Reporter Resources: Credit & Debt-Related Issues
The FTC enforces Section 5 of the Federal Trade Commission Act, which prohibits unfair or deceptive business acts or practices, and statutes that address specific aspects of lending practices, including the Truth in Lending Act and the Home Ownership and Equity Protection Act, the Consumer Leasing Act, the Fair Debt Collection Practices Act, the Fair Credit Reporting Act, the Equal Credit Opportunity Act, the Credit Repair Organizations Act, the Telemarketing and Consumer Fraud and Abuse Prevention Act, and the privacy provisions of the Gramm-Leach-Bliley Act.
Several federal agencies have authority over entities in the financial services marketplace. The FTC has broad jurisdiction over nonbank financial companies, including nonbank mortgage companies, mortgage brokers, finance companies, and units of bank holding companies. The FTC Act and the other statutes that the FTC enforces specifically exempt banks, savings and loan institutions, and federal credit unions from the agency’s jurisdiction.
FTC law enforcement actions have targeted deception and other illegal practices in debt collection practices, credit and debt counseling services, credit reporting, mortgage lending and servicing, and non-mortgage lending and leasing.
Debt collection
Debt collectors generate more complaints than any other industry. Here’s what they can and can’t do legally. Since 1998, the FTC has brought 21 lawsuits against illegal debt collection practices, often obtaining tough permanent injunctive relief, such as banning some defendants from engaging in debt collection. The FTC also has obtained large amounts in monetary relief, such as a record $10.2 million judgment ordered in a case in 2005. We recently become even more aggressive in our debt collection actions, including seeking preliminary relief and more significant monetary relief. In October 2007 an FTC workshop will review the debt collection industry 30 years since the enactment of the Fair Debt Collection Practices Act. With participation from industry members, consumer advocates, state regulators, and academia, we will examine changes in the industry and various consumer protection issues, including whether the law has kept pace with developments.
Credit Repair and Credit/Debt Counseling
The Commission has prosecuted more than a dozen companies that allegedly offered debt relief but misrepresented the cost or nature of the relief. In 2003, for example, the FTC sued AmeriDebt, Inc., a purported credit counseling organization that allegedly claimed to be a nonprofit organization but funneled profits to affiliated for-profit entities and individuals. The Commission also charged them with deceiving customers by claiming they did not charge an up-front fee, when in fact they kept clients’ first payments as a fee, rather than disbursing the money to creditors as promised. On the eve of trial, AmeriDebt’s founder agreed to a $35 million settlement.
The FTC also has acted aggressively against “credit repair” scams, which have long been marketed as a quick and easy method to cleanse individual credit reports of negative information. Since 1998, the FTC has brought more than 50 cases against actors that allegedly misrepresented their credit-related services. For example, in 2006 the Commission, along with federal and state law enforcement partners, announced a crackdown on 20 credit repair organizations. As part of this effort, the FTC charged Bad Credit B Gone, LLC with violating federal laws by claiming it could improve most consumers’ credit reports by removing negative information that was accurate and not obsolete. The court ordered them to pay more than $322,000 in equitable monetary relief.
Credit Reporting
To ensure compliance with the Fair Credit Reporting Act, the Commission has pursued an aggressive enforcement program, addressing all three of the principal players in the credit reporting system – consumer reporting agencies (CRAs), furnishers of information to the CRAs, and consumer report users. For example, in recent years the Commission has sued the three major nationwide CRAs, obtaining nearly $3 million in civil penalties. In 2006, the FTC charged ChoicePoint, Inc. with violating federal laws by failing to screen prospective subscribers before selling them sensitive consumer information. The company paid $10 million in civil penalties and $5 million in consumer redress. The agency also has brought several recent cases against companies that allegedly furnished inaccurate information to CRAs.
A Note About Credit Cards
Most legitimate credit cards are issued by banks, which are outside the FTC’s jurisdiction, but the FTC can prosecute non-banks that engage in unfair or deceptive acts and practices, such as deceptively marketing a credit card. Our enforcement actions typically deal with hard-core credit card frauds – for example, advance-fee credit card scams or scams marketing cards as general credit cards (like Visa or MasterCard) when the cards are good only for purchases from certain catalogues. Since 1998 the FTC has sued fraudulent marketers in about 50 cases, alleging that they charged advance fees but did not provide consumers with credit as promised. In some cases, defendants promised credit cards; in others, they promised unsecured loans. The Commission’s Telemarketing Sales Rule prohibits telemarketers from requesting or receiving payment of any fee in advance of obtaining credit, if the telemarketer has represented a high likelihood of success in obtaining or arranging the extension of credit. Visit the Federal Reserve Board to find contact information for federal banking regulators.
Mortgage Lending and Servicing
In the past decade, the agency has brought 21 enforcement actions against companies in the mortgage lending industry, focusing in particular on the subprime market. Several cases resulted in large monetary judgments, with courts collectively ordering that more than $320 million be returned to consumers. These actions have targeted deceptive or unfair practices in all stages of mortgage lending, from advertising and marketing through loan servicing, by mortgage lenders, brokers, and loan servicers. In congressional testimony presented in June 2007, the FTC summarized its financial services consumer protection efforts.
Mortgage Lending This 2006 letter to the Federal Reserve Board describes the FTC’s role in this industry and notes FTC cases, illegal practices, and alternative mortgage products.
Non-Mortgage Lending and Leasing
The FTC frequently has challenged sales practices used in the personal (unsecured) loan industry. For example, the agency charged a regional subprime lending company, Stewart Finance, and its affiliates with making deceptive claims in selling small personal loans, and inducing consumers to purchase expensive add-on products to obtain costly refinance loans, and to pay fees to participate in a “direct deposit” program. In January 2006, a court banned them from engaging in lending and related activities and ordered them to pay $10.5 in consumer redress.
With automobile leasing, the FTC has worked to halt the practice of omitting or burying key cost information in small and unreadable print in automobile lease advertisements. The Consumer Leasing Act and its implementing Regulation M require that advertisements for leasing plans that contain specific terms also state clearly and conspicuously certain additional terms of the offer, including the fact that the transaction is a lease, the total amount of any payments such as a security deposit required at lease inception, and the number, amount, and timing of scheduled payments. The agency’s actions have resulted in significant improvements to national advertisements for automobile leases.
