Fleet Finance Inc., et al.; Analysis To Aid Public Comment

FEDERAL TRADE COMMISSION

[File No. 9323074]

Fleet Finance Inc., et al.; Analysis To Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed consent agreement.

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SUMMARY: The consent agreement in this matter settles alleged

violations of federal law prohibiting unfair or deceptive acts or

practices or unfair methods of competition. The attached Analysis to

Aid Public Comment describes both the allegations in the draft

complaint that accompanies the consent agreement and the terms of the

consent order--embodied in the consent order--that would settle these

allegations.

DATES: Comments must be received on or before September 28, 1999.

ADDRESSES: Comments should be directed to: FTC/Office of the Secretary,

Room 159, 600 Pennsylvania Avenue, NW, Washington, DC 20580.

FOR FURTHER INFORMATION CONTACT: Carole L. Reynolds or Thomas E. Kane,

FTC/S-4429, 601 Pennsylvania Avenue, NW, Washington, DC 20580, (202)

326-3230 or (202) 326-2304.

SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal

Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46, and Section 2.34 of

the Commission's Rules of Practice, 16 CFR 2.34, notice is hereby given

that the above-captioned consent agreement containing a consent order

to cease and desist, having been filed with and accepted, subject to

final approval, by the Commission, has been placed on the public record

for a period of sixty (60) days. The following Analysis to Aid Public

Comment describes the terms of the consent agreement, and the

allegations in the complaint. An electronic copy of the full text of

the consent agreement package can be obtained from the FTC Home Page

(for July 26, 1999), on the World Wide Web, at ``http://www.ftc.gov/os/

actions97.htm.'' A paper copy can be obtained from the FTC Public

Reference Room, Room H-130, 600 Pennsylvania Avenue, NW, Washington, DC

20580, either in person or by calling (202) 326-3627.

Public comment is invited. Comments should be directed to: FTC/

Office of the Secretary, room 159, 600 Pennsylvania Avenue, NW,

Washington, DC 20580. Two paper copies of each comment should be filed,

and should be accompanied, if possible, by a 3\1/2\ inch diskette

containing an electronic copy of the comment. Such comments or views

will be considered by the Commission and will be available for

inspesction and copying at its principal office in accordance with

Section 4.9(b)(6)(ii) of the Commission's Rules of Practice (16 CFR

4.9(b)(6)(ii).

Analysis of Proposed Consent Order To Aid Public Comment

The Federal Trade Commission has accepted an agreement, subject to

final

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approval, to a proposed consent order from Fleet Finance, Inc., Home

Equity U.S.A, Inc. (Rhode Island), and Home Equity U.S.A., Inc.

(Delaware) (collectively referred to as ``respondents'').

The proposed order would settle charges that Fleet Finance, Inc.,

incorporated in Delaware (``Fleet Finance''), and a related, now-

defunct corporation, Fleet Finance, Inc., which was incorporated in

Rhode Island, violated the Truth in Lending Act (``TILA''), and its

implementing Regulation Z, and the Federal Trade Commission Act (``FTC

Act''). The TILA and Regulation Z require creditors to provide

consumers with written disclosures of the costs and terms of consumer

credit transactions and also establish various substantive protections

for consumers, including the right of recission in certain mortgage

transactions. Section 5 of the FTC Act prohibits, inter alia, deceptive

acts or practices in or affecting commerce.

The proposed order has been placed on the public record for sixty

(60) days for reception of comments by interested persons. Comments

received during this period will become part of the public record.

After sixty (60) days, the Commission will again review the agreement

and the comments received and will decide whether it should withdraw

from the agreement or make final the agreement's proposed order.

The complaint alleges that Fleet Finance \1\ has extended consumer

credit transactions in which Fleet Finance acquired or retained a

security interest in the consumers' principal dwellings and failed to

provide the consumers with the right to rescind the credit transactions

by: (a) Failing to provide consumers with notices of the right to

rescind; (b) waiving consumers' right to rescind, and disbursing funds,

pursuant to rescission waivers that were insufficient; and (c) failing

to take actions terminating the security interest and returning any

money and property given by the consumers when consumers exercise their

right to rescind. According to the complaint, these practices violate

Sections 125(a), (b) and (d) of the TILA, 15 U.S.C. 1635(a), (b), and

(d); and Sections 226.23(a), (b), (c), (d) and (e) of Regulation Z, 12

CFR 226.23(a), (b), (c), (d) and (e); and constitute deceptive acts or

practices in violation of Section 5(a) of the FTC Act, 15 U.S.C. 45(a).

The complaint also alleges that Fleet Finance purchased consumer loan

transactions through assignments in which Fleet Finance acquired or

retained security interests in the consumers' principal dwellings that

failed in these same ways to provide the consumers with the right to

rescind the credit transactions. The complaint alleges that, based on

Fleet Finance's assignee liability in Section 131 of the TILA, 15

U.S.C. 1641, such purchases violate these same sections of the TILA and

Regulation Z; and constitute deceptive acts or practices in violation

of Section 5(a) of the FTC Act, 15 U.S.C. 45(a).

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\1\ Fleet Finance is the entity charged in the complain as

engaging in specified violations of the TILA, Regulation Z and the

FTC Act. Fleet Finance, as well as successor corporations, Home

Equity U.S.A., Inc. (Rhode Island) and Home Equity U.S.A., Inc.

(Delaware), are respondents in the Agreement Containing Consent

Order.

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The complaint alleges that, in extending consumer credit

transactions, Fleet Finance also has failed to provide consumers with

all TILA disclosures of the costs and terms of credit and/or to provide

all TILA disclosures prior to consummation of credit transactions.

According to the complaint, these failures violate Sections 121 and 128

of the TILA, 15 U.S.C. 1631 and 1638; and Sections 226.17 and 226.18 of

Regulation Z, 12 CFR 226.17 and 226.18 of Regulation Z, 12 CFR 226.17

and 226.18; and constitute deceptive acts or practices in violation of

Section 5(a) of the FTC Act, 15 U.S.C. 45(a). The complaint also

alleges that Fleet Finance has purchased consumer credit transactions

through assignments that failed to provide all the TILA disclosures of

the costs and terms of credit and/or failed to provide all the

disclosures prior to consummation of credit transactions. According to

the complaint, based on Fleet Finance's assignee liability in Section

131 of the TILA, 15 U.S.C. 1641, such purchases violate Sections 121

and 128 of the TILA, 15 U.S.C. 1631 and 1638, and Sections 226.17 and

226.18 of Regulation Z, 12 CFR 226.17 and 226.18; and constitute

deceptive acts or practices in violation of Section 5(a) of the FTC

Act, 15 U.S.C. 45(a).

The complaint further alleges that Fleet Finance, in consumer

credit transactions that it extended, has failed to provide or failed

to provide accurately certain TILA disclosures, including but not

limited to the annual percentage rate; the number, amount, and timing

of payments scheduled to repay the obligation; and the total of

payments. These failures allegedly violate Sections 107 and 128 of the

TILA, 15 U.S.C. 1606 and 1638; and Sections 226.18(e), (g) and (h) and

2226.22 of Regulation Z, 12 CFR 226.18(e), (g) and (h) and 226.22; and

constitute deceptive acts or practices in violation of Section 5(a) of

the FTC Act, 15 U.S.C. 45(a). The complaint also alleges that Fleet

Finance purchased consumer credit transactions through assignments that

failed to provide or failed to provide accurately the TILA disclosures

listed above in this paragraph. The complaint alleges that, based on

Fleet Finance's assignee liability in Section 131 of the TILA, 15

U.S.C. 1641, such purchases violate Section 128 of the TILA, 15 U.S.C.

1638, and Sections 226.18(a), (g) and (h) of Regulation Z, 12 CFR

226.18(a), (g), and (h); and constitute deceptive acts or practices in

violation of Section 5(a) of the FTC Act, 15 U.S.C. 45(a).

The complaint also alleges that, in consumer credit transactions it

extended, Fleet Finance has failed to retain TILA disclosures, TILA

notices of the right to rescind, promissory notes and/or other evidence

of the terms and conditions of consumer credit transactions for two

years after the date disclosures are required to be made or action is

required to be taken concerning the transaction. The compliant alleges

that these acts and practices violate Section 226.25(a) of Regulation

Z, 12 CFR 226.25(a). The complaint further alleges that Fleet Finance

has purchased consumer credit transactions through assignments that

failed to retain the documents and other evidence described above in

this paragraph. According to the complaint, based on Fleet Finance's

assignee liability in Section 131 of the TILA, 15 U.S.C. 1641, such

purchases violate Section 226.25(a) of Regulation Z, 12 CFR 226.25(a).

To remedy the violations charged and to prevent respondents from

engaging in similar acts and practices in the future, the proposed

order contains a consumer redress program and injunctive provisions.

The order requires respondents to pay $1.3 million for the redress

program and administrative costs. Specific aspects of the redress

program are contained in Appendix A to the proposed order. The program

applies to certain consumers whose mortgage loans were originated or

purchased by Fleet Finance, or Fleet Finance incorporated in Rhode

Island (``Fleet Finance (RI)''), during January 1, 1990-December 31,

1993. It covers certain consumers whose mortgage loans, inter alia,

were either paid off to or written off by Fleet Finance, Fleet Finance

(RI), or Fleet Financial Group, Inc. (``FFG''), a parent corporation,

except by foreclosure (``eligible consumers'' or ``ECs''), or were paid

off by foreclosure by Fleet Finance, Fleet Finance (RI), or FFG

(``eligible foreclosed consumers'' or ``EFCs''), or who contact an 800-

number set up

[[Page 41431]]

under the proposed order and who provide information showing they are,

in essence, ECs or EFCs (``qualified consumers'' or ``QCs'').\2\

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\2\ See proposed order, definition nos. 10-11. Such consumers

must meet definition nos. 9(a) and 9(c), or definition nos. 10(a)

and 10(c). Such consumers need not meet definition nos. 9(b) or

10(b), which require consumers' names to be reflected in certain

records.

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With ten business days after service of the order, respondents will

deliver to the independent agent that will conduct the redress program

two lists of the ECs and EFCs in their records.\3\ The independent

agent will then add those consumers, who are not on such lists, that

the Division of Enforcement of the Commission's Bureau of Consumer

Protection (``DOE'') specifies are ECs or EFCs and provides to the

independent agent (i.e., consumers who have contacted Commission staff

in the past several years regarding such loans). The independent agent

will mail to all consumers on the two enhanced lists a letter

substantially identical to the letter attached as Appendix B to the

order (``Appendix B letter'') and a claim form substantially identical

to the form attached as Appendix C to the order (``Claim Form'').

Consumers receiving the Appendix B letter and the Claim Form will have

sixty days from the date of their Appendix B letter to return their

Claim Form to the independent agent.

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\3\ If, before the date of service of the order, respondents

have provided final copies of such lists, they will submit a sworn

statement to that effect and need not provide additional lists after

the order is served.

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As noted above, the order also permits consumers who learn about

this settlement and think they might fall within the definitions of

either an ``eligible consumer'' or an ``eligible foreclosed consumer''

(even though they are not on the two enhanced lists) to call an 800-

number staffed by the independent agent within sixty days after the

date of the order.\4\ The independent agent will inform the consumers

that they must submit to the independent agent, within ninety days

after the date of the order, documents showing that they meet the

definition of an EC or an EFC (even though they are not on the two

enhanced lists). Within 120 days after the date of the order, the

independent agent will review any documents submitted, decide which

consumers, if any, qualify for a redress payment, and submit to DOE a

list of those consumers for that Division's approval. If the

independent agent is unable to decide whether a particular consumer

qualifies, the independent agent will forward the consumer's documents

to DOE, who will make the determination.

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\4\ The ``date of the order'' refers to the date when the order

is served on respondents, which will not occur until after the end

of the sixty-day comment that begins today.

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After receiving the list of consumers whom DOE has deemed

``qualified consumers,'' the independent agent will calculate, and

submit to DOE for approval, the amount of redress that, according to

the independent agent, should go to each consumer (``proposed

amount''). This proposed amount will be the same for each consumer who

receives a redress payment. The independent agent will calculate the

proposed amount by dividing the ``total available redress'' by the

number of consumers permitted to receive a redress payment. The ``total

available for redress'' will be the $1.3 million paid by respondents,

minus: the amount of the independent agent's estimated fees; $10,000 to

be reserved for contingencies; and an additional amount, if the

independent agent deems it appropriate, to be reserved to pay the

redress fund's tax liabilities.\5\ The number of consumers permitted to

receive a redress payment will be the total of (1) those consumers who

were sent an Appendix B letter and submitted a Claim Form, and (2)

those consumers who were deemed qualified consumers under Paragraph

VIII of Appendix A. The amount of the redress payment to each consumer

will not exceed $1000. In addition, no consumer will receive more than

one payment, regardless of the number of transactions he or she may

have had that were either extended or purchased by Fleet Finance or

Fleet Finance (RI).\6\

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\5\ See Appendix A, Par. IX.

\6\ If all consumers permitted to receive a redress payment have

received the $1000 maximum and funds remain after payment of

administrative costs, the remaining funds will be paid to the United

States Treasury.

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After DOE reviews the proposed amount, makes any necessary

corrections, and informs the independent agent of the approved amount,

the independent agent will mail checks in the approved amount to all

consumers permitted to receive a redress payment. Along with each

check, the independent agent will mail a letter substantially identical

to the letter attached to the order as Appendix D and the Commission's

consumer education pamphlet pertaining to home equity loans. Consumers

will have ninety days after their checks are mailed to cash them.\7\

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\7\ The independent agent will redeposit the funds from any

undeposited checks into the redress fund. If DOE determines that the

redress fund has enough money to merit a second-round distribution

to consumers, DOE will instruct the independent agent to conduct

such a distribution. If a second-round distribution is not feasible,

the independent agent will pay the funds from the undeposited checks

to the Treasury instead.

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Those consumers who are not deemed ``qualified consumers'' by DOE

will receive a letter substantially identical to the letter attached to

the order as Appendix E. The independent agent will maintain a toll-

free number for consumers covered by the order that will be included on

all appendix B, D, and E letters.

The order prohibits respondents from communicating with ECs or EFCs

concerning the redress program, except for refer consumers to the 800-

number provided by the independent agent, until the Commission staff

has notified respondents that the redress program has been completed.

The proposed order prohibits respondents from misrepresenting the

following in connection with any extension of consumer credit or

advertisement to promote any extension of credit: the annual percentage

rate; the number, amount, and timing of payments scheduled to repay the

obligation and the total of payments; the right to rescind the credit

transaction; or any term or condition of financing for any consumer

credit transaction. The injunctive provisions also require respondents

to make all the disclosures required by the provisions of the TILA, as

amended, and Regulation Z and the Regulation Z Commentary, as amended,

that govern transaction, such as the annual percentage rate, the total

of payments, and the number, amount, and timing of scheduled payments.

In connection with rescindable credit transactions under Regulation

Z, as amended, the proposed order prohibits respondents from: (1)

Failing to deliver to consumers two copies of a proper Notice of Right

to Rescind, as required by Regulation Z, as amended; (2) modifying or

waiving a consumer's right to rescind the transaction unless the

consumer gives the applicable respondent a dated written statement that

describes a bona fide personal financial emergency, specifically

modifies or waives the right to rescind the credit transaction, and

bears the signature of all consumers entitled to rescind the credit

transactions, as required by Regulation Z, as amended; (3) disbursing

any money (other than to escrow), performing any service, or delivering

any material unless and until (a) time has expired for receipt of the

rescission notice and the applicable respondent has not received notice

of the rescission from the consumer, (b) consumers entitled to waive

their right to rescind do so during the three-day

[[Page 41432]]

rescission period, or (c) after midnight of the third business day

following the later of consummation of the credit transaction, delivery

of the rescission notice, or delivery of all material disclosures

required by the TILA and Regulation Z, as amended, the applicable

respondent obtains a signed written statement from all consumers

entitled to rescind the credit transaction stating that three business

days have passed since the later of consummation of the credit

transaction, delivery of the rescission notice of delivery of all

material disclosures, and no consumer has rescinded the credit

transaction; and (4) failing to take all actions necessary to terminate

the security interest created under the consumer's credit transaction

and return any money that the consumer has given in connection with the

credit transaction when the consumer exercises his or right to rescind,

as required by Regulation Z, as amended.

The proposed order also prohibits respondents from failing to make

all disclosures, and in the manner, required by the TILA and Regulation

Z, as amended, and from failing in any other manner to meet the

requirements of the TILA and Regulation Z, as amended, including but

not limited to 15 U.S.C. 1615, as amended.

The proposed order also prohibits respondents from purchasing any

consumer credit transaction in which the disclosures required by

Sections 121, 122, 125, and 128 of the TILA, 15 U.S.C. 1631, 1632,

1635, and 1638, as amended, violate, on their face, any provisions of

the TILA, Regulation Z and the Commentary, as amended, by, for example,

inaccuracies or incompleteness or absence of disclosures required by

the TILA, Regulation Z, and the Regulation Z Commentary.

The purpose of this analysis is to facilitate public comment on the

proposed order, and it is not intended to constitute an official

interpretation of the agreement and proposed order or to modify its

terms in any way.

By direction of the Commission.

Donald S. Clark,

Secretary.

[FR Doc. 99-19519 Filed 7-29-99; 8:45 am]

BILLING CODE 6750-01-M