Mortgage Assistance Relief Services

Federal RegisterDec 1, 2010

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FEDERAL TRADE COMMISSION

16 CFR Part 322

RIN 3084-AB18

Mortgage Assistance Relief Services

AGENCY:

Federal Trade Commission (FTC or Commission).

ACTION:

Final rule.

SUMMARY:

Pursuant to the 2009 Omnibus Appropriations Act (Omnibus Appropriations Act), as clarified by the Credit Card Accountability Responsibility and Disclosure Act of 2009 (Credit CARD Act), the Commission issues a Final Rule and Statement of Basis and Purpose (SBP) concerning the practices of for-profit companies that, in exchange for a fee, offer to work on behalf of consumers to help them obtain modifications to the terms of mortgage loans or to avoid foreclosure on those loans. The Final Rule, among other things, would: prohibit providers of such mortgage assistance relief services from making false or misleading claims; mandate that providers disclose certain information about these services; bar the collection of advance fees for these services; prohibit anyone from providing substantial assistance or support to another they know or consciously avoid knowing is engaged in a violation of the Rule; and impose recordkeeping and compliance requirements.

DATES:

This final rule is effective on December 29, 2010, except for § 322.5, which is effective on January 31, 2011.

ADDRESSES:

Requests for copies of this Rule and this Statement of Basis and Purpose (SBP) should be sent to: Public Reference Branch, Federal Trade Commission, 600 Pennsylvania Avenue, NW., Room 130, Washington, DC 20580. The complete record of this proceeding is also available at that address. Relevant portions of the proceeding, including the Final Rule and SBP, are available at (

http://www.ftc.gov

FOR FURTHER INFORMATION CONTACT:

Laura Sullivan or Evan Zullow, Attorneys, Division of Financial Practices, Federal Trade Commission, 600 Pennsylvania Avenue, NW., Washington, DC 20580, (202) 326-3224.

SUPPLEMENTARY INFORMATION:

I. Background

Statutory Authority

On March 11, 2009, President Obama signed the Omnibus Appropriations Act of 2009.

Section 626 of the Act directed the Commission to commence, within 90 days of enactment, a rulemaking proceeding with respect to mortgage loans.

Section 626 also directed the FTC to use notice and comment procedures under Section 553 of the Administrative Procedure Act (APA), 5 U.S.C. 553, to promulgate these rules.

Omnibus Appropriations Act, 2009, Public Law 111-8, 123 Stat. 524 (Omnibus Appropriations Act).

Id.

§ 626(a).

Id.

Because Congress directed the Commission to use these APA rulemaking procedures, the FTC did not use the procedures set forth in Section 18 of the FTC Act, 15 U.S.C. 57a.

On May 22, 2009, President Obama signed the Credit CARD Act.

Section 511 of this statute clarified the Commission's rulemaking authority under the Omnibus Appropriations Act. First, Section 511 specified that the rulemaking “shall relate to unfair or deceptive acts or practices regarding mortgage loans, which may include unfair or deceptive acts or practices involving loan modification and foreclosure rescue services.”

The Omnibus Appropriations Act, as clarified by the Credit CARD Act, does not specify any particular types of provisions that the Commission should include, or refrain from including, in a rule addressing loan modification and foreclosure rescue services, but rather directs the Commission to issue rules that “relate to” unfairness or deception.

Accordingly, the Commission interprets the Omnibus Appropriations Act to allow it to issue rules that prohibit or restrict conduct that may not be unfair or deceptive itself, but that are reasonably related to the goal of preventing unfairness or deception.

Credit Card Accountability Responsibility and Disclosure Act of 2009, Public Law 111-24, 123 Stat. 1734 (Credit CARD Act).

Id.

§ 511(a)(1)(B).

Id.

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

see Katharine Gibbs Sch.

FTC,

612 F.2d 658 (2d Cir. 1979), the Omnibus Appropriations Act, as clarified by the Credit CARD Act, does not require that the Commission identify with specificity in the rule the unfair or deceptive acts or practices that the prohibitions will prevent. Omnibus Appropriations Act § 626(a); Credit CARD Act § 511(a)(1)(B).

Second, Section 511 of the Credit CARD Act clarified that the Commission's rulemaking authority was limited to entities that are subject to enforcement by the Commission under the FTC Act.

The rules the Commission promulgates to implement the Omnibus Appropriations Act, therefore, cannot cover the practices of banks, thrifts, Federal credit unions,

or certain nonprofits.

Credit CARD Act § 511(a)(1)(C).

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

15 U.S.C. 44. Bona fide nonprofit entities are exempt from the jurisdiction of the FTC Act. Sections 4 and 5 of the FTC Act confer on the Commission jurisdiction over persons, partnerships, or corporations organized to carry on business for their profit or that of their members. 15 U.S.C. 44, 45(a)(2). The FTC does, however, have jurisdiction over for-profit entities that provide mortgage-related services as a result of a contractual relationship with a nonprofit organization.

See Nat'l Fed'n of the Blind

FTC,

420 F.3d 331, 334-35 (4th Cir. 2005). In addition, the Commission has jurisdiction over sham non-profits that in fact operate as for-profit entities.

See infra

note 176.

The Omnibus Appropriations Act, as clarified by the Credit CARD Act, also permits both the Commission and the states to enforce the rules the FTC issues.

The Commission can use its powers under the FTC Act to investigate and enforce the rules, and the FTC can seek civil penalties under the FTC Act against those who violate them. In addition, states can enforce the rules by bringing civil actions in Federal district court or another court of competent jurisdiction to obtain civil penalties and other relief. Before bringing such an action, however, states must give 60 days advance notice to the Commission or other “primary federal regulator” of the proposed defendant, and the regulator has the right to intervene in the action.

Omnibus Appropriations Act § 626(b); Credit CARD Act § 511(a)(1)(B).

On July 21, 2010, President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act.

The Dodd-Frank Act made substantial changes in the federal regulatory framework for providers of financial services. Among the changes, the Dodd-Frank Act will transfer the Commission's rulemaking authority under the Omnibus Appropriations Act to a new Bureau of Consumer Financial Protection (BCFP)

on July 21, 2011, which is the “designated transfer date” that the Treasury Department has set.

In addition, on the designated transfer date, the FTC's authority to “prescribe rules” and “issue guidelines” under the Omnibus Appropriations Act will transfer to the BCFP.

Both the Commission and the BCFP, however, will have authority to bring law enforcement actions to enforce the rules promulgated under the Omnibus Appropriations Act, including the Final Rule in this Proceeding.

Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. 111-203, 124 Stat. 1376 (2010) (Dodd-Frank Act).

Id.

§ 1061.

Dep't of the Treasury,

Bureau of Consumer Financial Protection; Designated Transfer Date,

75 FR 57252, 57253 (Sept. 20, 2010);

see also

Dodd-Frank Act § 1062.

Dodd-Frank Act § 1061.

B. The Rulemaking and Public Comments Received

On June 1, 2009, the Commission published in the

Federal Register

an Advance Notice of Proposed

Rulemaking (ANPR) addressing the acts and practices of for-profit companies that offer to work on behalf of consumers to help them modify the terms of their loans or to avoid foreclosure. The ANPR described these services generically as “Mortgage Assistance Relief Services,” or “MARS.”

On March 9, 2010, the Commission published

a Notice of Proposed Rulemaking (NPRM) and proposed rule addressing Mortgage Assistance Relief Services (MARS).

Among other things, the proposed rule included provisions that would:

See Mortgage Assistance Relief Services,

74 FR 26130 (June 1, 2009)

(MARS ANPR).

In response to the ANPR, the Commission received a total of 46 comments, which are

available at http://www.ftc.gov/os/comments/mars/index.shtm.

Notably, a wide spectrum of these commenters, including a consortium of over 40 state attorneys general, consumer and community organizations, and financial service providers, strongly urged the Commission to propose a rule prohibiting or restricting the collection of fees for mortgage relief services until the promised services have been completed. Additionally, a majority of the comments expressed concern regarding pervasive deception and abuse in the marketing of MARS, including misrepresentations regarding the services MARS providers will perform and regarding their affiliation with the government, nonprofits, lenders, or loan servicers.

This SBP cites to comments submitted in response to both the ANPR and the NPRM. To distinguish the comments submitted in response to the ANPR, the notation “(ANPR)” is included in any citations to them.

See

Press Release, FTC,

FTC Proposes Rule That Would Bar Mortgage Relief Companies From Charging Up-Front Fees

(Feb. 4, 2010),

available at http://www.ftc.gov/opa/2010/02/mars.shtm.

See

Mortgage Assistance Relief Services,

75 FR 10707 (Mar. 9, 2010) (

MARS NPRM

• Prohibit MARS providers from making false or misleading claims;

• Mandate that providers disclose certain information about their services;

• Bar the collection of advance fees for the provision of MARS, except in certain circumstances for attorneys who collect them in connection with preparing or filing documents in bankruptcy, court, or administrative proceedings;

• Prohibit anyone from providing substantial assistance or support to another they know or consciously avoid knowing is engaged in a violation of the rule; and

• Impose recordkeeping and compliance requirements.

In response to the NPRM, the Commission received 75 comments from stakeholders, including for-profit MARS providers, state law enforcers, consumer and community groups, state bars and bar associations, and financial service providers.

The largest number of comments—a total of 30—were submitted either by attorneys who provide MARS

or entities representing attorneys, including the American Bar Association and several state bar associations.

These comments focused on the scope of the proposed rule's exemption for attorneys, asserting that the Commission should expand the exemption. Other commenters, including some consumer groups and a coalition of state bank examiners, also advocated that the proposed exemption for attorneys be broadened, although to a lesser extent than the attorneys and their representatives advocated.

By contrast, comments from NAAG

and others

urged the Commission not to change the attorney exemption in the proposed rule.

The comments submitted in response to the NPRM are available at

http://www.ftc.gov/os/comments/mars-nprm/index.shtm.

A list of those who submitted comments appears following Section V of this SBP.

See, e.g.,

Deal; Greenfield.

See, e.g.,

Am. Bar Ass'n (ABA); ME BA at 1-2; OR Bar at 1; WI Bar at 1; GA Bar at 1; FL Bar at 1.

See, e.g.,

NCLC at 10-13; CSBS at 4-5.

See

NAAG at 3-4.

See, e.g.,

CUUS at 8-9.

Apart from comments that focused on the coverage of attorneys, most comments supported the proposed rule and its specific provisions. Most significantly, these comments generally supported an advance fee ban,

although a few non-attorney MARS providers opposed it.

See, e.g.,

MN AG at 3; OH AG at 1; MBA at 2-3 (supporting “strict prohibition” of advance fees); NAAG at 2 (“The advance fee ban is the linchpin of effective deterrence of fraudulent practices by providers of mortgage relief services.”); NCLC at 3 (“The single most important provision is section 322.5, which prohibits the collection of any fee before providing tangible results of real value to consumers.”); AFSA at 5 (“Banning upfront fees is the best way for the FTC to ensure that MARS providers do really provide consumers with a beneficial service.”);

see also

CSBS at 3; CUUS at 6; NYC DCA at 3.

See, e.g.,

Metropolis; RMI; Hirsch.

II. Mortgage Assistance Relief Services

A. The Mortgage Crisis and Assistance for Consumers

As discussed in the ANPR and NPRM, historically high levels of consumer debt, increased unemployment, and a stagnant housing market have contributed to high rates of mortgage loan delinquencies, which in many cases lead to foreclosures.

As a result, many consumers struggling to make their mortgage payments have been searching for ways to avoid default and foreclosure. There are a number of options that may be available to them, including: (1) Short sales or deeds-in-lieu of foreclosure transactions, in which the proceeds of a sale of the home or the receipt of the deed to the home, respectively, are treated by the mortgage lender as repayment of the outstanding mortgage balance; (2) forbearance or repayment plans that do not reduce the amount that consumers must pay but give them more time to bring their balance current; and (3) loan modifications that reduce consumers' indebtedness or the amount of their monthly payments. Because loan modifications allow consumers to stay in their homes and reduce their debt, this possible solution often has great appeal to them. The Commission's law enforcement experience suggests that loan modifications are the type of MARS most frequently marketed and sold.

See, e.g., MARS NPRM,

75 FR at 10708-09; MBA,

Delinquencies, Foreclosure Starts Increase in Latest MBA National Delinquency Survey

(May 19, 2010) (“The delinquency rate for mortgage loans on one-to-four-unit residential properties increased to a seasonally adjusted rate of 10.06 percent of all loans outstanding as of the end of the first quarter of 2010, an increase of 59 basis points from the fourth quarter of 2009, and up 94 basis points from one year ago.”),

available at http://www.mbaa.org/NewsandMedia/PressCenter/72906.htm;

NCLC at 2; Press Release, Realtytrac,

Year-end Report Shows Record 2.8 Million U.S. Properties With Foreclosure Filings in 2009

(Jan. 14, 2010),

available at http://www.realtytrac.com/contentmanagement/pressrelease.aspx?itemid=8333;

Credit Suisse Fixed Income Research 2 (2008) (forecasting a total of 9 million foreclosures for the period 2009 through 2012),

available at http://www.chapa.org/pdf/ForeclosureUpdateCreditSuisse.pdf.

See

List of MARS Law Enforcement Actions, following Section V of the SBP, for a list of cases that the FTC has prosecuted (“FTC Case List”). Unless otherwise specified, all citations to FTC actions in this SBP refer to the complaints in these lawsuits.

In response to the mortgage crisis, government and private sector programs have been initiated to assist distressed homeowners.

In March 2009, the Obama Administration launched the Making Home Affordable (MHA) program and the MHA's Home Affordable Modification Program (HAMP), through which the government provides mortgage owners and servicers with financial incentives to modify and refinance loans.

Under the program,

lenders and servicers have approved roughly 500,000 permanent loan modifications.

The Treasury Department has also recently expanded the MHA program to assist more borrowers, for example, by introducing additional incentives for servicers to write down the outstanding principal balance for borrowers who are “under water,” that is, who owe more on their mortgages than the value of their homes.

See, e.g.,

HOPE NOW,

About Us

(“HOPE NOW is an alliance between counselors, mortgage companies, investors, and other mortgage market participants. This alliance will maximize outreach efforts to homeowners in distress to help them stay in their homes and will create a unified, coordinated plan to reach and help as many homeowners as possible.”),

available at http://www.hopenow.com/hopenow-aboutus.php.

For example, the program offers servicers that modify loans according to its guidelines an up-front fee of $1,000 for each modification, “pay for success” fees on still-performing loans of $1,000 per year, and one-time bonus incentive payments of $1,500 to lender/investors, and $500 to servicers, for a modification made while a borrower is still current on his or her mortgage payments. Dep't of the Treasury,

Making Home Affordable Summary of Guidelines

2 (March 4, 2010),

available at

http://www.ustreas.gov/press/releases/reports/guidelines_summary.pdf.

See, e.g.,

Dep't of the Treasury,

Making Home Affordable Program: Servicer Performance Report Through September 2010

(Oct. 25, 2010),

available at http://www.financialstability.gov/docs/Sept%20MHA%20Public%202010.pdf.

Further, if trial modifications are added to permanent modifications, over 1.6 million modifications have been approved.

Id.,

Testimony of Herbert M. Allison, Dep't of the Treasury, “Foreclosure Prevention: Is the Home Affordable Modification Program Preserving Homeownership?,” before the H. Comm. on Oversight and Gov't Reform, at 5 (Mar. 25, 2010),

available at http://oversight.house.gov/images/stories/Hearings/Committee_on_Oversight/2010/032510_HAMP/TESTIMONY-Allison.pdf.

See

Press Release, Making Home Affordable (“MHA”)

Housing Program Enhancements Offer Additional Options for Struggling Homeowners

(Mar. 26, 2010),

available at http://makinghomeaffordable.gov/pr_03262010.html.

On April 5, 2010, the Administration launched the Home Affordable Foreclosure Alternatives (HAFA) Program, which provides servicers with incentives to enter into short sales or deeds-in-lieu of foreclosure transactions with consumers who do not qualify for a loan modification under the MHA program.

In addition, state and local governments, nonprofit organizations, housing counselors, and private sector entities

have offered a variety of other programs and services to help homeowners in financial distress.

See

MHA, Home

Affordable Foreclosure Alternatives (HAFA) Program, available at http://makinghomeaffordable.gov/hafa.html.

Loan holders also have exhibited a growing willingness to modify loan terms for borrowers who do not qualify for loan modifications under government programs such as HAMP. These are known as “proprietary loan modifications.”

See

Press Release, HOPE NOW,

HOPE NOW Reports More Than 476,000 Loan Modifications in the First Quarter of 2010

(May 10, 2010),

available at http://www.hopenow.com/press_release/files/1Q%20Data%20Release_05_10_10.pdf

(reporting that the industry completed 312,329 proprietary loan modifications in the first quarter of 2010).

See, e.g.,

Freddie Mac,

Foreclosure Prevention Workshops for Consumers, http://www.freddiemac.com/avoidforeclosure/workshops.html

(describing local credit counseling events by local governments and nonprofits); FTC,

Mortgage Payments Sending You Reeling? Here's What to Do

(2009),

available at http://www.ftc.gov/bcp/edu/pubs/consumer/homes/rea04.pdf

(describing various credit counseling alternatives).

Despite these public and private programs and services, consumers also continue to seek assistance from for-profit companies who act as intermediaries between consumers and their lenders or servicers in obtaining mortgage assistance relief services—including loan modifications. This may be happening for a number of reasons. First, MARS have been advertised and marketed widely in mass media and online, with the result that consumers may be more aware of the services offered by for-profit entities than they are of other available programs. Second, many consumers who are seeking loan modifications or other relief are not eligible for the MHA program or other government and private assistance programs. While the Treasury Department has estimated that the MHA program will help 3-4 million borrowers by February 2012,

industry reports estimate that roughly twice that number of mortgage loans currently are in delinquency or foreclosure.

Third, even among consumers who may be eligible to obtain a temporary loan modification under the MHA program, many do not qualify for a permanent loan modification.

Fourth, even if consumers are eligible for government programs or assistance directly from their servicers or lenders, many housing counselors and servicers have struggled to respond in a timely manner to the extraordinary number of consumers who are seeking loan modifications.

Finally, the Treasury Department also has observed that some servicers have not adequately met consumer demand for loan modifications under the HAMP program.

See, e.g.,

Press Release, MHA,

Making Home Affordable Program on Pace to Offer Help to Millions of Homeowners

(Aug. 4, 2009)

available at http://www.makinghomeaffordable.gov/pr_08042009.html;

Dep't of the Treasury,

Making Home Affordable Program: Servicer Report Through June 2010

at 7 n.2 (June 2010) (“Selected Outreach Measures” table),

available at http://www.financialstability.gov/docs/June%20MHA%20Public%20Revised%20080610.pdf.

See

Alan Zibel,

Foreclosures Down 2 Percent From Last Year,

Associated Press, May 13, 2010 (noting that as of March 2010, “[n]early 7.4 million borrowers, or 12 percent of all households with a mortgage, had missed at least one month of payments or were in foreclosure”),

available at http://abcnews.go.com/Business/wireStory?id=10632332; see also

Press Release, Mortgage Bankers Ass'n,

Delinquencies, Foreclosure Starts Fall in Latest MBA National Delinquency Survey

(Feb. 19, 2010) (noting that roughly 15% of mortgage loans were delinquent or in foreclosure and that “[t]he percentages of loans 90 days or more past due and loans in foreclosure set new record highs”),

available at http://www.mbaa.org/NewsandMedia/PressCenter/71891.htm;

Stephanie Armour,

Home Foreclosure Rates Posts First Annual Decline in Five Years,

USA Today (May 13, 2010) (noting that nearly one-fourth of borrowers owe more on their mortgages that the value of their homes).

See, e.g.,

Dep't of the Treasury: MHA Servicer Report June 2010 at 1; NCRC,

NCRC Home Affordable Modification Program Survey 2010,

at 2 (noting that, as of February 2010, only 12.5% of trial modifications had been converted into permanent modifications),

available at http://www.ncrc.org/images/stories/mediaCenter_reports/hamp_report_2010.pdf;

Foreclosure Prevention: Is the Home Affordable Modification Program Preserving Homeownership: Hearing Before the H. Comm. on Oversight & Gov't Reform,

111th Cong. (2010) (statement of Gene Dodaro, Acting Comptroller General, Government Accountability Office) (prepared statement at 7),

available at http://oversight.house.gov/images/stories/Hearings/Committee_on_Oversight/2010/032510_HAMP/TESTIMONY-Dodaro.pdf

(noting that 32% of trial modifications lasting three months or more had been approved for conversion into permanent modifications).

See, e.g.,

CRL at 3 (noting that MARS have flourished as “consumers' demand for relief outpaces the capacity of mortgage servicers and government programs alike”);

The Recently Announced Revisions to the Home Affordable Modification Program (HAMP): Hearing Before the Subcomm. on Hous. & Cmty. Opportunity of the H. Comm. on Fin. Servs.,

111th Cong. 131 (2010) (statement of Alan White, Assistant Professor, Valparaiso Univ.),

available at http://financialservices.house.gov/Media/file/hearings/111/Printed%20Hearings/111-122.pdf.

(“Modification requests are languishing for as long as a year, servicers repeatedly ask borrowers to resubmit documentation that has been lost or become outdated, and housing counselors and mediators are unable to get timely information and responses from servicers.”); NCLC (ANPR) at 2 (noting that servicers have failed to meet borrower demand for loan modifications); NAAG (ANPR) at 7 (noting that borrowers have had difficulty reaching servicers and obtaining their assistance).

See, e.g., Holding Banks Accountable: Are Treasury and Banks Doing Enough to Help Families Save Their Homes?: Hearing Before the S. Subcomm. on Fin. Servs. & Gen. Gov't of the S. Comm. on Appropriations,

111th Cong. (2010) (statement of Timothy Geithner, Sec'y, Dep't of the Treasury) (“[W]e do not believe that servicers are doing enough to help homeowners.”)

Many consumers who have been unable to obtain mortgage assistance relief services through their own efforts have turned to for-profit MARS providers for help. Providers promoting their ability to negotiate with lenders and servicers to obtain loan modifications or some other type of mortgage relief have proliferated in the past few years.

Responding to consumer demand, many providers have promised to obtain loan modifications,

but others have begun

to market short sales and other forms of relief.

The Commission's law enforcement experience shows that MARS providers typically are small and relatively new businesses,

and thus it is difficult to estimate their numbers.

Based on the law enforcement actions brought by the FTC and the states, however, it appears that there are over 500 such providers in the United States.

See MARS ANPR,

74 FR at 26134-35.

See, e.g., Safe Mortgage Licensing Act: HUD Responsibilities Under the Safe Act, Proposed Rule,

74 FR 66548, 66554 (Dec. 15, 2009) (“HUD has seen a substantial increase in the number of third-party actors (

i.e.,

individuals other than lenders and loan servicers) offering their services as intermediaries putatively to work on behalf of borrowers to negotiate modifications of existing loan terms.”); NAAG (ANPR) at 2 (“[T]he [loan modification] consulting business model is dominating the marketplace. Consultants are by far the most common source of consumer complaints received by our offices in the area of mortgage assistance services.”); OH AG (ANPR) at 2 (“For those companies that actually do put some effort into helping the consumer, the most common business model is an offer to negotiate a loan modification or repayment plan with the consumer's servicer.”); CRC (ANPR) at 1 (“In California, advertisements promising loan modification success are inescapable.”); FinCEN,

Loan Modification and Foreclosure Rescue Scams—Evolving Trends and

Patterns in Bank Secrecy Act Reporting

10 (May 2010),

available at http://www.fincen.gov/news_room/rp/files/MLFLoanMODForeclosure.pdf

(FinCEN Report) (“Reports of foreclosure rescue scams increased substantially in the last eight months of calendar year 2009.”).

Although the dominant trend among MARS providers is to offer loan modifications, over the past few years some providers also have offered other purported types of loss mitigation and foreclosure avoidance.

See, e.g., FTC

Foreclosure Solutions, LLC,

No. 1:08-cv-01075 (N.D. Ohio filed Apr. 28, 2008) (alleging that provider offered to stop foreclosure proceedings and secure workout plans with consumers' lenders or servicers);

FTC

Mortgage Foreclosure Solutions, Inc.,

No. 8:08-cv-388-T-23EAJ (M.D. Fla. filed Feb. 26, 2008) (same). Providers may adjust their marketing to offer newly-minted forms of mortgage relief—for example, the possibility of entering a short sale under the HAFA program.

See, e.g., Illinois

Home Foreclosure Solutions LLC,

No. 08CH43259 (Ill. Cir. Ct. Cook County 2008) (alleging MARS provider offered to assist consumers to enter short sales). Another new variation of MARS is charging an advance fee to purportedly “eliminate” mortgage debts by challenging the legality of the original mortgages.

See

FinCEN,

Foreclosure Rescue Fraud Report May 2010, supra

note 42 at 9. MARS providers also have offered “sale-leaseback” or “title reconveyance” transactions. In these transactions, MARS providers instruct consumers to transfer title to their homes to the providers and then the consumers rent the homes from them. The providers promise to reconvey title at some later date, yet often do not do so, thereby taking the equity in the homes. Sale-leaseback and title reconveyance transactions appear to have become less prevalent, in part because many consumers do not have sufficient equity in their homes to make this strategy profitable.

See, e.g.,

FinCEN,

Foreclosure Rescue Fraud Report

May 2010,

supra

note 42 at 4.

See

FTC Case List. Some of these small and relatively new businesses are law firms. For example, NCLC surveyed members of the National Association of Consumer Advocates (NACA) and the National Association of Consumer Bankruptcy Attorneys (NACBA); 298 attorneys responded that they provided some form of MARS. NCLC at 5;

see also

IRELA at 1 (stating that many of the 2,000 members of the Illinois Real Estate Lawyers Association are “engaged in the process of trying to assist their consumer clients in dealing with foreclosures, mortgage loan workouts, and related matters”).

See, e.g.,

U.S. Gov't Accountability Office, GAO-10-787,

Federal Efforts to Combat Foreclosure Rescue Schemes are Under Way, but Improved Planning Elements Could Enhance Progress

12-16 (July 2010) (“GAO Report”) (noting that data on MARS providers is limited); NAAG (ANPR) at 3 (“It is difficult to gather exact empirical data on companies providing loan modification and foreclosure rescue services due to the predominance of Internet-based companies and their ephemeral nature.”); OH AG (ANPR) at 2 (“There is little reliable data about the foreclosure rescue industry.”); CRL at 3 (“With few barriers to entry and little to no oversight, scams are flourishing in the current environment.”).

See

NAAG (ANPR) at 4 (noting that state attorneys general have investigated more than 450 MARS providers); FTC Case List,

supra

note 28; Press Release, FTC,

Federal and State Agencies Crack Down on Mortgage Modification and Foreclosure Rescue Scams

(Apr. 6, 2009),

available at http://www.ftc.gov/opa/2009/04/hud.shtm

(reporting that the Commission sent warning letters to 71 companies offering MARS).

Typically, MARS providers charge consumers hundreds or thousands of dollars

in advance fees,

i.e.,

fees prior to providing their services. In its law enforcement actions, the FTC has observed that some providers collect their entire fee at the beginning of the transaction,

while others collect two to three large installment payments from consumers.

NAAG and other commenters also stated that many MARS providers have begun to offer their services piecemeal, collecting fees upon reaching various stages in the process, such as assembling the documentation required by the lender or servicer, mailing paperwork to the lender or servicer, and negotiating with a lender's loss mitigation department.

See, e.g., infra

notes 48-49; GAO Report,

supra

note 45, at 7 (noting that MARS typically charge a fee of thousands of dollars); Dargon at 2 (“We charge $2,500 as a flat fee” in advance.); CRC (ANPR) at 2 (“The average fee that we are seeing borrowers charged is $3,000; we have seen fees as high as $9,500. In nearly every instance, these fees are charged up front, before any services have been rendered.”); NCRC (ANPR) at 3 (noting that “[t]ypically, loan modification companies request a significant fee upfront” and that a study performed by NCRC “documented a median fee of $2,900,” although “[f]ees ranged as high as $5,600”); NCLR (ANPR) at 1 (observing fees as high as $8,000); NCLC (ANPR) at 5-6 (estimating typical advance fees to be between $2,000 and $4,000).

See, e.g., supra

note 47;

FTC

Infinity Group Servs.,

No. SACV09-00977 DOC (MLGx) (C.D. Cal. filed Aug. 26, 2009);

FTC

Freedom Foreclosure Prevention Specialists, LLC,

No. 2:09-cv-01167-FJM (D. Ariz. June 1, 2009);

FTC

Fed. Loan Modification Law Ctr., LLP,

No. SACV09-401 CJC (MLGx) (C.D. Cal. filed Apr. 3, 2009).

See, e.g., FTC

Truman Foreclosure Assistance, LLC,

No. 09-23543 (S.D. Fla. filed Nov. 23, 2009);

FTC

Washington Data Res., Inc.,

No. 8:09-cv-02309-SDM-TBM (M.D. Fla. filed Nov. 12, 2009);

FTC

First Universal Lending, LLC,

No. 09-CV-82322, Mem. Supp. TRO at 5 (S.D. Fla. filed Nov. 24, 2009);

see also FTC

Debt Advocacy Ctr., LLC,

No. 1:09CV2712 (N.D. Ohio filed Nov. 19, 2009).

As discussed in the ANPR and NPRM, MARS providers often claim to possess specialized knowledge of the mortgage lending industry,

sometimes touting their hiring of former mortgage brokers and real estate agents

to bolster their claims of purported expertise. In addition, some attorneys—including solo practitioners and small law firms that represent financially distressed individuals—increasingly have been offering MARS in connection with their legal practice.

See, e.g.,

NCLC (ANPR) at 3 (“Some modification firms claim superior expertise even though there are no recognized qualifications other than the training programs offered by HUD to certified agencies. Instead, some for-profit entities tout their experience as mortgage industry insiders.”); NAAG (ANPR) at 4;

FTC

Fed Housing Modification Dep't,

No. 09-CV-01759 (D.D.C. filed Sept. 15, 2009) (alleging defendants' Web sites state that many of their “skilled negotiators” have “worked for the lenders they are dealing with”);

FTC

US Foreclosure Relief Corp.,

No. SACV09-768 JVS (MGX), Mem. Supp. TRO. at 4-5 (C.D. Cal. filed July 7, 2009) (alleging that defendants “boasted of twenty years' experience” and that they had “extensive experience in the industry”);

FTC

Truman Foreclosure Assistance, LLC,

No. 09-23543, Mem. Supp. P.I. at 20 (S.D. Fla. filed Nov. 23, 2009) (alleging that defendants' Web sites represented that they have “extensive loss mitigation experience” and that “they are led by a seasoned and proven team of professionals”);

see also

FTC

LucasLawCenter “Inc.”,

No. 09-CV-770 (C.D. Cal filed July 7, 2009).

See, e.g.,

NCLC (ANPR) at 11 (“Mortgage brokers—often cited as one of the driving forces in the growth of bad subprime loans—are in demand to work for loan modification companies. One MARS advertised for consultants with mortgage and real estate experience to join its cadre of loan modification specialists.”); GAO Report,

supra

note 45, at 10 (“Federal and state officials and representatives of nonprofit organizations told us that persons who have conducted foreclosure rescue schemes include former mortgage industry professionals who had been involved in the subprime market. * * *”).

See generally

Greenfield; Deal; Giles.

see also FTC

Debt Advocacy Ctr., LLC,

No. 1:09CV2712 (N.D. Ohio Am. Compl. filed May 14, 2010) (alleging defendants purporting to offer forensic audits misrepresented that “between 80-90% of all loans [they] have audited have some form of rights violations”);

FTC

Data Med. Capital Inc.,

No. SA-CV-99-1266 AHS (Eex), Mem. Supp. App. Contempt at 18 (C.D. Cal. filed May 27, 2009);

FTC

Fed. Loan Modification Law Ctr.,

LLP, No. SACV09-401 CJC (MLGx) (C.D. Cal. filed Apr. 3, 2009).

Since publication of the NPRM, the Commission has released an alert to warn consumers about entities purporting to provide forensic audits. FTC,

Forensic Mortgage Loan Audit Scams: A New Twist on Foreclosure Rescue Fraud

(Mar. 2010),

available at http://www.ftc.gov/bcp/edu/pubs/consumer/alerts/alt177.shtm; see also, e.g.,

Cal. Dep't of Real Estate, Consumer Alert 6 (Mar. 2009) (warning consumers of “forensic loan reviews”),

available at http://www.dre.ca.gov/pdf_docs/FraudWarningsCaDRE03_2009.pdf.

See supra

notes 51-56;

see also

IL AG (ANPR) at 2 (“Attorneys are using the [state] exemption to market and sell the same mortgage consulting services provided by non-attorneys.”).

Press Release, Office of the Att'y Gen., Cal. Dep't of Justice,

Brown Alerts Homeowners that New Law Prohibits Up-front Fees for Foreclosure Relief Services

(Oct. 15, 2009),

available at http://ag.ca.gov/newsalerts/release.php?id=1821.

See

State Bar of Cal.,

Ethics Alert:

Legal Services to Distressed Homeowners and Foreclosure Consultants on Loan Modifications

(“Cal. State Bar Ethics Alert”) 2, Ethics Hotliner (Feb. 2, 2009),

available at http://www.calbar.ca.gov/calbar/pdfs/ethics/Ethics-Alert-Foreclosure.pdf

; see also

Florida Bar, Ethics Alert: Providing Legal Services to Distressed Homeowners

1, available at http://www.floridabar.org/TFB/TFBResources.nsf/Attachments/872C2A9D7B71F05785257569005795DE/$FILE/loanModification20092.pdf?OpenElement

(“The Florida Bar's Ethics Hotline recently has received numerous calls from lawyers who have been contacted by non-lawyers seeking to set up an arrangement in which the lawyers are involved in loan modifications, short sales, and other foreclosure-related rescue services on behalf of distressed homeowners. * * * The [Florida] Foreclosure Rescue Act * * * imposed restrictions on non-lawyer loan modifiers to protect distressed homeowners. The new statute appears to be the impetus for these inquiries.”).

Cal Civ. Code § 2944.7;

see also

Press Release, Office of the Att'y Gen.l, Cal. Dep't of Justice,

Brown Alerts Homeowners that New Law Prohibits Up-front Fees for Foreclosure Relief Services

(Oct. 15, 2009),

available at http://ag.ca.gov/newsalerts/release.php?id=1821.

B. Unfair or Deceptive Practices in the Marketing of MARS

The FTC, state attorneys general, and other law enforcement agencies, have extensive experience with MARS providers. In the past three years, the Commission has filed 32 law enforcement actions against providers of loan modification and foreclosure rescue services.

State attorneys general have investigated at least 450 MARS providers and sued hundreds of them for alleged state law violations.

Additionally, the Department of Justice and other agencies, working both individually and jointly, have pursued MARS providers for illegal conduct.

As discussed in more detail below, the evidence in the record, including extensive law enforcement experience, demonstrates that the unfair or deceptive practices of MARS providers are widespread and are causing substantial consumer harm.

Indeed, one recent survey of state and local consumer agencies found that the fastest growing category of consumer complaints concerned the failure of MARS providers to fulfill their promises to help save consumers' homes from foreclosure.

See

FTC Case List,

supra

note 28.

NAAG (ANPR) at 4; IL AG (ANPR) at 1 (noting that Illinois has over 240 open investigations of MARS providers and filed 28 lawsuits against them); Press Release, FTC,

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;

Press Release, FTC,

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; Press Release,

Financial Fraud Enforcement Task Force,

Financial Fraud Enforcement Task Force Announces Results of Broadest Mortgage Fraud Sweep in History (June 17, 2010),

available at http://www.stopfraud.gov/news/news-06172010-02.html.

See infra

notes 92-96 and accompanying text.

See, e.g.,

LFSV at 1 (“During the recent mortgage crisis, we have been dealing with a flood of borrowers whose mortgages are distressed and who have been subject to abuses by companies and individuals promising assistance with obtaining modification of those loans.”)

See

Consumer Fed'n of Am.

et al.,

2009 Consumer Complaint Survey Report 3 (July 27, 2010),

available at http://www.consumerfed.org/elements/www.consumerfed.org/File/Consumer_Complaint_Survey_Report2009.pdf.

MARS providers commonly initiate contact with prospective customers through Internet, radio, television, or direct mail advertising.

Although MARS providers did not submit information for the record relating to the extent and cost of their marketing efforts, they appear to use a variety of media to target large numbers of consumers who are struggling to pay their mortgages. For example, one MARS provider that was the subject of an FTC enforcement action spent $9 million in one year to broadcast deceptive advertisements nationwide on major television and cable networks, as well as on radio stations and the Internet.

Typical MARS advertisements instruct consumers to call a toll-free telephone number or to e-mail the provider. One provider's advertisements allegedly yielded 1,500 inbound calls per day.

Another such provider disseminating direct mail advertisements reported receiving approximately 500 inbound calls per day.

The FTC procured information from a media monitoring company on the occurrence of broadcast advertising for MARS. The company located 68 radio ads and 71 television and cable ads containing the terms “save your home,” “mortgage modification,” or “loan modification.” These ads aired between the dates of September 1, 2008 and September 1, 2010. These ads were attributable to 139 different companies.

See FTC

Fed. Loan Modification Law Ctr.,

LLP, No. SACV09-401 CJC (MLGx), Mem. Supp. Ex Parte TRO at 6-7 (C.D. Cal. filed Apr. 6, 2009).

Id.

at 6-8.

See FTC

Loss Mitigation Servs., Inc.,

No. SACV-09-800 DOC (ANX), Mem. Supp. TRO at 7 (C.D. Cal filed Jul. 13, 2009).

Customary representations in the ads and ensuing telemarketing and email pitches claim that the MARS provider (1) will obtain for the consumer a substantial reduction in a mortgage loan's interest rate, principal amount, or monthly payments; (2) will achieve these results within a specific period of time;

(3) has special relationships

with lenders and servicers;

and (4) is closely affiliated with the government,

nonprofit programs,

or the consumer's lender or servicer.

Providers also commonly represent that there is a high likelihood, and in some instances a “guarantee,” of success.

Many MARS providers do not disclose to consumers in their promotions the cost of their services.

In some cases, MARS providers entice consumers to make substantial up-front payments with false claims that they will be able to obtain a refund if consumers do not receive an acceptable result.

See, e.g., FTC

First Universal Lending, LLC,

No. 09-CV-82322, Mem. Supp. TRO at 4-5 (S.D. Fla. filed Nov. 24, 2009);

FTC

1st Guar. Mortgage Corp.

, No. 09-DV-61846 (S.D. Fla. filed Nov. 17, 2009);

FTC

Freedom Foreclosure Prevention

Specialists, LLC,

No. 2:09-cv-01167-FJM (D. Ariz. filed June 1, 2009);

FTC

Fed. Loan Modification Law Ctr.,

LLP, No. SACV09-401 CJC (MLGx) (C.D. Cal. filed Apr. 3, 2009).

See, e.g., FTC

Debt Advocacy Ctr., LLC,

No. 1:09CV2712 (N.D. Ohio filed Nov. 19, 2009);

FTC

1st Guar. Mortgage Corp.,

No. 09-DV-61846 (S.D. Fla filed Nov. 17, 2009);

FTC

LucasLawCenter “Inc.,”

No. SACV-09-770 DOC (ANX) (C.D. Cal. filed July 7, 2009);

FTC

US Foreclosure Relief Corp.,

No. SACVF09-768 JVS (MGX) (C.D. Cal. filed July 7, 2009).

See, e.g., FTC

Dominant Leads, LLC,

No. 1:10-cv-00997 (D.D.C. filed June 16, 2010) (alleging that defendants' Web sites featured official government seals and logos, and deceptively appeared to be affiliated with the government);

FTC

Washington Data Res., Inc.,

No. 8:08-cv-02309-SDM-TBM (M.D. Fla. filed Nov. 12, 2009) (alleging that defendants falsely represented that they were affiliated with the United States government);

FTC

Fed. Housing Modification Dep't,

No. 09-CV-01753 (D.D.C. filed Sept. 15, 2009);

FTC

Sean Cantkier,

No. 1:09-cv-00894 (D.D.C. filed July 10, 2009) (alleging defendants placed advertisements on Internet search engines that refer consumers to Web sites that deceptively appear to be affiliated with government loan modification programs);

FTC

Thomas Ryan,

No. 1:09-00535 (HHK) (D.D.C. filed Mar. 25, 2009);

FTC

Fed. Loan Modification Law Ctr.,

LLP, No. SACV09-401 CJC (MLGx) (C.D. Cal. filed Apr. 3, 2009) (charging defendant with misrepresenting that it is part of or affiliated with the federal government);

see also

LOLLAF at 2 (“Other clients have been deceived into believing the MARS provider will assist them because it claimed to be a `non-profit,' used a government symbol or claimed to be affiliated with the HOPE hotline.”); OH AG (ANPR) at 4 (“Our office has seen many companies that have names or advertisements that make it sound like they are government sponsored.”); NCLC (ANPR) at 3 (“One website, USHUD.com, even claims to be `America's Only Free Foreclosure Resource' even though HUD-certified agencies also offer free assistance regardless of income.”).

See FTC

New Hope Prop. LLC,

No. 1:90-cv-01203-JBS-JS (D.N.J. filed Mar. 17, 2009); FTC v. New Hope Modifications, LLC, No.1:09-cv-01204-JBS-JS (D.N.J. filed Mar. 17, 2009).

See, e.g., FTC

Kirkland Young, LLC,

No. 09-23507 (S.D. Fla. filed Nov. 18, 2009) (alleging that defendants falsely represented an affiliation with borrowers' lenders);

FTC

Loss Mitigation Servs., Inc.,

No. SACV-09-800 DOC (ANX) (C.D. Cal. filed July 13, 2009) (alleging that defendants deceptively claimed affiliation with consumers' lenders);

see

also Am. Bankers Ass'n (ANPR) at 7 (“They often misuse the intellectual property of lenders and servicers by claiming in mailings, on Web sites, and in other communications that they either are affiliated with the lenders and servicers or have special relationships with them that do not exist. They use the names, trademarks and logos of these lenders and servicers in their advertising to deceive consumers into believing they can obtain modification relief for them that these consumers could not otherwise obtain for themselves at no cost.”); Chase (ANPR) at 3 (“These MARS entities also may lead the borrower to believe that they are associated with the servicer or that they have special agreements with the servicer for processing loan modifications, when, in fact, they do not.”).

See, e.g., FTC

Truman Foreclosure Assistance, LLC,

No. 09-23543 (S.D. Fla. filed Nov. 23, 2009) (alleging defendants falsely claimed success rate of 97 to 100%);

FTC

Debt Advocacy Ctr., LLC,

No. 1:09CV2712 (N.D. Ohio filed Nov. 19, 2009) (alleging defendants falsely claimed a 90% success rate);

FTC

Loss Mitigation Servs., Inc.,

No. SACV09-800 DOC (ANX) (C.D. Cal. filed July 13, 2009) (alleging “[d]efendants have told homeowners that their success rate is above ninety percent”);

FTC

LucasLawCenter “Inc.,”

No. SACV-09-770 DOC (ANX) (C.D. Cal. filed July 7, 2009) (alleging “[d]efendants' representatives tell consumers that Defendants have a success rate in the ninetieth percentile with their lender”);

FTC

Freedom Foreclosure Prevention Specialists, LLC,

No. 2:09-cv-01167-FJM (D. Ariz. filed June 1, 2009) (alleging defendants claimed to have 97% success rate);

FTC

Data Med. Capital Inc.,

No. SA-CV-99-1266 AHS (Eex), Mem. Supp. App. Contempt at 8 (C.D. Cal. filed May 27, 2009) (alleging defendants represented 100% success rate to consumers).

The Loan Modification Scam Prevention Network (LMSPN)—a coalition of Federal and state organizations led by the Lawyers' Committee for Civil Rights—has created a nationwide complaint reporting system for loan modification fraud. The Network, formed in February 2010, has received complaints through a variety of channels, including a form posted on its Web site, the Homeowners' Hope Hotline, and referrals from non-profit housing counselors. As of August 25, 2010, the LMSPN database contained a total of 6,473 complaints of loan modification fraud, dating as far back as April 8, 2008. FTC staff reviewed a random sample of 100 of these complaints and found that 63 reported that MARS providers had guaranteed consumers loan modifications. In projecting this finding to the entire LMSPN database, the FTC estimates that between 52% and 72% of the complaints report the same information.

In a recent report summarizing the results of undercover calls made to MARS providers, the National Community Reinvestment Coalition (NCRC) found that in 54% of the calls the providers did not inform consumers about their fees.

See

NCRC,

Foreclosure Rescue Scams: A Nightmare Complicating the American Dream,

at 21 (Mar. 2010) (“NCRC Report”),

available at http://www.ncrc.org/images/stories/pdf/research/foreclosure%20rescue%20scams%20-%20%20nightmare%20complicating%20the%20american%20dream.pdf.

See, e.g., FTC

Truman Foreclosure Assistance, LLC,

No. 09-23543 (S.D. Fla. filed Nov. 23, 2009) (alleging that defendant falsely claimed to provide “100% money back guarantee”);

Debt Advocacy Ctr., LLC,

No. 1:09CV2712 (N.D. Ohio filed Nov. 19, 2009) (alleging that defendants falsely represented they will refund borrower fee if unsuccessful);

FTC

Infinity Group Servs.,

No. SACV09-00977 DOC (MLGx) (C.D. Cal. filed Aug. 26, 2009);

FTC

Loan Modification Shop, Inc.,

No. 3:09-cv-00798 (JAP), Mem. Supp. TRO at 1 (D.N.J. amended complaint filed Aug. 4, 2009) (alleging defendants represented that advance fees were fully refundable);

FTC

Freedom Foreclosure Prevention Specialists,

LLC, No. 2:09-cv-01167-FJM (D. Ariz. June 1, 2009) (alleging defendants promised “100% money-back guarantee” but then failed to provide refunds);

see also

NAAG at 2 (“[MARS providers] generally ignore their own refund policies. In the vast majority of complaints received by our offices, consumers were unable to get refunds even though the consultants performed little or no work and had promised consumers money-back guarantees. In some cases, the companies had closed or changed locations by the time the consumers discovered there was a problem, thereby preventing the consumers from even requesting a refund.”);

see also

NCRC Report,

supra note

76, at 4 (noting that, on 25% of its undercover calls, MARS providers instructed the caller to cease communicating with his or her lender).

See, e.g., FTC

Truman Foreclosure Assistance, LLC,

No. 09-23543 (S.D. Fla. filed Nov. 23, 2009) (alleging that “[w]hen consumers speak with their lenders directly, they often discover that Defendants had not yet contacted the lender or only had left messages or had non-substantive contacts with the lender”);

FTC

Loss Mitigation Servs., Inc.,

No. SACV09-800 DOC (ANX), Mem. Supp. TRO at 18-19 (C.D. Cal. filed July 13, 2009) (detailing “devastating effects” of consumers learning too late of lack of effort by loan modification company); CRC (ANPR) at 7 (“People who do have a chance of keeping the home are being steered away from legitimate, free homeowner counseling services or are failing to take any action before it is too late because they have been assured everything is being taken care of for them already.”).

See

NAAG at 4 (“We are aware of a number of rescue consultants who incorrectly claim that consumers' lenders will not work with them until they are behind on their mortgage payments. We are also aware of consultants who advise consumers not to make mortgage payments so that they will be able to afford mortgage loan modification fees.”); CUNA at 2 (consumers “are often instructed to stop making mortgage payments”); NCLC at 7 (family told “to stop paying their mortgage payments and promised a loan modification with lower payments.”); Rodriguez at 1 (“I have had clients face foreclosure because of these companies telling them to stop paying their mortgage and pay them!”);

FTC

Fed. Loan Modification Law Ctr.,

LLP, No. SACV09-401 CJC (MLGx) (C.D. Cal., Am. Compl. filed June 24, 2009) (“In numerous instances, Defendants have [allegedly] encouraged consumers to stop paying their mortgages, telling consumers that delinquency will demonstrate the consumer's hardship to the lender and make it easier to obtain a loan modification.”);

FTC

LucasLawCenter “

Inc.”,

No. SACV-09-770 DOC (ANX) (C.D. Cal. filed July 9, 2009) (alleging that “[i]n numerous instances, Defendants' representative encourages consumers to stop paying their mortgages, telling consumers that delinquency will demonstrate the consumers' hardship to the lender and make it easier to obtain a loan modification.”);

FTC

Foreclosure Solutions, LLC,

No. 1:08-cv-01075 (N.D. Ohio filed Apr. 28, 2008) (“Defendants [allegedly] instruct the consumer to open a savings account and deposit, every month until further notice from Defendants, the consumer's monthly mortgage payment plus an additional [25%]. Defendants claim this money will be used to negotiate with the lender to reinstate the loan.”);

see also FTC

First Universal Lending, LLC,

No. 09-CV-82322 (S.D. Fla. filed Nov. 24, 2009);

FTC

Fed. Housing Modification Dep't,

No. 09-CV-01753 (D.D.C. filed Sept. 15, 2009);

FTC

Loss Mitigation Servs., Inc.,

No. SACV09-800 DOC(ANx) (C.D. Cal. filed July 13, 2009);

FTC

US Foreclosure Relief Corp.,

No. SACV09-768 JVS (MLGx) (C.D. Cal., Amd. Compl. filed Mar. 8, 2009); FTC v.

New Hope Property LLC,

No. 1:09-cv-01203-JBS-JS (D.N.J. filed Mar. 17, 2009); NCRC Report,

supra

note 76, at 24 (“[I]n over 50% of the tests service providers advised testers that they should not pay their mortgage.”); NAAG (ANPR) at 10 (“In some cases, the mortgage consultants will actually counsel the consumer not to make a mortgage payment, which of course frees up funds for the consultants' fee.”).

The Commission's law enforcement experience,

state law enforcement,

the comments received,

and state bar actions

indicate that a growing number of attorneys themselves market and sell MARS. Many of them engage in unfair and deceptive acts and practices, such as making the specific claim that they offer legal services,

when in fact, no attorneys are employed by the company, or if they are, they do little or no legal work for customers.

See infra

notes 89-90.

See, e.g., Florida

Kirkland Young,

No. 09-90945 (Fla. Cir. Ct. Miami-Dade Cty., filed Dec. 17, 2009),

available at http://myfloridalegal.com/webfiles.nsf/WF/MRAY-7YXQF7/$file/Complaint.121709.pdf.

Press Release, N.C. Dep't of Justice,

AG Cooper Targets California Schemes that Prey on NC Homeowners

(July 15, 2009),

available at http://www.ncdoj.com/News-and-Alerts/News-Releases-and-Advisories/Press-Releases/AG-Cooper-targets-California-schemes-that-prey-on-.aspx;

Press Release, Colo. Att'y Gen. Office,

Attorney General Announces Actions Against Seven Loan-Modification Companies As Part of Multistate Sweep

(July 15, 2009),

available at http://www.coloradoattorneygeneral.gov/press/news/2009/07/15/attorney_general_announces_actions_against_seven_loan_modification_companies_p;

Press Release, Ill. Att'y Gen.,

Illinois Attorney General Sues 14th Company for Mortgage Rescue Fraud

(Aug. 28, 2009),

available at http://www.illinoisattorneygeneral.gov/pressroom/2008_08/20080828.html.

See, e.g.,

Deal at 5-6 (“Some non-attorney modification companies claimed to have attorneys on staff or available to review the work or to negotiate with lenders. A few lawyers `rented' their names to non-attorney MARS providers while providing little service.”); IL AG (ANPR) at 1 (noting that “33 percent of the [MARS] companies we have dealt with are owned by attorneys, while 38 percent have some link to the legal profession”); CRC (ANPR) at 2 (“An increasing number of attorneys are involving themselves in these unethical practices without providing any legal (or other) services. . . .”); MN AG (ANPR) at 5 (“This Office is aware of several loan modification and foreclosure rescue companies that have affiliated with licensed attorneys in other states in an effort to circumvent state law.”); NAAG (ANPR) at 4 (“Attorneys * * * have an increasing presence in this industry and have been found working in conjunction with or serving as referral sources for mortgage consultants.”).

See, e.g.,

Legislative Solutions for Preventing Loan Modification and Foreclosure Rescue Fraud: Hearing Before the Subcomm. on Hous. & Cmty. Opportunity of the H. Comm. on Fin. Servs.,

111th Cong. 58 (2009) (statement of Scott J. Drexel, Chief Trial Counsel, State Bar of California),

available at http://financialservices.house.gov/media/file/hearings/111/111-28.pdf

at 2, 4 (Drexel Testimony) (noting that attorney misconduct in connection with MARS “is a problem of extremely significant—if not crisis—proportions in California,” and that the state bar has initiated over 175 associated investigations of attorneys); Polyana Da Costa,

Record Number of Complaints Target Florida Loan Modification Lawyers,

Law.com (Oct. 1, 2009) (“The [Florida] state attorney general has received a record 756 complaints through August of this year about loan modifications involving attorneys.”), available at

http://www.law.com/jsp/law/LawArticleFriendly.jsp?id=1202434223147.

See, e.g.,

FTC

Fed. Housing Modification Dep't,

No. 09-CV-01753 (D.D.C. filed Sept. 16, 2009) (alleging that defendants falsely claim to have attorneys or forensic accountants on staff);

FTC

Loan Modification Shop, Inc.

, No. 3:09-cv-00798 (JAP), Mem. Supp. TRO at 14 (D.N.J. filed Aug. 4, 2009) (alleging that defendants misrepresent “that it is an attorney-based company”);

see also FTC

LucasLawCenter “

Inc.”,

No. SACV-09-770 DOC (ANX), Mem. Supp. TRO at 19 (C.D. Cal. filed July 7, 2009) (alleging that “[d]espite promises to the contrary, consumers have no contact with the purported attorneys who are supposed to be negotiating with their lenders”).

See, e.g., FTC

Truman Foreclosure Assistance, LLC,

No. 09-23543 (S.D. Fla. filed Nov. 23, 2009);

FTC

Washington Data Res., Inc.,

No. 8:09-cv-02309-SDM-TBM (M.D. Fla. filed Nov. 12, 2009);

see also FTC

US Foreclosure Relief Corp.,

No. SACV09-768 JVS (MGX), Prelim. Rep. Temp. Receiver at 2-3 (C.D. Cal. filed July 7, 2009) (stating that defendants' “relationship with two different lawyers was nominal at best and served primarily as a cover to dignify the business and invoke the attorney exception to advance fee prohibitions”).

C. Continued Law Enforcement and Other Responses

The Commission has taken aggressive action to protect consumers from deceptive MARS providers. As noted above, the FTC has filed 32 lawsuits

in the last three years against MARS providers for engaging in deceptive practices in violation of the FTC Act and, in several instances, the Telemarketing Sales Rule (TSR).

In addition, the FTC has coordinated its efforts with state law enforcement and other federal agencies, including the Department of Justice (DOJ), the Department of Housing and Urban Development (HUD), the Treasury Department, and the Office of the Special Inspector General for the Troubled Asset Relief Program (SIG-TARP).

The Commission also is a member of the Financial Fraud

Enforcement Task Force (FFETF), a coalition of federal and state law enforcement agencies that has worked to combat illegal activity by MARS providers.

In the past 15 months, the FTC has participated in three interagency nationwide sweeps: “Operation Stolen Dreams” (June 17, 2010), in which the Commission secured consent orders against 16 marketers of MARS;

“Operation Stolen Hope” (November 24, 2009), in which the Commission joined with 20 states collectively to file over one hundred lawsuits against MARS providers;

and “Operation Loan Lies” (July 15, 2009), in which the FTC coordinated with 25 federal and state agencies to bring 189 actions against MARS defendants.

Prior to these nationwide sweeps, the Commission, jointly with the DOJ, the Treasury Department, HUD, and the Illinois Attorney General, had announced several law enforcement actions targeting MARS.

See

FTC Case List,

supra

note 28.

16 CFR 310.1,

et seq.

(2003);

see, e.g., FTC

Kirkland Young, LLC,

No. 09-23507 (S.D. Fla. filed Nov. 18, 2009);

FTC

Washington Data Res., Inc.

, No. 8:09-cv-02309-SDM-TBM (M.D. Fla. filed Nov. 12, 2009);

FTC

First Universal Lending, LLC,

No. 09-CV-82322 (S.D. Fla. filed Nov. 24, 2009);

FTC

Fed. Housing Modification Dep't,

No. 09-CV-01753 (D.D.C. filed Sept. 15, 2009);

FTC

Hope Now Modifications, LLC,

No. 1:09-cv-01204-JBX-JS (D.N.J. filed Sept. 14, 2009);

FTC

US Foreclosure Relief Corp.,

No. SACV09-768 JVS (MGX) (C.D. Cal. filed July 7, 2009).

See Press Release, FTC,

Federal and State Agencies Target Mortgage Foreclosure Rescue and Loan Modification Scams

(July 15, 2009),

available at http://www.ftc.gov/opa/2009/07/loanlies.shtm;

Press Release, FTC,

Federal and State Agencies Crack Down on Mortgage Modification and Foreclosure Rescue Scams

(Apr. 6, 2009),

available at http://www.ftc.gov/opa/2009/04/hud.shtm.

See

Press Release, Financial Fraud Enforcement Task Force (FFETF),

President Obama Establishes Interagency Financial Fraud Enforcement Task Force

(Nov. 17, 2009),

available at http://www.stopfraud.gov/news/news-11172009-01.html.

The FFETF was established by President Obama in late 2009 and is chaired by the Attorney General. The Commission has played an active role on the Task Force through, among other things, its membership on the Task Force's Mortgage Fraud Working Group.

See

Press Release, FTC,

FTC Settlement Orders Ban More Than A Dozen Marketers from Selling Mortgage Relief Services; Repeat Offender Ordered to Pay $11.4 Million for Contempt

(June 17, 2010),

available at http://www.ftc.gov/opa/2010/06/loanmods.shtm.

This sweep was organized by the FFETF, and member agencies filed hundreds of civil and criminal mortgage fraud cases, including numerous cases against MARS providers.

Press Release, FTC,

Federal and State Agencies Target Mortgage Relief Scams

(Nov. 24, 2009),

available at http://www.ftc.gov/opa/2009/11/stolenhope.shtm.

Press Release, FTC,

Federal and State Agencies Target Mortgage Foreclosure Rescue and Loan Modification Scams

(July 15, 2009),

available at http://www.ftc.gov/opa/2009/07/loanlies.shtm.

Press Release, FTC,

Federal and State Agencies Crack Down on Mortgage Modification and Foreclosure Rescue Scams

(Apr. 6, 2009),

available at http://www.ftc.gov/opa/2009/04/hud.shtm.

In connection with these joint efforts, the Commission also sent warning letters to 71 companies marketing potentially deceptive mortgage loan modification and foreclosure assistance programs on the Internet.

Id.

Moreover, the Justice Department and other members of the FFETF have pursued many MARS providers for illegal conduct, including criminal activity.

See

Press Release, FFETF,

Financial Fraud Enforcement Task Force Announces Results of Broadest Mortgage Fraud Sweep in History

(June 17, 2010),

available at http://www.stopfraud.gov/news/news-06172010-02.html.

In addition to their coordination with the Commission, the states have continued to engage in their own aggressive law enforcement. Collectively, the states have investigated at least 450 MARS providers and sued hundreds of them for alleged state law violations.

Individual states also have continued to enact statutes and regulations to address practices related to MARS.

See supra

note 62.

At least 30 states and the District of Columbia have enacted such statutes or regulations.

See, e.g.,

Ariz. Rev. Stat. § 44-1378 (2010 Ariz. ALS 143); Cal. Civ. Code § 2944.7;

id.

§ 2945,

et seq.;

Colo. Rev. Stat. § 6-1-1101,

et seq.;

2009 Conn. Gen. Stat. § 36a-489; 6 Del. Code Ann. § 2400B,

et seq.;

D.C. Code § 42-2431,

et seq.;

Fla. Stat. § 501.1377; Haw. Rev. Stat. § 480E-1,

et seq.;

Idaho Code Ann. § 45-1601,

et seq.;

765 Ill. Comp. Stat. Ann. 940/1,

et seq.;

24 Ind. Admin. Code § 5.5-1-1,

et seq.;

Iowa Code § 741E.1,

et seq

Me. Rev. Stat. Ann. tit. 32, § 6171,

et seq.

& 6191,

et seq.;

Md. Code Ann., Real Property § 7-301,

et seq.;

940 Mass. Code Regs. § 25.01,

et seq.;

Mich. Comp. Law § 445.1822,

et seq.;

Minn. Stat. § 325N.01,

et seq.;

Mo. Rev. Stat. § 407.935,

et seq.;

Neb. Rev. Stat. § 76-2701,

et seq.;

Nev. Rev. Stat. § 645F.300,

et seq.;

N.H. Rev. Stat. Ann. § 479-B:1,

et seq.;

2010 N.M. ALS 58; N.Y. Real Prop. Law § 265-B; N.C. Gen. Stat. § 14-423,

et seq.;

2008 Or. Laws Ch. 19; R.I. Gen. Laws § 5-79-1,

et seq.;

Tenn. Code Ann. § 47-18-5501,

et seq.;

Utah Admin. Code § 61.2; Va. Code Ann. § 59.1-200.1; Wash. Rev. Code § 19.134.010,

et seq.;

Wis. Stat. § 846.45.

These laws 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.

Where, as here, Congress has not foreclosed state regulation, a state statute is preempted only if it conflicts with a federal statute.

Ray

Atl. Richfield Co.,

435 U.S. 151, 158 (1978). State laws are preempted only to the extent there is a conflict—compliance with both federal and state regulations is impossible or the state law is an obstacle to effectuating the purposes and objectives of Congress.

Id.

Thus, state laws can impose additional requirements as long as they do not directly conflict with the Final Rule.

See, e.g., TSR Final Rule,

75 FR at 48481.

In addition to federal and state law enforcement, on December 15, 2009, HUD published a proposed rule in the

Federal Register

that would require states to adopt uniform licensing requirements for MARS providers.

The proposed HUD Rule targets the practices of “loan originators,” a term that encompasses third-party loan modification services.

100

Under the proposed HUD Rule, loan originators must undergo a background check, complete 20 hours of pre-licensing education, and pass a written test to obtain a license.

101

The proposed HUD Rule also requires the creation of a centralized database of loan originators licensed in each state, containing such information as their employment history, consumer complaints, and any enforcement and disciplinary actions brought against them. State regulators and the public will be able to access this database, thus allowing them to find and track mortgage loan originators throughout the country.

102

The goal of the proposed HUD Rule is to reduce the incidence of fraud by encouraging states to establish minimum licensing and registration standards, thereby making originators, including MARS providers, more accountable.

103

See Safe Mortgage Licensing Act: HUD Responsibilities under the Safe Act; Proposed rule,

74 FR 66548 (Dec. 15, 2009) (proposed HUD Rule). Pursuant to the Dodd-Frank Act, responsibility for HUD's proposed rule will transfer to the BCFP as of the transfer date selected by the Treasury Department. Dodd-Frank Act § 1061; which has been designated as July 21, 2011.

BCFP; Designated Transfer Date,

75 FR 57252.

100

74 FR at 66554.

101

74 FR at 66552.

102

74 FR at 66548-49.

103

74 FR at 66548. The proposed rule also would authorize HUD to examine loan originators' records, conduct enforcement proceedings, and collect civil penalties for violations of HUD and state licensing requirements.

See

74 FR at 66550, 66555.

A coalition of state bank regulators argued in its comment that the FTC's proposed rule would provide important additional protections not included in the HUD proposal.

See

CSBS at 1 (“SAFE Act-compliant state licensing laws are primarily focused toward the origination of new mortgage loans and may not directly address the particular dangers associated with mortgage assistance relief services. The proposed FTC rule will establish a floor to protect consumers from abusive MARS practices nationwide. By banning up-front fees, implementing disclosure requirements, prohibiting certain misrepresentations, and instituting various record-keeping requirements for MARS providers, the FTC's proposal, if adopted, will go a long way in rooting out fraudulent practices among these individuals wherever they operate.”).

III. Discussion of the Rule

As detailed in this SBP, the Final Rule prohibits and seeks to prevent unfair and deceptive acts and practices in connection with mortgage assistance relief services. It includes provisions that:

1. Define several key terms, including “mortgage assistance relief service” and “mortgage assistance relief service provider”;

2. Prohibit providers from instructing consumers to cease communication with their lenders or servicers;

3. Bar providers from misrepresenting any material aspect of their services, including but not limited to several specific misrepresentations;

4. Mandate that providers disclose: (a) That they are for-profit businesses not affiliated with the consumers' lenders or the government, (b) that consumers' lenders or servicers may not agree to change their loans, (c) that consumers could lose their homes and damage their credit ratings if they stop making their mortgage payments (a disclosure triggered if providers instruct consumers to stop making payments), and (d) that consumers are not required to stay in the service or accept the results delivered, and the total cost of the service if they do accept the results.

5. Prohibit the collection of fees until providers have: (a) Secured a written and executed agreement between the consumer and the lender or servicer and, (b) before that agreement has been executed, (i) disclosed that the consumer can accept or reject the lender's or servicer's offer for mortgage relief and (ii) provided a separate written notice from the consumer's lender or servicer summarizing the material differences between the consumer's current mortgage loan and the relief offered;

6. Enjoin persons from providing substantial assistance or support to another whom they know or consciously avoid knowing is engaged in a violation of the Rule;

7. Require that providers maintain records and monitor Rule compliance; and

8. Exempt attorneys providing MARS as part of the practice of law from most provisions of the Rule if they: (a) Are licensed in the state where the consumer or the dwelling is located, and (b) comply with relevant state licensing and bar requirements. Such attorneys are exempt from the Rule's advance fee ban if they set aside MARS fees in a client trust account and withdraw funds only as the fees are earned.

A. Section 322.1: Scope

Section 322.1 states that the Final Rule implements the mandate of the Omnibus Appropriations Act, as clarified by the Credit CARD Act. These statutes state that the Commission “shall initiate a rulemaking proceeding,” and that “[s]uch rulemaking shall relate to unfair or deceptive acts or practices regarding mortgage loans, which may include unfair or deceptive acts or practices involving loan modification and foreclosure rescue services.”

104

As noted earlier, this language authorizes rules that not only prohibit or restrict practices that are themselves unfair or deceptive, but also rules that prohibit or restrict other practices if such rules are reasonably related to the goal of preventing unfairness or deception.

105

As discussed above, the Commission's rulemaking authority is limited by the Credit CARD Act to persons over whom the FTC has jurisdiction under the FTC Act.

104

See

Omnibus Appropriations Act § 626(a); Credit CARD Act § 511.

105

In articulating the scope of its rulemaking authority to remedy unfair and deceptive acts and practices under the FTC Act, the Commission has explained:

In exercising this remedial authority, the Commission has not been limited to proscribing only the precise practices found to exist, but rather has been free to close all roads to the prohibited goal. * * * The Commission's discretion to formulate an appropriate means of preventing the unfair or deceptive acts or practices found to exist also takes into account the nature of rulemaking, which involves predictions based upon pure legislative judgment and judgmental or predictive determinations such as those involved in fashioning remedies. In making such determinations, the Commission is entitled to rely on its judgment, based on experience as to the appropriate remedy to impose in the rule.

FTC,

Funeral Industry Practices; Final Trade Regulation Rule,

47 FR 42269, 42272 (Sept. 24, 1982) (citing,

inter alia,

FTC

Ruberoid,

343 U.S. 470, 473 (1952)) (internal citations and quotations omitted);

see also

OPLC at 2; NCLC at 4.

114

This language is derived from Regulation Z.

See

12 CFR 226.2(a)(12) (definition of “consumer credit”).

115

There have been cases in which consumers were at risk of foreclosure on non-primary residences. One comment observed that those at risk of losing a property to foreclosure include senior citizens who live in nursing homes or assisted living facilities and military service members who rent their homes while deployed. NCLC at 4 (supporting covering services purported to assist consumers save second homes or rental properties from foreclosure).

116

The Final Rule also contains a definition of “dwelling loan,” unmodified from the proposal, as “any loan secured by a dwelling, and any associated deed of trust or mortgage.” Section 322.2(f).

a. Sale-Leaseback and Title Reconveyance Transactions

In the NPRM, the Commission advised that the proposed definition of MARS would cover offers of sale-leaseback and title reconveyance transactions,

117

but only if they were marketed “to save the consumer's home from foreclosure or repossession.”

118

The Commission specifically solicited comment on this aspect of the proposed rule, including whether and how a final rule should address these transactions.

119

117

As noted in § II, in a sale-leaseback or title reconveyance transaction, the MARS provider typically instructs the consumer to transfer title to his or her home to the provider and then to rent the home from the provider. The provider then promises to reconvey title to the home at some later date. In some cases, the provider also may charge upfront fees in connection with the transaction.

See supra

note 43.

118

MARS NPRM,

75 FR at 10728.

119

Id.

In response to the FTC's request for comments, state law enforcers and consumer groups endorsed the proposed rule's coverage of sale-leaseback or title reconveyance transactions when they are marketed as ways to avoid foreclosure.

120

These organizations asserted that this limited coverage is sufficient in light of existing state laws governing how such sales must be structured.

121

One group of state regulators, however, advocated that the Commission address the underlying sale-leaseback transaction in a subsequent rulemaking if addressing it now would delay the issuance of the Final Rule.

122

120

See NAAG at 5 (“We believe that the proposed rule will not interfere with state laws, but instead will complement existing state laws that address sale-leaseback transactions”); CSBS at 2 (“[S]tate regulators believe that it is important for the FTC to address abuses with respect to sale-leaseback transactions.”); NCLC at 16 (“We support the FTC's plan to regulate only the marketing of these scams while leaving further regulation to the states.”).

121

Supra

note 120.

122

CSBS at 2 (“The state regulators believe that it is important for the FTC to address abuses with respect to sale-leaseback transactions. However, given the current prevalence of loan modification scams, regulations addressing those practices must receive priority. If the development of sale-leaseback regulations will delay the promulgation of final regulations to address loan modification scams, we believe that the sale-lease back regulations should be addressed in a separate effort.”).

Many states have enacted laws that comprehensively regulate sale-leaseback and title reconveyance transactions, imposing, for example, specific valuation requirements on the property transfers and obligations to determine that the consumer can reasonably afford to repurchase the property.

123

On the other hand, the record shows that sale-leaseback and title reconveyance transactions have been commonly touted as a means to avert foreclosure and its consequences.

124

Although the Final Rule does not regulate the terms of sale-leaseback and title reconveyance transactions, if such transactions are represented, expressly or impliedly, as a way for a consumer to avoid foreclosure, they present the same risks to consumers as other forms of MARS.

125

The FTC thus has determined that the Final Rule will cover offers of sale-

leaseback and title reconveyance transactions marketed as a way to save a consumer's home from foreclosure or repossession.

126

123

See supra

note 98. For example, some laws mandate that before executing a title transfer, the foreclosure rescue operator must verify that the consumer can reasonably afford to repurchase the home.

See, e.g.,

Minn. Stat. § 325N.17(a)(1). In addition, the foreclosure rescue operator may be required to obtain written consent from the homeowner, conduct a face-to-face closing, abide by federal and state laws governing sales of residential properties, allow consumers a period of time to cancel the transaction before title conveyance can be recorded, and either return title to the consumer or provide compensation that represents the property's fair market value.

See, e.g., id.

§ 325N.17(a)(2)-(4), (b).

124

See supra

note 43;

see also

NYC DCA at 7-8 (“The FTC should require MARS providers to offer all mandated disclosures * * * in the languages used in their advertising.”); LFSV at 2 (“The FTC should require that companies that negotiate a contract primarily in a language other than English provide a contract in the language in which the contract was primarily negotiated.”).

a. Written Disclosures

The proposed rule set forth various requirements for disclosures that must appear in consumer communications disseminated in print or written form, including on a computer screen. The proposed rule provided that such disclosures:

shall be in a font easily read by a reasonable consumer, of a color or shade that readily contrasts with the background of the commercial communication, in the same language as each that is substantially used in the commercial communication, parallel to the base of the commercial communication, and, except as otherwise provided in this rule, each letter of the disclosure shall be, at a minimum, the larger of 12-point type or one-half the size of the largest letter or numeral used in the name of the advertised website or telephone number to which consumers are referred to receive information relating to any mortgage assistance relief service.

Section 322.2(a)(1) of the Final Rule largely retains these requirements but modifies them slightly to improve the clarity and effectiveness of the disclosures and to conform the relevant provisions of the Final Rule to the Free Credit Report Rule the Commission recently issued.

144

The Final Rule therefore now specifies that a written disclosure must be easily readable; in a high degree of contrast from the immediate background on which it appears;

145

distinct from other text, such as inside a border; and in a distinct type style, such as bold.

146

Unchanged, however, are the requirements that the disclosure must be communicated in the same languages that are substantially used in the commercial communication;

147

and appear parallel to the base of the communication

148

and that, unless otherwise specified, each letter of the disclosure text shall be, at a minimum, the larger of 12-point type or one-half the size of the largest character used in the name of the advertised website or telephone number to which consumers are referred for information on any MARS.

149

144

See Free Credit Report Rule,

16 CFR 610.4 (2010). The Commission did not promulgate the Free Credit Report Rule until after it issued the

MARS NPRM.

In that proceeding, unlike this one, the Commission received numerous comments on how the rule should address the prominence of the required disclosures, including formatting and placement.

Free Annual File Disclosures; Final Rule

75 FR 9733 (2010). Several commenters, for example, offered suggestions on how to make visual disclosures prominent, including placing them within a border in a box, and in a contrasting color.

Id.

at 9734.

145

Free Credit Report Rule,

16 CFR 610.4(a)(3)(iii);

see also

FTC,

Dot Com Disclosures: Information about Online Advertising

12 (2000),

available at http://www.ftc.gov/bcp/edu/pubs/business/ecommerce/bus41.pdf (

Dot Com Disclosures)

(“A disclosure in a color that contrasts with the background emphasizes the text of the disclosure and makes it more noticeable. Information in a color that blends in with the background of the advertisement is likely to be missed.”).

146

Sections 322.4(a) and (b) of the Rule set forth additional requirements for the heading that must precede written disclosures. This heading must be in bold face font that is at least two-point type larger than the font size of the text of the required disclosures.

147