required to promulgate 

substantially similar regulations for entities within 

their jurisdiction. Nonetheless, the Commission 

plans to consult with the federal banking agencies 

in this proceeding. 

4 The available legislative history is consistent 

with the Commission’s determination as to the 

Continued 

mortgage loans. To implement the Act, 

the Commission has commenced a 

rulemaking proceeding in two parts. 

This Advance Notice of Proposed 

Rulemaking (ANPR), the Mortgage 

Assistance Relief Services Rulemaking, 

addresses the practices of entities (other 

than mortgage servicers) who offer 

assistance to consumers in dealing with 

owners or servicers of their loans to 

modify them or avoid foreclosure. 

Another ANPR, the Mortgage Acts and 

Practices Rulemaking, will address more 

generally activities that occur 

throughout the life-cycle of a mortgage 

loan, i.e., practices with regard to 

mortgage loan advertising and 

marketing, origination, appraisals, and 

servicing. The Commission is seeking 

public comment with regard to the 

unfair and deceptive acts and practices 

that should be prohibited or restricted 

pursuant to any rules adopted in these 

proceedings. Any rules adopted will 

apply to entities, other than banks, 

thrifts, federal credit unions, and nonprofits, that are engaged in such unfair 

and deceptive acts and practices. 

DATES: Comments must be received by 

July 15, 2009. 

ADDRESSES: Interested parties are 

invited to submit written comments 

electronically or in paper form. 

Comments should refer to ‘‘Mortgage 

Assistance Relief Services Rulemaking, 

Rule No. R911003’’ to facilitate the 

organization of comments. Please note 

that comments will be placed on the 

public record of this proceeding— 

including on the publicly accessible 

FTC website, at (http://www.ftc.gov/os/ 

publiccomments.shtm)—and therefore 

should not include any sensitive or 

confidential information. In particular, 

comments should not include any 

sensitive personal information, such as 

an individual’s Social Security Number; 

date of birth; driver’s license number or 

other state identification number, or 

foreign country equivalent; passport 

number; financial account number; or 

credit or debit card number. Comments 

also should not include any sensitive 

health information, such as medical 

records or other individually 

identifiable health information. In 

addition, comments should not include 

any ‘‘[t]rade secrets and commercial or 

financial information obtained from a 

person and privileged or confidential 

. . . .,’’ as provided in Section 6(f) of the 

FTC Act, 15 U.S.C. 46(f), and 

Commission Rule 4.10(a)(2), 16 CFR 

4.10(a)(2). Comments containing 

material for which confidential 

treatment is requested must be filed in 

paper form, must be clearly labeled 

‘‘Confidential,’’ and must comply with 

FTC Rule 4.9(c), 16 CFR 4.9(c).1

Because paper mail addressed to the 

FTC is subject to delay due to 

heightened security screening, please 

consider submitting your comments in 

electronic form. Comments filed in 

electronic form should be submitted by 

using the following weblink: (https:// 

secure.commentworks.com/ftc-mortgage

assistancereliefservices) (and following 

the instructions on the web-based form). 

To ensure that the Commission 

considers an electronic comment, you 

must file it on the web-based form at the 

weblink (https://secure.commentworks.

com/ftc-mortgage

assistancereliefservices). If this Notice 

appears at (http://www.regulations.gov/ 

search/index.jsp), you may also file an 

electronic comment through that 

website. The Commission will consider 

all comments forwarded to it by 

regulations.gov. You may also visit the 

FTC website at http://www.ftc.gov to 

read the Notice and the news release 

describing it. 

A comment filed in paper form 

should include the reference ‘‘Mortgage 

Assistance Relief Services Rulemaking, 

Rule No. R911003’’ both in the text of 

the comment and on the envelope, and 

should be mailed or delivered to the 

following address: Federal Trade 

Commission, Office of the Secretary, 

Room H-135 (Annex W), 600 

Pennsylvania Avenue, NW., 

Washington, DC 20580. The FTC 

requests that any comment filed in 

paper form be sent by courier or 

overnight service, if possible, because 

U.S. postal mail in the Washington area 

and at the Commission is subject to 

delay due to heightened security 

precautions. 

The FTC Act and other laws 

administered by the Commission permit 

the collection of public comments to 

consider and use in this proceeding as 

appropriate. The Commission will 

consider all timely and responsive 

public comments received, whether 

filed in paper or electronic form. 

Comments received will be available to 

the public on the FTC website, to the 

extent practicable, at (http:// 

www.ftc.gov/os/publiccomments.shtm). 

As a matter of discretion, the 

Commission makes every effort to 

remove home contact information from 

comments filed by individuals before 

placing those comments on the FTC 

website. More information, including 

routine uses permitted by the Privacy 

Act, may be found in the FTC’s privacy 

policy, at (http://www.ftc.gov/ftc/ 

privacy.shtm). 

FOR FURTHER INFORMATION CONTACT: 

Evan Zullow or Stephen Shin, 

Attorneys, (202) 326-3224, Division of 

Financial Practices, Federal Trade 

Commission, 600 Pennsylvania Avenue, 

NW, Washington, DC 20580. 

SUPPLEMENTARY INFORMATION: 

I. Background 

A. FTC Rulemaking Authority Pursuant 

to the Omnibus Appropriations Act of 

2009 

Section 626 of the Omnibus 

Appropriations Act of 20092 requires 

that, within 90 days of enactment, the 

FTC initiate a rulemaking proceeding 

with respect to mortgage loans. Pursuant 

to the Act, the rulemaking proceeding 

will be conducted in accordance with 

the requirements of Section 553 of the 

Administrative Procedure Act.3 To 

implement the Omnibus Appropriations 

Act of 2009, the Commission has 

commenced a rulemaking proceeding in 

two parts. 

This ANPR, the Mortgage Assistance 

Relief Services (MARS) Rulemaking, 

addresses the practices of entities (other 

than mortgage servicers) who offer 

assistance to consumers in dealing with 

owners or servicers of their loans to 

modify them or avoid foreclosure. 

Another ANPR, the Mortgage Acts and 

Practices (MAP) Rulemaking, addresses 

more generally activities that occur 

throughout the life-cycle of a mortgage 

loan, i.e., practices with regard to 

mortgage loan advertising and 

marketing, origination, appraisals, and 

servicing. Although the Omnibus 

Appropriations Act of 2009 specifies 

neither the type of conduct nor the 

types of entities any proposed rules 

should address, the Commission has 

used its organic statute, the FTC Act, in 

establishing the parameters for this 

rulemaking.4 In particular, the types of 

26132 Federal Register / Vol. 74, No. 103 / Monday, June 1, 2009 / Proposed Rules 

scope of the FTC’s rulemaking. See 155 Cong. Rec. 

S2816-S2817 (2009). 

5 15 U.S.C. 45(a)(1). For a comprehensive 

description of the FTC’s application of its 

unfairness and deception authority in the context 

of financial services, see Letter from the FTC staff 

to John E. Bowman, Chief Counsel of the Office of 

Thrift Supervision (Dec. 12, 2007), available at 

(http://www.ftc.gov/os/2007/12/P084800anpr.pdf). 

6 15 U.S.C. 45(a)(2). 

7 15 U.S.C. 44. Bona fide non-profit entities are 

exempt from the jurisdiction of the FTC Act. 

Sections 4 and 5 of the FTC Act confer on the 

Commission jurisdiction only over persons, 

partnerships, or corporations organized to carry on 

business for their profit or that of their members. 

See 15 U.S.C. 44, 45(a)(2). 

8 15 U.S.C. 57a. 

9 15 U.S.C. 45(m)(1)(A). 

10 15 U.S.C. 45(a)(1). 11 15 U.S.C. 1601-1666j (mandates disclosures 

and other requirements in connection with 

consumer credit transactions). 12 15 U.S.C. 1639 (provides protections for 

consumers entering into certain high-cost mortgage 

refinance loans). 13 15 U.S.C. 1667-1667f (requires disclosures, 

limits balloon payments, and regulates advertising 

in connection with consumer lease transactions). 

14 15 U.S.C. 1692-1692p (prohibits abusive, 

deceptive, and unfair debt collection practices by 

third-party debt collectors). 

15 15 U.S.C. 1681-1681x (imposes standards for 

consumer reporting agencies and information 

furnishers; places restrictions on the use of 

consumer report information). The Fair and 

Accurate Credit Transactions Act of 2003 amended 

the FCRA. Pub. L. No. 108-159, 117 Stat. 1952 

(2003). 

16 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, or the exercise of 

certain legal rights). 

17 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). 

18 15 U.S.C. 1693-1693r (establishes rights and 

responsibilities of institutions and consumers in 

connection with electronic fund transfer services). 

19 15 U.S.C. 6101-6108 (provides consumer 

protection from telemarketing deception and abuse 

and requires the Commission to promulgate 

implementing rules). 

20 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 information). 

21 15 U.S.C. 45(a)(2). The FTC Act defines 

‘‘banks’’ by reference to a listing of certain distinct 

types of legal entities. See 15 U.S.C. 44, 57a(f)(2). 

That list includes: national banks, federal branches 

of foreign banks, member banks of the Federal 

Reserve System, branches and agencies of foreign 

banks, commercial lending companies owned or 

controlled by foreign banks, banks insured by the 

Federal Deposit Insurance Corporation, and insured 

state branches of foreign banks. 

22 Congress clarified FTC jurisdiction when it 

enacted the GLB Act. Section 133(a) of the GLB Act 

states that an entity that is affiliated with a bank, 

but which is not itself a bank, is not a bank for 

purposes of the FTC Act. Section 133(a) of the GLB 

Act specifically provides: 

CLARIFICATION OF FEDERAL TRADE 

COMMISSION JURISDICTION. Any person that 

directly or indirectly controls, is controlled directly 

or indirectly by, or is directly or indirectly under 

common control with, any bank or savings 

association . . . and is not itself a bank or savings 

association shall not be deemed to be a bank or 

savings association for purposes of any provisions 

applied by the Federal Trade Commission under the 

Federal Trade Commission Act. 

Pub. L. No. 106-102, § 133(a), 113 Stat. 1383; 15 

U.S.C. 41 note (a). This section has been interpreted 

to apply to subsidiaries of banks that are not 

themselves banks. Minnesota v. Fleet Mortgage 

Corp., 181 F. Supp. 2d 995 (D. Minn. 2001). 

23 See, e.g., FTC v. CompuCredit Corp., Civil 

Action No. 1:08-CV-01976-BBM-RGV (N.D. Ga. 

2008) (approving stipulated final order involving 

FTC action against entity that contracted to perform 

credit card marketing services for a bank); FTC v. 

Am. Standard Credit Sys., 874 F. Supp. 1080, 1086 

(C.D. Cal. 1994) (dismissing argument that entity 

that contracted to perform credit card marketing 

and other services for a bank is not subject to FTC 

Act). 

24 See 15 U.S.C. 44. 

25 See Nat’l Fed’n of the Blind v. FTC, 420 F.3d 

331, 334-35 (4th Cir. 2005). In addition, the 

Commission asserts jurisdiction over ‘‘sham 

charities’’ that operate as for-profit entities in 

practice. See, e.g., FTC v. Ameridebt, Inc., 343 F. 

Supp. 2d 451 (D. Md. 2004). 

conduct that the FTC proposes to cover 

include acts and practices that meet the 

FTC’s standards for unfairness or 

deception under Section 5 of the FTC 

Act.5 In addition, the entities that the 

FTC intends to cover are those over 

which the FTC has jurisdiction under 

the FTC Act—specifically, entities other 

than banks, thrifts, federal credit 

unions,6 and non-profits7 that engage in 

the conduct the rules would cover. 

The Commission is seeking comments 

on a series of questions related to loan 

modification and foreclosure rescue. 

The FTC is seeking comments to 

determine whether certain acts and 

practices of loan modification and 

foreclosure rescue entities are unfair or 

deceptive under Section 5 of the FTC 

Act and should be incorporated into a 

proposed rule. These acts and practices 

include conduct that the FTC currently 

could challenge in a law enforcement 

action as violating Section 5 of the FTC 

Act. However, the Commission is not 

seeking comments on statutes that have 

been enacted and rules that have been 

issued on these topics. 

Pursuant to Section 626 of the 

Omnibus Appropriations Act of 2009, 

any violation of a rule adopted under 

that section will be treated as a violation 

of a rule promulgated pursuant to 

Section 18 of the FTC Act.8 Therefore, 

pursuant to Section 5(m)(1)(A) of the 

FTC Act,9 the Commission may seek 

civil penalties as a remedy for such rule 

violations. In addition, pursuant to 

Section 626(b) of the Omnibus 

Appropriations Act of 2009, a state may 

bring a civil action, in either state or 

federal court, to enforce the FTC 

mortgage loan rules and obtain civil 

penalties and other relief for violations. 

Before initiating an enforcement action, 

the state must notify the FTC, at least 60 

days in advance, and the Commission 

may intervene in the action. 

B. FTC Authority Over Mortgage Loans 

and Other Financial Services 

The Commission has law enforcement 

authority over a wide range of acts and 

practices throughout the consumer 

credit life-cycle. The agency enforces 

Section 5 of the Federal Trade 

Commission Act, which prohibits 

‘‘unfair or deceptive acts or practices in 

or affecting commerce.’’10 The 

Commission also enforces other 

consumer protection statutes that 

govern financial services providers. 

These include the Truth in Lending Act 

(TILA),11 the Home Ownership and 

Equity Protection Act,12 the Consumer 

Leasing Act,13 the Fair Debt Collection 

Practices Act,14 the Fair Credit 

Reporting Act (FCRA),15 the Equal 

Credit Opportunity Act,16 the Credit 

Repair Organizations Act,17 the 

Electronic Funds Transfer Act,18 the 

Telemarketing and Consumer Fraud and 

Abuse Prevention Act,19 and the privacy 

provisions of the Gramm-Leach-Bliley 

(GLB) Act.20

Notwithstanding the Commission’s 

broad authority over acts and practices 

related to financial services, the FTC 

does not have jurisdiction over all 

providers of these services. The FTC Act 

specifically excludes banks, thrifts, and 

federal credit unions from the agency’s 

jurisdiction.21 However, non-bank 

affiliates of banks, such as parent 

companies or subsidiaries, are subject to 

the Commission’s jurisdiction.22

Likewise, the FTC has jurisdiction over 

entities that have contracted with banks 

to perform certain services on behalf of 

banks, such as credit card marketing 

and other services, but which are not 

themselves banks.23 As a result, nonbank entities that provide financial 

services to consumers are subject to 

Commission jurisdiction, even if they 

are affiliated with, or are contracted to 

perform services for, banking entities. 

The Commission also does not have 

jurisdiction under the FTC Act over 

non-profit organizations.24 However, the 

FTC does have jurisdiction over forprofit entities that provide mortgagerelated services as a result of a 

contractual relationship with a nonprofit organization.25

As discussed above, the Commission 

intends that any rules that it issues in 

this proceeding would apply only to the 

same types of entities over which the 

Commission has jurisdiction under the 

FTC Act. 

Federal Register / Vol. 74, No. 103 / Monday, June 1, 2009 / Proposed Rules 26133 

26 Federal Trade Commission Policy Statement on 

Deception, appended to In re Cliffdale Assocs., 103 

F.T.C. 110, 174-84 (1984) (Deception Policy 

Statement). 

27 Disclaimers or qualifying statements are 

important to consider for deception analysis. Such 

disclaimers must be sufficiently clear, prominent, 

and understandable to convey the qualifying 

information effectively to consumers. The 

Commission recognizes that often ‘‘reasonable 

consumers do not read the entirety of an ad or are 

directed away from the importance of the qualifying 

phrase by the acts or statements of the seller.’’ 

Deception Policy Statement at 181. Thus, fine print 

disclosures at the bottom of a print ad or television 

screen are unlikely to cure an otherwise deceptive 

representation. 

28 Deception Policy Statement at 177-81. 

29 Id. at 178. 

30 Id. at 182-83. 

31 Novartis Corp. v. FTC, 223 F.3d 783, 786-87 

(D.C. Cir. 2000). 

32 15 U.S.C. 45(n). Section 5(n) of the FTC Act 

also provides that ‘‘[i]n determining whether an act 

or practice is unfair, the Commission may consider 

established public policies as evidence to be 

considered with all other evidence.’’ 

33 See Letter from the FTC to Hon. Wendell Ford 

and Hon. John Danforth, Committee on Commerce, 

Science and Transportation, United States Senate, 

Commission Statement of Policy on the Scope of 

Consumer Unfairness Jurisdiction (December 17, 

1980), reprinted in In re Int’l Harvester Co., 104 

F.T.C. 949, 1070, 1073 (1984) (Unfairness Policy 

Statement); see also Trade Regulation Rule 

Concerning Cooling-Off Period for Sales Made at 

Homes or at Certain Other Locations, 16 CFR 429 

(making it an unfair and deceptive practice for 

anyone engaged in ‘‘door-to-door’’ sales of 

consumer goods or services with a purchase price 

of $25 or more to fail to provide buyer with certain 

oral and written disclosures regarding buyer’s right 

to cancel within three business days); FTC v. 

Holland Furnace, 295 F.2d 302 (7th Cir. 1961) 

(seller’s servicemen dismantled home furnaces then 

refused to reassemble them until consumers agreed 

to buy services or replacement parts). 

C. Deceptive and Unfair Acts and 

Practices 

1. Deceptive Acts and Practices 

Section 5 of the FTC Act broadly 

proscribes deceptive or unfair acts or 

practices in or affecting commerce. An 

act or practice is deceptive if there is a 

representation, omission of information, 

or practice that is likely to mislead 

consumers, who are acting reasonably 

under the circumstances, and the 

representation, omission, or practice is 

one that is material.26 Injury is likely if 

the misleading or omitted information is 

material to consumers, i.e., likely to 

affect a decision to purchase or use a 

product or service. 

To determine that an act or practice 

is deceptive, the Commission first must 

conclude that there is a representation, 

omission of information, or a practice 

that is likely to mislead consumers. A 

claim about a product or service may be 

either express or implied. An express 

claim generally is established by the 

representation itself. An implied claim, 

on the other hand, is an indirect 

representation, which must be 

examined within the context of other 

information that is either presented or 

omitted. Deception may occur based on 

what is stated or because of the 

omission of information that would be 

important to the consumer. In 

determining that an advertisement is 

deceptive, for example, the Commission 

considers whether the overall net 

impression of the ad (including 

language and graphics) is likely to 

mislead consumers.27

Second, the Commission considers 

the act or practice from the perspective 

of a consumer acting reasonably under 

the circumstances.28 Reasonableness is 

evaluated based on the sophistication 

and understanding of consumers in the 

group to whom the representation or 

sales practice is directed. If a specific 

audience is targeted, the Commission 

will consider the effect on a reasonable 

member of that target group. A 

representation may be susceptible to 

more than one reasonable interpretation, 

and if one such interpretation is 

misleading, the advertisement is 

deceptive, even if other non-deceptive 

interpretations are possible.29

Third, to conclude that deception has 

occurred, the Commission must 

determine that the representation, 

omission, or practice is material, i.e., 

one that is likely to affect a consumer’s 

decision to purchase or use a product or 

service. A deceptive representation, 

omission, or practice that is material is 

likely to cause consumer injury—that is, 

but for the deception, the consumer may 

have made a different choice.30 Express 

claims about a product or service, such 

as statements about cost, are presumed 

to be material. Claims about purpose 

and efficacy of a product or service are 

also presumed to be material.31

2. Unfair Acts and Practices 

Section 5(n) of the FTC Act also sets 

forth a three-part test to determine 

whether an act or practice is unfair.32

First, the practice must be one that 

causes or is likely to cause substantial 

injury to consumers. Second, the injury 

must not be outweighed by 

countervailing benefits to consumers or 

to competition. Third, the injury must 

be one that consumers could not 

reasonably have avoided. 

In analyzing whether injury is 

substantial, the Commission is not 

concerned with trivial, speculative, or 

more subjective types of harm. The 

substantial injury test may be met by 

small harm to a large number of 

consumers. In most cases, substantial 

injury involves monetary harm. Once it 

determines that there is substantial 

consumer injury, the Commission 

considers whether the harm is offset by 

any countervailing benefits to 

consumers or to competition. Thus, the 

Commission considers both the costs of 

imposing a remedy and any benefits that 

consumers enjoy as a result of the 

practice at issue. Finally, the injury 

must be one that consumers cannot 

reasonably avoid. If consumers 

reasonably could have made a different 

choice that would have avoided the 

injury, but did not do so, the practice is 

not deemed to be unfair under the FTC 

Act. 

In applying its unfairness standard, 

the Commission takes the approach that 

well-informed consumers are capable of 

making choices for themselves. The 

agency therefore may prohibit or restrict 

acts and practices if they unreasonably 

create, or take advantage of, an obstacle 

to the ability of consumers to make 

informed choices, thus causing, or being 

likely to cause, consumer injury.33

II. Loan Modification and Foreclosure 

Rescue Services 

With the recent economic downturn, 

more consumers have become 

delinquent on their mortgages or at risk 

of foreclosure. Others, even if not yet 

delinquent, are struggling to pay their 

mortgage debt. To respond to these 

problems, many consumers have sought 

to modify their loans or purchase 

services to assist them in avoiding 

foreclosure. However, the acts and 

practices of some companies that 

provide or advertise loan modification 

and foreclosure rescue services have 

raised substantial consumer protection 

concerns. To date, the Commission has 

addressed these concerns primarily 

through law enforcement under Section 

5 of the FTC Act. Through this ANPR, 

the FTC seeks comment on whether it 

should also issue rules to address the 

conduct of those who provide or 

advertise loan modification and 

foreclosure rescue services. 

A. Mortgage Loan Servicing 

In the past, mortgage lenders usually 

made loans to consumers and then held 

the loans until consumers paid off their 

mortgages or sold their homes. In more 

recent years, however, more mortgage 

lenders have regularly sold their loans 

to others. Thus, the owner of a mortgage 

loan may be either the originating 

lender or an investor who has 

purchased the loan. 

Owners of loans often contract with 

others to service their loans. A mortgage 

servicer is the agent responsible for 

handling the day-to-day aspects of a 

loan on behalf of the loan’s owner. A 

mortgage servicer’s responsibilities 

26134 Federal Register / Vol. 74, No. 103 / Monday, June 1, 2009 / Proposed Rules 

34 Servicers consider loss mitigation options if a 

delinquent borrower does not have adequate equity 

to sell the house and pay off the mortgage in full 

or to refinance into a more affordable loan. A 

delinquent borrower can also file Chapter 13 

personal bankruptcy to prevent foreclosure, often as 

a debt management option of last resort. If a 

borrower has regular income, Chapter 13 may allow 

the borrower to keep property, such as a mortgaged 

house or car. In Chapter 13, the court may approve 

a repayment plan that allows the use of future 

income toward payment of debts during a three-tofive year period, rather than requiring surrender of 

property. 

35 For example, the servicer may lower the 

monthly payment, alter the payment schedule, fix 

or lower the interest rate, apply fees and arrearage 

to the principal, or even reduce the unpaid 

principal balance. 

36 See U.S. Department of Housing and Urban 

Development, Foreclosure Process, available at 

(http://www.hud.gov/foreclosure/ 

foreclosureprocess.cfm). 

37 See Mortgage Bankers Association, 

Delinquencies Continue to Climb in Latest MBA 

National Delinquency Survey (Mar. 5, 2009), 

available at (http://www.mbaa.org/NewsandMedia/ 

PressCenter/68008.htm). According to the Mortgage 

Bankers Association’s (MBA) National Delinquency 

Survey, the delinquency rate for mortgage loans on 

one-to-four unit residential properties rose to a 

seasonally adjusted rate of 7.88% of all loans, as of 

the end of the fourth quarter of 2008, which is the 

highest rate ever based on data dating back to 1972. 

Over 11% of loans are either in foreclosure or 

delinquent by at least one payment, which is the 

highest rate ever recorded in the MBA national 

delinquency survey. 

38 See FTC Publication, Mortgage Payments 

Sending You Reeling? Here’s What to Do, available 

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

homes/rea04.shtm). 

39 See FTC Publication, A Note to Homeowners, 

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

consumer/homes/rea16.pdf); see also FTC 

Publication, Foreclosure Rescue Scams: Another 

Potential Stress for Homeowners in Distress, 

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

consumer/credit/cre42.shtm). 

include collecting monthly mortgage 

payments and crediting borrowers’ 

accounts. A servicer may also maintain 

an escrow account which covers charges 

such as property taxes and homeowners 

insurance. If a borrower falls behind on 

monthly payments and becomes 

delinquent on the loan, the mortgage 

servicer also conducts activities 

associated with a defaulted loan, such 

as attempting to collect overdue 

payments, negotiating loss mitigation 

options, and, if necessary, overseeing 

foreclosure proceedings. 

Generally, financially distressed 

homeowners having difficulty making 

mortgage payments can contact their 

mortgage servicers directly and seek 

assistance. Pursuant to guidelines or 

agreements with the owners of loans, 

many servicers provide loss mitigation 

options for distressed homeowners. 

Owners of loans often have an incentive 

to consider such options because of the 

cost associated with foreclosure 

proceedings. 

Mortgage servicers may provide 

various loss mitigation options to help 

distressed homeowners avoid 

foreclosure, including a repayment plan, 

forbearance agreement, short sale, deedin-lieu of foreclosure, or loan 

modification.34 A repayment plan gives 

a borrower a fixed amount of time to 

repay the overdue amount by adding a 

portion of what is past due to the 

regular payment. A forbearance 

agreement reduces or suspends 

payments for a period of time, at the end 

of which the borrower resumes regular 

payments as well as a lump sum 

payment or additional partial payments. 

A short sale is an agreement to sell the 

house before foreclosure and to have the 

servicer forgive any shortfall between 

the sales price and the mortgage 

balance. A deed-in-lieu of foreclosure 

allows a borrower to transfer voluntarily 

the property title to the servicer, in 

exchange for cancellation of the 

remainder of the debt. A loan 

modification is an agreement to change 

permanently one or more of the terms of 

the mortgage loan to make the 

borrower’s monthly payments more 

affordable.35

A loan modification, in particular, 

benefits distressed homeowners because 

borrowers can avoid foreclosure and are 

more likely to be able stay in their 

homes with more affordable payments. 

In addition, if loans are in default, once 

they have been modified, servicers will 

reinstate the loans and treat borrowers 

as being current on their mortgages. The 

specific loan modification policies used 

vary by mortgage servicer. 

B. Mortgage Foreclosure 

Foreclosure is the legal means an 

owner of a mortgage loan can use to take 

possession of a home when a borrower 

defaults on the loan. In general, a 

borrower is in default thirty days after 

the first missed mortgage payment. 

Typically, a mortgage servicer may 

attempt various loss mitigation options 

prior to initiating foreclosure 

proceedings, which generally occur 

three to six months after the first missed 

mortgage payment.36

Foreclosure processes differ by state 

and depend on the details of state 

foreclosure laws. Differences among 

states include the requirements of 

notification and the types of foreclosure 

proceedings available. Generally, there 

are three types of foreclosures processes: 

judicial foreclosure, power of sale 

foreclosure, and strict foreclosure. 

Judicial foreclosure involves the owner 

of the loan filing suit in court and the 

home being sold under the court’s 

supervision. All states allow judicial 

foreclosure, and in some states it is the 

only foreclosure option available. Power 

of sale foreclosure, also known as 

‘‘statutory foreclosure,’’ involves the 

sale of the home at public auction by the 

servicer if the mortgage contains a 

‘‘power of sale’’ clause or if a deed of 

trust was used instead of a mortgage. 

Many states permit power of sale 

foreclosure, which is often more 

expedient than judicial foreclosure. In a 

power of sale foreclosure, the owner of 

the loan sends notices demanding 

payment to borrowers who have 

defaulted. Once the required waiting 

period has passed, the mortgage servicer 

can sell the home at public auction, 

subject to judicial review. Strict 

foreclosure is available in a limited 

number of states and permits the owner 

of the loan to file lawsuits against 

borrowers who have defaulted. If the 

borrower cannot pay the mortgage debt 

within the period of time set by court 

order, the property title goes directly to 

the owner of the loan. 

C. Developments in the Mortgage 

Marketplace 

As a result of the recent downturn in 

the economy and housing market, many 

American homeowners are in financial 

distress. The rate of mortgage loan 

delinquency and foreclosure has risen to 

the highest level in three decades.37 The 

recent economic downturn has also 

given rise to a new and broader range 

of third-party providers who offer to 

assist homeowners—for free or for a 

fee—in obtaining a loan modification or 

preventing foreclosure. 

The FTC and other agencies like the 

U.S. Department of Housing and Urban 

Development (HUD) have generally 

advised consumers who are behind on 

their mortgage payments to contact their 

mortgage servicer about the possibility 

of loan modification or other options.38

The Commission has initiated a 

stepped-up consumer outreach initiative 

on foreclosure rescue and loan 

modification fraud. The Commission 

has issued consumer education 

publications warning homeowners 

against foreclosure rescue and loan 

modification scams. Most recently, the 

Commission issued a new consumer 

education publication on this topic, 

which several servicers have provided 

directly to consumers, including during 

loan counseling sessions, in monthly 

statements, in correspondence to 

delinquent borrowers, and on their 

websites.39

In addition, government agencies 

have instituted new programs to help 

homeowners in financial distress. For 

Federal Register / Vol. 74, No. 103 / Monday, June 1, 2009 / Proposed Rules 26135 

40 See Home Affordable Modification Program 

Guidelines (Mar. 4, 2009), available at (http:// 

www.financialstability.gov/roadtostability/ 

homeowner.html) 

41 See, e.g., FTC v. National Foreclosure Relief, 

Inc., Case No. SACV09-117 DOC (MLGx) (C.D. Cal. 

filed Feb. 2, 2009) (alleging that defendants targeted 

consumer in arrears with mailer advertisements). 

42 Mortgage loans are sometimes categorized as 

having either a ‘‘fixed’’ or ‘‘adjustable’’ rate. A fixed 

rate mortgage loan maintains the same interest rate 

throughout its term. An adjustable mortgage, by 

contrast, has an interest rate which is subject to 

change (or ‘‘reset’’) after a certain introductory 

period; and that reset can result in an increased 

interest rate. 

43 See, e.g., Testimony of Prentiss Cox, before the 

U.S. Senate Committee on Commerce Science & 

Technology (Feb. 26, 2009) at 2 (noting that 

‘‘families are often desperate to save their homes,’’ 

and that ‘‘[a]s soon as a house enters the foreclosure 

process, the homeowner in foreclosure typically is 

subject to an avalanche of mail, phone calls and 

personal visits from people promising to help the 

homeowner’’); see also Steve Tripoli & Elizabeth 

Renuart, National Consumer Law Center, Dreams 

Foreclosed: The Rampant Theft of Americans’ 

Home Through Foreclosure ‘‘Rescue’’ Scams (2005), 

at 9 (‘‘The ‘rescuer’ identifies distressed 

homeowners through public foreclosure notices in 

newspapers or at government offices. . . . The 

‘rescuer’ then contacts the homeowner by phone, 

personal visit, card or flyer left at the door . . . or 

advertising. Initial contact typically revolves 

around a simple message such as ‘Stop foreclosure 

with just one phone call,’ ‘I’d like to $ buy $ your 

house,’ ‘You have options,’ or ‘Do you need instant 

debt relief and CASH?’’’), available at (http:// 

www.consumerlaw.org/news/content/ 

ForeclosureReportFinal.pdf). 

44 See, e.g., FTC v. New Hope Property LLC, Case 

No. 1:09-cv-01203-JBS-JS (D.N.J. filed Mar. 17, 

2009); FTC v. Hope Now Modifications, LLC, Case 

No. 1:09-cv-01204-JBS-JS (D.N.J. filed Mar. 17, 

2009); FTC v. National Foreclosure Relief, Inc., Case 

No. SACV09-117 DOC (MLGx) (C.D. Cal. filed Feb. 

2, 2009); FTC v. United Home Savers, LLP, Case 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., Case No. 8:08- 

cv-388-T-23EAJ (M.D. Fla. filed Feb. 26, 2008); FTC 

v. National Hometeam Solutions, Inc., Case No. 

4:08-cv-067 (E.D. Tex. filed Feb. 26, 2008). 

45 See FTC v. Federal Loan Modification Law 

Center, LLP, Case No. SACV09-401 CJC (MLGx) 

(C.D. Cal. filed Apr. 3, 2009); FTC v. Thomas Ryan, 

Civil No. 1:09-00535 (HHK) (D.D.C. filed March 25, 

2009); FTC v. Home Assure, LLC, Case No. 8:09-CV00547-T-23T-SM (M.D. Fla. filed Mar. 24, 2009); see 

also, Press Release, Federal and State Agencies 

Crack Down on Mortgage Modification and 

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

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

Press Release, Federal, State Partners Announce 

Multi-Agency Crackdown Targeting Foreclosure 

Rescue Scams, Loan Modification Fraud (Apr. 6, 

2009), available at (http://www.ftc.gov/opa/2009/ 

04/loanfraud.shtm). 

46 An example of these letters is available at 

(http://www.ftc.gov/os/2009/04/ 

090406warningletter.pdf). 

example, on March 4, 2009, the U.S. 

Department of the Treasury introduced 

the Making Home Affordable Program to 

assist eligible homeowners to refinance 

or modify their mortgage loans to an 

affordable payment. Under the program, 

mortgage servicers who adopt certain 

loan modification guidelines and 

provide eligible homeowners with loan 

modifications can qualify to receive 

substantial government incentives.40 . 

In addition to federal efforts, state and 

local agencies and non-profit 

organizations also offer similar 

foreclosure prevention assistance and 

other housing-related services. Nonprofit organizations and housing 

counseling agencies continue to provide 

a wide array of free services to 

homeowners who are in financial 

distress. HUD has certified numerous 

non-profit housing counseling agencies. 

These agencies provide homeowners 

with assistance, such as offering 

consumer education, assisting with debt 

management, negotiating directly with 

servicers to make mortgage payments 

more affordable—thereby providing 

foreclosure relief and helping 

consumers stay in their homes. 

The private sector also has developed 

and offered programs at no cost to help 

distressed homeowners. HUD-approved 

counseling agents, mortgage companies, 

investors, and other mortgage market 

participants created the HOPE NOW 

Alliance (Hope Now) to provide 

homeowners with free foreclosure 

prevention assistance. Consumers can 

visit Hope Now’s website, 

www.hopenow.com, or call the 

Homeowner’s HOPE Hotline, 1-888-995- 

HOPE, to find housing counselors from 

HUD-certified agencies who can help 

guide them through various foreclosure 

prevention options, including loan 

modification. 

At the same time that governmental 

and private sector entities (both forprofit and non-profit) are increasing 

their efforts to assist distressed 

homeowners, there has been an increase 

in individuals and entities offering to 

assist consumers in securing loan 

modifications and foreclosure rescue 

services in exchange for a fee. 

Foreclosure rescue and loan 

modification entities frequently market 

their services via direct mail, email, 

radio, television, and Internet 

advertisements.41 They sometimes send 

targeted written solicitations to 

consumers facing mortgage rate resets42

or foreclosure.43 Specifically, 

foreclosure rescue and loan 

modification entities often identify such 

consumers by reviewing notices of 

default and other publicly-available 

records. 

Foreclosure rescue and loan 

modification entities, sometimes also 

referred to as ‘‘foreclosure consultants,’’ 

generally offer to negotiate with a 

consumer’s servicer to secure a 

reduction in mortgage payments or 

otherwise obtain a favorable 

modification of loan terms on behalf of 

a consumer. Foreclosure rescue and 

loan modification entities charge a fee 

for their services, and this fee is almost 

always charged up-front. In many 

instances, these entities claim that they 

have knowledge of and experience with 

the mortgage industry and lending 

because they are attorneys or mortgage 

brokers. In some cases, instead of 

simply offering to negotiate on behalf of 

a consumer, foreclosure rescue 

operations require consumers to enter a 

new loan with them or to transfer title 

to the property (for example, to remain 

in the home as a renter with the option 

to repurchase or otherwise maintain the 

opportunity to reacquire title). 

Consumers may choose to pay a fee 

for the services of providers of 

foreclosure rescue and loan 

modification services rather than use 

free services for a variety of reasons. 

Some distressed homeowners may be 

drawn to, or targeted for, aggressive 

advertisements by fee for service 

providers and may be unaware of the 

free services available to them. They 

also may be unwilling or unable to work 

directly with their mortgage servicer or 

with a non-profit organization. For 

example, consumers may be wary of or 

unsatisfied with a mortgage servicer’s 

loss mitigation offer, or frustrated with 

their inability to contact the appropriate 

person at their servicer. 

III. FTC Law Enforcement 

A. Application of the FTC Act and 

Consumer Protection Concerns 

The FTC has taken a number of law 

enforcement actions to protect 

consumers from unfair and deceptive 

loan modification and foreclosure 

rescue practices. The Commission has 

recently filed numerous lawsuits against 

defendants for allegedly engaging in 

deceptive practices.44 Most recently, the 

FTC—along with other federal and state 

regulators—announced law enforcement 

actions as part of a broader crackdown 

on loan modification and foreclosure 

rescue entities.45 In connection with 

this effort, the Commission also sent 

warning letters to 71 companies for 

marketing potentially deceptive 

mortgage loan modification and 

foreclosure assistance programs.46

In the FTC’s law enforcement actions 

against those who offer loan 

modification and foreclosure rescue 

services, the Commission has alleged 

that a number of acts and practices were 

deceptive under Section 5 of the FTC 

Act: 

First, many defendants promised a 

high likelihood of success but failed to 

fulfill their promise to modify 

26136 Federal Register / Vol. 74, No. 103 / Monday, June 1, 2009 / Proposed Rules 

47 For example, in one case the Commission 

charged a foreclosure rescue operation for 

promising consumers that it could stop ‘‘any 

foreclosure,’’ but then failing to stop foreclosure or 

taking minimal steps to do so.See FTC v. National 

Hometeam Solutions, LLC, Case No. 4:08-cv-067 

(E.D. Tex. filed Feb. 26, 2008). 

48 See, e.g., FTC v. Federal Loan Modification Law 

Center, LLP, Case No. SACV09-401 CJC (MLGx) 

(C.D. Cal. filed Apr. 3, 2009); FTC v. National 

Foreclosure Relief, Inc., Case No. SACV09-117 DOC 

(MLGx) (C.D. Cal. filed Feb. 2, 2009); FTC v. 

Foreclosure Solutions, LLC, No. 1:08-cv-01075 (N.D. 

Ohio filed Apr. 28, 2008); FTC v. Mortgage 

Foreclosure Solutions, Inc., Case No. 8:08-cv-388-T23EAJ (M.D. Fla. filed Feb. 26, 2008). Additionally, 

some entities claim to be associated with or to have 

good relationships with the consumer’s mortgage 

servicer. FTC v. Home Assure, LLC, Case No. 8:09- 

CV-00547-T-23T-SM (M.D. Fla. filed Mar. 24, 2009). 

49 See, e.g., FTC v. Home Assure, LLC, Case No. 

8:09-CV-00547-T-23T-SM (M.D. Fla. filed Mar. 24, 

2009) (alleging that defendant promised ‘‘100% 

SATISFACTION GUARANTEE OR YOUR MONEY 

BACK’’); FTC v. United Home Savers, LLP, Case No. 

8:08-cv-01735-VMC-TBM (M.D. Fla. filed Sept. 3, 

2008); FTC v. National Hometeam Solutions, LLC, 

Case No. 4:08-cv-067 (E.D. Tex. filed Feb. 26, 2008). 

50 The Federal Reserve Board recently 

promulgated amendments to Regulation Z of TILA, 

generally effective October 1, 2009, which would 

ban various mortgage entities from a number of 

relevant practices, including banning mortgage 

advertisers from: misrepresenting an advertised 

loan as being part of a ‘‘government loan program’’ 

or otherwise endorsed or sponsored by a 

government entity; making misleading claims of 

debt elimination; and using the term ‘‘counselor’’ to 

refer to for-profit mortgage creditors or brokers. See 

73 FR 44589-90, 44602. To the extent that loan 

modification or foreclosure rescue entities are 

offering loans to consumers, they may fall within 

the ambit of these rules. 

51 For example, in two cases the Commission 

charged defendants for falsely advertising 

themselves to be associated with the HOPE NOW 

Alliance, and then breaking promises to secure loan 

modifications or alternatively, to refund the money 

of consumers whose loans could not be modified. 

SeeFTC v. New Hope Property LLC, Case No. 1:09- 

cv-01203-JBS-JS (D.N.J. filed Mar. 2009); FTC v. 

Hope Now Modifications, LLC, Case No. 1:09-cv01204-JBS-JS (D.N.J. filed Mar. 2009). In another 

case, a defendant marketing purported loan 

modification services allegedly represented, via his 

website, that he was the ‘‘House and Urban 

Department,’’ displaying a government-like seal; 

and using a web address (‘‘bailout-hud-gov.us’’ or 

‘‘bailout.dohgov.us’’) and other features to create 

the impression his business was associated with the 

U.S. government. FTC v. Thomas Ryan, Civil No. 

1:09-00535 (HHK) (D.D.C. filed Mar. 25, 2009); see 

alsoFTC v. Federal Loan Modification Law Center, 

LLP, Case No. SACV09-401 CJC (MLGx) (C.D. Cal. 

filed Apr. 3, 2009) (charging defendant with 

misrepresenting that it is part of or affiliated with 

the federal government). 52 Note that, even if providers do fulfill their 

promises to provide refunds, this action does not 

cure the deception employed in enrolling the 

consumer in the program. See, e.g., FTC v. Think 

Achievement Corp., 312 F.3d 259, 262 (7th Cir. 

2002) (‘‘[A] money-back guaranty does not sanitize 

a fraud.’’) 53 See, e.g., FTC v. Home Assure, LLC, Case No. 

8:09-CV-00547-T-23T-SM (M.D. Fla. filed Mar. 24, 

2009); FTC v. National Hometeam Solutions, LLC, 

Case No. 4:08-cv-067 (E.D. Tex. filed Feb. 26, 2008). 54 The FTC has warned consumers about forprofit loan modification and foreclosure rescue 

operations which charge hefty fees for services 

which consumers can undertake themselves by 

contacting their mortgage servicer directly or obtain 

for free through organizations like Hope Now. See 

FTC Publication, A note to Homeowners, available 

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

homes/rea16.pdf). 55 See, e.g., State Foreclosure Rescue Enforcement 

Actions - Sampling of Actions: March 31, 2009, 

available at (http://www.ftc.gov/os/2009/04/ 

090406foreclosurerescue.pdf); see also Press 

Release, Federal and State Agencies Crack Down on 

Mortgage Modification and Foreclosure Rescue 

Scams (Apr. 6, 2009), available at (http:// 

www.ftc.gov/opa/2009/04/hud.shtm); Press Release, 

Federal, State Partners Announce Multi-Agency 

Crackdown Targeting Foreclosure Rescue Scams, 

Loan Modification Fraud (Apr. 6, 2009), available 

at (http://www.ftc.gov/opa/2009/04/ 

loanfraud.shtm). 

56 See, e.g., Ohio Attorney General, Press Release, 

Attorney General Dann Files 6 Suits Against 

Companies For Foreclosure Rescue Scams (Aug. 8, 

2007) (including count under state ‘‘debt 

adjustment’’ statute). 

57 See, e.g., Cal. Civ. Code § 2945, et seq.; Colo. 

Rev. Stat. § 6-1-1101, et seq.; 6 Del C. § 2400B, et 

seq.; D.C. Code Ann. § 42-2431, et seq.; Fla. Stat. 

Ann. § 501.1377; GA. Code Ann. § 10-1-393; Hawaii 

Rev. Stat. Ann. § 480E-1, et seq.; IL Comp. Stat, 

Ann., Ch. 765 § 940/1, et seq.; Ind. Code Ann § 24- 

5.5-1-1, et seq.; Iowa Code § 714E.1, et seq.; ME Rev. 

Stat. Ann. tit 32 § 6191, et seq.; MD Real Property 

Code Ann.§ 7-301, et seq.; Code Mass. Reg., 940 

CMR § 25.01, et seq.; Minn. Stat. Ann. § 325N.01, 

et seq.; MO Ann. Stat. § 407.935, et seq.; Neb. Rev. 

Stat. Ann. § 76-2701, et seq.; NH Rev. Stat. § 479- 

B:1, et seq.; NY CLS Real Prop. § 265-b; RI Gen. 

Laws § 5-79-1, et seq. 

58 See, e.g., Press Release, Massachusetts Attorney 

General, Attorney General Martha Coakley Obtains 

Temporary Restraining Order against Perpetrators 

of Loan Modification Scam; Warns Public About 

Scams Targeting Homeowners (Apr. 7, 2009) 

(alleging defendant loan modification service 

violated state law prohibiting advance fees), 

available at (http://www.mass.gov/?pageID

=cagopressrelease&L=1&L0=Home&sid=

Cago&b=pressrelease&f=2009_04_07_fox_loan_

mods&csid=Cago); Press Release, Illinois Attorney 

General, MADIGAN FILES TWO MORTGAGE 

RESCUE FRAUD LAWSUITS, SEEKS IMMEDIATE 

BAN ON COMPANIES’ OPERATIONS (Apr. 6, 

2009) (alleging defendant loan modification entity 

violated Illinois Mortgage Rescue Fraud Act for, 

inter alia, charging up-front fee), available at 

(http://www.ag.state.il.us/pressroom/2009_04/ 

20090406.html); Press Release, Florida Attorney 

General, Court Grants Request to Temporarily Stop 

Loan Modification Company’s Up-Front Fees (Feb. 

23, 2009) (noting that Florida statute ‘‘governs 

companies providing foreclosure-related rescue 

services including loan modification’’), available at 

(http://www.myfloridalegal.com/newsrel.nsf/pv/ 

FF973C8A0EEE167B85257566006916E8; Press 

Release, Minnesota Attorney General, Attorney 

General Lori Swanson Expands Litigation Against 

Fraudulent Foreclosure Consultants And Issues 

Warning To Minnesota Homeowners In Mortgage 

Trouble To Seek Reputable Help And Steer Clear 

Of Scam Artists (Jan. 29, 2009), available at (http:// 

www.ag.state.mn.us/consumer/pressrelease/ 

090129foreclosureconsultants.asp); Press Release, 

Illinois Attorney General’s Office, Madigan Sues 

consumers’ existing loans or to stop 

foreclosure.47 For example, some 

defendants assured consumers that they 

could stop foreclosure or obtain a loan 

modification with claims such as a 

‘‘97% success rate.’’48 However, many 

defendants allegedly did little or 

nothing to negotiate with the mortgage 

servicer or to stop foreclosure. Second, 

many defendants promised to fully or 

partially refund consumers’ payments in 

the event that negotiation efforts to 

obtain a loan modification or to prevent 

foreclosure were unsuccessful.49 Often, 

defendants allegedly did not provide the 

promised refunds. Third, some 

defendants represented that they were 

affiliated with governmental or free nonprofit programs,50 when in fact they 

were not.51

Moreover, most defendants charged 

substantial, up-front fees, which appears 

to be a prevalent practice in the forprofit foreclosure rescue and loan 

modification industry. When defendants 

use deception to secure advance 

payment and then fail to fulfill their 

promise to stop a foreclosure or obtain 

a loan modification, consumers are 

unlikely to receive a refund or recover 

their money.52 Payment of up-front fees, 

which are sometimes thousands of 

dollars, exacerbates the consumer injury 

from deception, and imposes a 

significant burden on consumers 

already in financial distress. 

In addition, some defendants advise 

consumers, including those who are still 

current on their loans, to stop making 

mortgage payments and to cease 

communication with their mortgage 

servicer while the foreclosure rescue or 

loan modification operator purportedly 

negotiates on their behalf.53 If the 

operator fails to take adequate steps to 

obtain a loan modification or to prevent 

foreclosure, the operator may actually 

increase the likelihood of foreclosure, 

because consumers fail to take 

advantage of other options available to 

them that might help save their 

homes.54

B. State Law Enforcement 

Many states have engaged in 

legislative and law enforcement efforts 

to address conduct in the loan 

modification and foreclosure rescue 

industry. First, several states have filed 

lawsuits against loan modification or 

foreclosure rescue entities for violating 

state consumer protection laws 

prohibiting unfair and deceptive 

practices.55 Second, some states have 

applied existing statutes specifically 

regulating the debt settlement, debt 

management, or credit counseling 

industries to cover foreclosure rescue 

and loan modification practices.56

Third, numerous states and the District 

of Columbia have recently enacted 

statutes that specifically restrict or ban 

‘‘foreclosure consultants’’ from engaging 

in some of the foreclosure rescue and 

loan modification practices detailed 

above.57 State law enforcement agencies 

have filed numerous suits against 

individuals and entities for violations of 

these statutes.58

Federal Register / Vol. 74, No. 103 / Monday, June 1, 2009 / Proposed Rules 26137 

Seven Companies For Mortgage Rescue Fraud (Nov. 

18, 2008), available at (http://www.

illinoisattorneygeneral.gov/pressroom/2008_11/ 

20081118.html). 

59 Cal. Civ. Code § 2945, et seq. 

60 Minn. Stat. Ann. § 325N.01, et seq. 

61 See, e.g., Minn. Stat. Ann. § 325N.17. The 

Minnesota statute also requires, among other things, 

that the foreclosure rescue operator reconvey the 

foreclosed property to the homeowner or pay the 

homeowner such that the total consideration is at 

least 82% of the fair market value of the property. 

62 See, e.g., D.C. Code Ann. § 42-2431, et seq.; 

Code Mass. Reg., 940 CMR § 25.01, et seq. 

63 See, e.g., Iowa Code § 714E.1, et seq. 

64 See, e.g., FTC v. Federal Loan Modification Law 

Center, LLP, Case No. SACV09-401 CJC (MLGx) 

(C.D. Cal. filed Apr. 3, 2009) (alleging violations of 

FTC Act against professional law corporation and 

an attorney). 

65 See, e.g., Ethics Alert: Legal Services to 

Distressed Homeowners and Foreclosure 

Consultants on Loan Modifications (Committee on 

Professional Responsibility and Conduct, The State 

Bar of California, San Francisco, CA) Feb. 2, 2009 

at 1, available at http://www.calbar.ca.gov/calbar/ 

pdfs/ethics/Ethics-Alert-Foreclosure.pdf; Ethics 

Alert: Providing Legal Services to Distressed 

Homeowners (The Florida Bar) Mar. 15, 2009, 

available at (http://www.floridabar.org/tfb/ 

TFBETOpin.nsf/EthicsIndex?OpenForm). 

In 1979, California enacted the first 

statute that specifically restricts the 

practices of entities offering foreclosure 

rescue or similar services.59 More 

recently, in 2004, Minnesota enacted a 

statute, based on the California law, but 

adding several additional key 

restrictions on foreclosure reconveyance 

transactions.60 Since then, over twenty 

states have passed their own foreclosure 

consultant statutes, which are modeled 

after the California and Minnesota laws. 

These state foreclosure consultant 

statutes generally include a number of 

requirements and restrictions, 

including: (1) banning covered entities 

from requiring or collecting advance 

fees before fully performing contracted 

or promised services to the consumer; 

(2) requiring written contracts 

containing certain provisions and 

disclosures; and (3) providing 

consumers with the right to cancel the 

contract in certain circumstances. 

Some statutes also impose additional 

requirements on foreclosure rescue 

operations that require consumers to 

transfer title to their homes, and purport 

to offer reconveyance at a later date. 

These statutes often include the 

requirement that foreclosure rescue 

operations must verify before doing a 

reconveyance that the consumer has a 

reasonable ability to pay for the 

subsequent conveyance of the home 

back to the consumer.61 Other states 

have decided to ban outright certain 

practices, like title 

reconveyances.62Some states also have 

enacted criminal statutes covering 

foreclosure rescue operations.63

Almost all state foreclosure consultant 

laws exempt state-licensed attorneys. 

Some for-profit loan modification and 

foreclosure rescue operations have 

partnered with attorneys,64 which some 

operations may use to avoid state 

statutory prohibitions against the 

collection of advance fees. Some state 

bar associations have responded by 

issuing warnings to attorneys that many 

relationships between licensed 

attorneys and foreclosure consultants 

violate state ethics rules for attorneys.65; 

Some of the consumer protections 

that state statutes provide to 

homeowners in financial distress do not 

commence until the owner or servicer of 

a mortgage has served a notice of default 

on the borrower. However, some loan 

modification and foreclosure rescue 

services apparently provide services 

before a notice of default has been 

served, thereby limiting the protection 

accorded under state law to some 

homeowners in financial distress. 

IV. Request for Comment 

The Commission seeks written 

comments on a series of questions 

related to loan modification and 

foreclosure rescue. The FTC is seeking 

comments to determine whether certain 

acts and practices of loan modification 

and foreclosure rescue entities are 

unfair or deceptive under Section 5 of 

the FTC Act and should be incorporated 

into a proposed rule. These acts and 

practices include conduct that the FTC 

currently could challenge in a law 

enforcement action as violating Section 

5 of the FTC Act. However, the 

Commission is not otherwise seeking 

comments on statutes that have been 

enacted and rules that have been issued. 

The Commission invites interested 

persons to submit written comments on 

any issue of fact, law, or policy that may 

bear upon these issues. After examining 

the comments, the Commission will 

determine whether and how to 

incorporate them into any proposed 

rule. 

The Commission encourages 

commenters to respond to the specific 

questions. However, commenters do not 

need to respond to all questions. Please 

provide explanations for your answers 

and detailed, factual supporting 

evidence. 

Without limiting the scope of issues 

on which it seeks comment, the 

Commission is particularly interested in 

receiving comments on the following 

questions: 

1. The Loan Modification and 

Foreclosure Rescue Industry 

A. What empirical data are available 

concerning the nature, extent, and 

impact of the loan modification and 

foreclosure rescue industry? Please 

identify any such data sources. 

B. What business models are used to 

provide loan modification and 

foreclosure rescue services? Please 

identify and describe any such business 

models and their impact on consumers 

and competition. 

C. What are the distinctions between 

different models of providing loan 

modification and foreclosure rescue 

services (e.g., free versus fee-for-service, 

loan negotiation versus title transfer, 

etc.)? 

D. What are the costs and benefits of 

various loan modification and 

foreclosure rescue services? 

E. What roles do mortgage servicers 

play in the loan modification and 

foreclosure rescue industry? What are 

the costs and benefits of their conduct 

in the context of loan modification and 

foreclosure rescue services? Do the 

practices of mortgage servicers present 

consumer protection concerns? If so, 

how are these concerns the same as or 

different from those raised by thirdparty loan modification and foreclosure 

rescue entities? 

F. What empirical data are available 

concerning the performance of loan 

modification and foreclosure rescue 

entities in obtaining promised results? 

Please identify any such data (broken 

down by business model, if possible) 

used to provide loan modification and 

foreclosure rescue services, including 

but not limited to data addressing the 

following: 

1. The percentage or proportion of 

consumers enrolled in loan 

modification or foreclosure rescue 

services who successfully obtain a loan 

modification or foreclosure relief. 

2. For the consumers described in 

(F)(1), the percentage who, after 

successfully obtaining the modification 

or foreclosure relief, remain current on 

their mortgage payments for a 

substantial period of time (e.g., six 

months, one year, or two years). 

2. Need for FTC Rule 

A. Given that many states have 

enacted and enforced laws concerning 

loan modification and foreclosure 

services and that the FTC has brought 

law enforcement actions against 

providers of these types of services 

under Section 5 of the FTC Act, should 

the FTC promulgate a rule to address 

these services? Why or why not? 

3. Scope of Covered Practices 

A. Should conduct by loan 

modification and foreclosure rescue 

service providers or advertisers that the 

FTC has challenged as unfair or 

26138 Federal Register / Vol. 74, No. 103 / Monday, June 1, 2009 / Proposed Rules 

deceptive in violation of Section 5 of the 

FTC Act in its law enforcement actions 

be incorporated into a proposed FTC 

rule? If so, what conduct should be 

included, how should it be addressed, 

and why? 

B. Should conduct by loan 

modification and foreclosure rescue 

service providers or advertisers that 

states have declared unlawful by statute 

or regulation or have challenged in law 

enforcement actions be incorporated 

into a proposed FTC rule? Why or why 

not? If so, what prohibitions and 

restrictions should be incorporated in a 

proposed FTC rule? 

1. Some states require providers to 

create written contracts and include key 

disclosures in these contracts. Should 

the Commission impose the same or 

similar disclosure requirements in a 

proposed FTC rule? If so, what 

disclosures should be included and 

why? 

2. Some states require providers to 

give consumers who enroll the right to 

rescind or cancel their agreements with 

the providers. Should the Commission 

include the same or similar rights of 

rescission or cancellation in a proposed 

rule? If so, what rescission and 

cancellation rights should be included 

and why? 

3. Some states have restricted the 

type, amount, and timing of the fees 

charged and refunds given by providers 

of loan modification and foreclosure 

rescue services. In particular, some 

states ban advance fees until all services 

promised or contracted for are 

completed. 

(i) Should the Commission address in 

a proposed FTC rule any fee or refunds 

practices of providers of loan 

modification and foreclosure rescue 

services? If so, what practices should be 

addressed, how they should be 

addressed, and why? 

(ii) Should the Commission ban the 

payment of advance fees for loan 

modification and foreclosure rescue 

services in a proposed FTC rule? If so, 

why or why not? What effect, if any, 

would an advance fee ban have on the 

willingness or ability of loan 

modification and foreclosure rescue 

services providers to do business? 

(iii) Should the Commission impose 

fee restrictions in a proposed FTC rule 

other than a ban on the advance fees 

that providers of loan modification and 

foreclosure rescue services receive? If 

so, what restrictions should be imposed 

and why? Would these restrictions 

prevent or mitigate the potential harm 

caused by payment of these fees? For 

example, to what extent might the 

possible harm from advance fees be 

prevented or mitigated by requiring 

providers to make specific disclosures 

regarding the timing, amount, or 

allocation of fees? Additionally, to what 

extent might such harm be prevented or 

mitigated by requiring providers to 

make more general disclosures 

regarding the nature and material 

restrictions of their services (e.g., the 

disclosures regarding the likelihood of 

success, timing of services or 

negotiations with mortgage servicers, 

refund restrictions, or any potentially 

negative ramifications of using the 

service)? 

4. Some states have foreclosure rescue 

laws which, in whole or in part, only 

apply once a consumer has received a 

notice of default. At what stage or stages 

of the process should a proposed FTC 

rule protect consumers? Should it take 

effect before consumers receive a notice 

of default, after the notice of default is 

received, or once foreclosure 

proceedings have begun? Why? 

5. Please identify any other state 

restrictions or challenged conduct 

which should (or should not) be 

addressed in a proposed FTC rule, and 

explain why. 

C. Are there any unfair or deceptive 

acts and practices by providers or 

advertisers of loan modification and 

foreclosure rescue services that neither 

the FTC nor the states have addressed 

that a proposed FTC rule should 

address? If so, how should these acts 

and practices be addressed and why? 

4. Scope of Covered Entities 

A. As described in the text, an FTC 

proposed rule would not cover banks, 

thrifts, federal credit unions, and nonprofits. To what extent do these types of 

entities provide or advertise loan 

modification and foreclosure rescue 

services? To what extent do these 

entities compete with entities that an 

FTC proposed rule would cover and 

what effect would an FTC proposed rule 

have on such competition? 

B. As described in the text, many 

states have exempted attorneys from 

laws (e.g., foreclosure consultant laws) 

which regulate the conduct of providers 

and advertisers of loan modification and 

foreclosure rescue services. What are the 

costs and benefits of exempting 

attorneys from these laws? What has 

been the effect of such exemptions on 

competition between attorneys and nonattorneys in providing or advertising 

loan modification and foreclosure 

rescue services? Should an FTC 

proposed rule include an exemption for 

attorneys or any other class of persons 

or entities? Why or why not? 

By direction of the Commission. 

Donald S. Clark 

Secretary 

[FR Doc. E9–12596 Filed 5–29–09: 8:45 am] 

BILLING CODE 6750–01–S 

DEPARTMENT OF HOMELAND 

SECURITY 

Coast Guard 

33 CFR Parts 100 and 165 

[USCG–2009–0127] 

RIN 1625–AA00 

Safety Zones: Annual Events 

Requiring Safety Zones in the Captain 

of the Port Duluth Zone 

AGENCY: Coast Guard, DHS. 

ACTION: Notice of proposed rulemaking. 

SUMMARY: The Coast Guard proposes 

establishment of safety zones for annual 

events in the Captain of the Port Duluth 

Zone. This rule proposes removal of a 

safety zone currently located in part 

100, and the addition of it to part 165. 

Further, this rule proposes new safety 

zones to be added to part 165. These 

safety zones are necessary to protect 

spectators, participants, and vessels 

from the hazards associated with 

fireworks displays. 

DATES: Comments and related materials 

must reach the Coast Guard on or before 

July 1, 2009. 

ADDRESSES: You may submit comments 

identified by Coast Guard docket 

number USCG–2009–0127 to the Docket 

Management Facility at the U.S. 

Department of Transportation. To avoid 

duplication, please use only one of the 

following methods: 

(1) Online: http:// 

www.regulations.gov. 

(2) Mail: Docket Management Facility 

(M–30), U.S. Department of 

Transportation, West Building Ground 

Floor, Room W12–140, 1200 New Jersey 

Avenue, SE., Washington, DC 20590– 

0001. 

(3) Hand Delivery: Room W12–140 on 

the ground floor of the West Building, 

1200 New Jersey Avenue, SE., 

Washington, DC 20590, between 9 a.m. 

and 5 p.m., Monday through Friday, 

except Federal holidays. The telephone 

number is 202–366–9329. 

(4) Fax: 202–493–2251. 

FOR FURTHER INFORMATION CONTACT: LT 

Aaron Gross, Chief of Port Operations 

U.S. Coast Guard Sector Duluth; (218) 

720–5286 Ext. 111.