FTC Updates Congress on Enforcement Against Financial Services Firms

Federal Trade Commission Chairman Deborah Platt Majoras yesterday presented testimony before the U.S. House Financial Services Committee on the FTC’s efforts to combat unfair, deceptive, and other illegal practices in the consumer financial services industry, according to a release by the FTC.

“Protecting consumers of financial services from harm is an important and growing priority for the Commission,” Majoras said in her testimony. “The FTC will continue to target deceptive and unfair practices by actors in the financial marketplace.”

Law Enforcement

The agency enforces Section 5 of the FTC Act, which prohibits unfair or deceptive business practices, as well as a number of special statutes related to financial acts and practices. Banks, savings and loan institutions, and federal credit unions are exempt from the FTC’s jurisdiction, but the Commission has jurisdiction over nonbank financial companies, including nonbank mortgage companies, mortgage brokers, finance companies, and others.

The testimony highlighted FTC enforcement actions that have targeted deception and illegal practices in mortgage lending and servicing, as well as nonmortgage lending and leasing, gift card sales, advance-fee credit scams, debt collection practices, credit and debt counseling services, and credit reporting.

For example, the testimony emphasized that the agency has targeted deceptive or unfair practices in all stages of mortgage lending – from advertising and marketing through loan servicing. The Commission has brought 21 such actions in the past decade, focused particularly on the subprime market. In these actions, the Commission has returned more than $320 million to consumers.

With mortgage brokers now originating up to 70 percent of mortgage loans, the testimony noted, the FTC has brought several recent enforcement actions against mortgage brokers that deceived consumers about key loan terms, such as the existence of a prepayment penalty or a large balloon payment due at the end of the loan. Last year, the FTC also sued a broker for allegedly misrepresenting key loan terms to Hispanic consumers, speaking almost entirely in Spanish about loan terms but providing loan documents in English with less favorable terms.

The Commission also has challenged allegedly deceptive and unfair practices in the servicing of mortgage loans, the testimony continued. For example, in November 2003, the FTC and the Department of Housing and Urban Development (HUD) announced a settlement with Fairbanks Capital Corp. (now called Select Portfolio Servicing, Inc.) and its parent company. The Commission alleged that Fairbanks failed to post consumers’ payments upon receipt, charged unauthorized fees, used dishonest or abusive tactics to collect debts, and knowingly reported inaccurate consumer payment information to credit bureaus. The defendants paid more than $40 million in consumer redress and agreed to change their business practices.