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Supporting comment for FTC authority over predatory mortgages

Consumers Union supports proposed Section 626 of the Omnibus Appropriations Act of 2009.

March 4, 2009

The Honorable Harry Reid, Majority Leader
The Honorable Mitch McConnell, Republican Leader
United States Senate
Washington, D.C. 20510

Majority Leader Reid and Republican Leader McConnell:

We write on behalf of Consumers Union, the non-profit publisher of Consumer Reports, and U.S. PIRG, the federation of state Public Interest Research Groups, to express our support for Section 626 of the Omnibus Appropriations Act of 2009 (H.R. 1105). This section gives the Federal Trade Commission (FTC) the authority to quickly issue rules prohibiting predatory mortgage loans that will apply to lenders within their jurisdiction. It also gives state attorneys general the power to enforce the FTC’s rules protecting borrowers and enforce the Truth in Lending Act and closes a loophole that has limited the ability of the FTC to use civil penalty authority against law breakers.

Unfair and deceptive practices were the spark that started the current credit crisis. Consumers and the government need more tools to investigate and shut down predatory lending practices. Section 626 goes a long way towards protecting consumers against these practices.

We were glad to see the Federal Reserve Board (FRB) update its rulemaking on high-cost and non-traditional loans in July; however we believe much more is needed to protect consumers. The remedies that the FRB has outlined to stop abusive loan practices do not provide sufficient incentives for compliance. If the primary regulator does not vigorously enforce the new rules, consumers have nowhere to go. Many of the new rules created by the FRB – including the ability to repay standard – give consumers no ability to take action against violators. We are pleased that Section 626 gives the FTC civil penalty authority when enforcing the FRB rules.

The FTC has authority over non-bank lenders and is explicitly prohibited from regulating banks. Contrary to reports of the banking community, this language does not give the FTC authority over banks. A significant amount of predatory lending practices have come from non-bank lenders. Giving the Commission the authority to quickly write rules to stop predatory mortgage lending will help protect consumers and our economic future.

Unlike banking agencies who failed to avert the credit crisis, the FTC’s sole focus is protecting consumers and it has experience enforcing the law. However, it is also important to put oversight authority in the hands of the state attorneys general who may be closer to the consumers affected and able to respond more quickly to emerging unfair practices, as they have demonstrated time and time again. This would be an added enforcement tool to help stop these practices when they are just starting, before they become widespread and entrenched.

Congress should ensure the Commission is fully empowered to prevent consumer harm by passing H.R. 1105 with Section 626 intact. We would be happy to provide any help or assistance you need while considering this bill.

Joel Kelsey
Policy Analyst
Consumers Union

Edmund Mierzwinski,
Consumer Program Director