FTC Testifies on Loan Modification “Scams”

It’s 10:48 pm on Saturday night, and with the kids off to their own devices, I thought it would be a good time to curl up with a good transcript of testimony from the FTC in front of the House Committee on Financial Services Subcommittee on Housing and Community Opportunity. I know what you’re thinking: “Big deal, that’s what everybody does after the kids have gone to bed on a Saturday night.”


A Ms. Peggy Twohig, the Associate Director of the Division of Financial Practices at the Federal Trade Commission (“FTC”) was called before the committee to discuss the FTC’s efforts to protect consumers from foreclosure rescue and loan modification scams. This, I thought to myself, was going to be juicy good.

Peggy’s statement started off strong…

“With the rapid increase in mortgage delinquencies and foreclosures, the FTC has intensified its efforts to protect consumers from foreclosure rescue and loan modification scams and to halt the proliferation of these types of scams.”

Alright, that’s the kind of tough talk I like to hear from my government funded regulatory agencies. Action… I like action. Go on Peg, you’ve got them on the edge of their seats… Peggy continued:

“In a little over a year, the Commission has brought eleven cases targeting mortgage foreclosure rescue and loan modification scams.”

Say what? Over a year and eleven? Less than one a month. And that represents an “intensified effort” on the part of the FTC? What in the world were you people doing before you “intensified” your efforts? Seriously… I want to know how much we taxpayers paid for the FTC to nail those eleven “scams”.

Okay, sorry… go ahead Peg, I didn’t mean to jump on you so early in your testimony like that. Please continue…

“These efforts are part of a larger focus on financial services: for example, the Commission has brought more than 70 enforcement actions in the past five years…”

Excuse me… Peggy… or should I call you Margaret… 70 enforcement actions over five years is 14 per year. But you just said that you guys “intensified” your efforts of late and as a result brought eleven cases in a little over a year. That’s not “intensifying,” Peg. That’s slowing down.

Peggy then went on to provide the members of the committee with an overview of the FTC’s authority, because apparently, they don’t know what the FTC is authorized to do.

“The FTC has law enforcement authority over a wide range of acts and practices throughout the consumer credit life-cycle. The agency enforces Section 5 of the Federal Trade Commission Act, which prohibits “unfair” or “deceptive” acts or practices in or affecting commerce.

The FTC also enforces other consumer protection statutes that govern financial services providers. These include the Truth in Lending Act, the Home Ownership and Equity Protection Act, the Consumer Leasing Act, the Fair Debt Collection Practices Act, the Fair Credit Reporting Act (FCRA), the Equal Credit Opportunity Act, the Credit Repair Organizations Act, the Electronic Funds Transfer Act, the Telemarketing and Consumer Fraud and Abuse Prevention Act, and the privacy provisions of the Gramm-Leach-Bliley Act.

Although the FTC has authority over a wide range of acts and practices related to financial products and services, many financial service providers are exempt from the FTC’s jurisdiction under the FTC Act. For example… Banks, thrifts, and federal credit unions are exempt from the FTC’s jurisdiction. In addition, the FTC does not have jurisdiction under the FTC Act over non-profit organizations.”

Oh, for Christ’s sake. Memo to my government: Stop being so Goddamn predictable. The FTC enforces consumer protections like the Truth in Lending Act and the Fair Debt Collection Practices Act and the Equal Credit Opportunity Act, among others… BUT the banks, thrifts and federal credit unions are “exempt from FTC jurisdiction”? Seriously? You’re kidding me… pulling my leg… joshing around, right?

No? You’re not? Well, then fock you. (I’m sorry about that, but what would you have me say?)

Okay, Peg… go on… why not… I’m in this far… might as well take the rest…

With the rapid increase in mortgage delinquencies and foreclosures, the FTC has stepped up its efforts to protect consumers from foreclosure rescue and mortgage loan modification. In a little over a year, the FTC has brought eleven cases targeting mortgage foreclosure rescue and loan modification scams, and is actively engaged in ongoing, non-public investigations.”

Yeah, yeah… been there, heard this… move along Peg… and just for the record: I wouldn’t use the term “actively” to describe something you do so infrequently.

“On April 6, 2009, the FTC – along with Treasury Secretary Geithner, Attorney General Holder, HUD Secretary Donovan, and Illinois Attorney General Madigan – announced law enforcement actions and consumer education initiatives as part of a broader crackdown on loan modification and foreclosure rescue entities. In connection with this effort, the Commission also sent warning letters to 71 companies for marketing potentially deceptive mortgage loan modification and foreclosure assistance programs.”

Oh, I apologize. I’d forgotten about the sending of the 71 warning letters on marketing no-noes. That explains why you used the phrase “intensified”. My bad. You guys at the FTC have been busy. I’ll be quiet, go ahead… pretend I’m not even here…

“The FTC’s law enforcement actions regarding foreclosure rescue and loan modification schemes typically allege the following: First, the defendants use terms like “guarantee” and “97% success rate” to mislead consumers about the foreclosure rescue and loan modification services they provide. Sometimes, the defendants will also promise a full refund in the event that negotiation efforts to obtain a loan modification or to prevent foreclosure are unsuccessful.”

Okay, stop… I can’t. This is insane. If you don’t like the claims that some companies are using in their advertising, then make some damn rules. The federal government’s regulation of the loan modification field has been nonexistent for the past two years. Like as if they didn’t even know anything was amiss. So, now their sending warning letters and they want a pat on the back? And as far as offering a full refund, I just don’t see that as being a problem. Since when is offering a money-back guarantee illegal? And here I thought money-back guarantees and full refunds were good things. I better pay closer attention…

“Second, they charge up-front fees for these ‘services.'”

Again, lots of companies charge upfront fees for services. We put in a deck out back a few years ago and I distinctly recall our contractor wanting a check for several thousand before he got started. I myself am a consultant to businesses and you won’t catch me going to work without an upfront fee. Don’t like it? Hire someone else.

“Lastly, after collecting the fee, the defendants do little or nothing to help consumers obtain a loan modification or stop foreclosure. For example, in one case the Commission charged a foreclosure rescue operation for promising consumers that it could stop “any foreclosure,” but then failing to stop foreclosure or taking even minimal steps to do so.”

Now that’s a problem. And the companies that take money and do “little or nothing” are scams. Those people need to go to jail. They’re defrauding consumers. And, although I’m not an attorney, I’m pretty sure that’s always been illegal. Someone get a rope…

“Consumers are unlikely to receive a refund or recover the money they paid up-front as a fee, which is as high as thousands of dollars. Such operations not only defraud financially distressed consumers out of desperately needed funds but also may lead them to forgo viable options for avoiding foreclosure, such as getting assistance from a non-profit housing counselor.”

Consumers are “unlikely” to get their refunds? Well then… it would seem to me that the companies that don’t pay should be punished, and the ones that do provide full refunds should be left alone, right? Isn’t that how it’s always worked? As to part two of that statement, let me make sure I’ve got this right…

The FTC is saying that if a consumer pays a company to assist them in getting their loan modified and the company does nothing and steals their money, that may prevent them from calling a nonprofit to help save their home for free? And you want to know why I say these people are out of touch? They don’t even come from my planet.

First of all, I’ve interviewed roughly 100 homeowners to-date, and I’ve yet to meet a single one that went for the $3,000 option before trying it themselves, calling the government help-line, and calling a nonprofit. No one. No one gets up in the morning, realizes that their home is in jeopardy, and then says… hmmm… I think I’ll try the costly option first. And if for some reason they do try the $3,000 way first and it doesn’t work, they certainly don’t give up after that. Morons.

Peggy wasn’t through yet… she wanted to present how the FTC was helping through its fabulous education and outreach programs. Perfect… here’s a group I wouldn’t trust to educate a class of 2nd graders, and they’re going to educate America. Great. Go ahead…

In tandem with its law enforcement actions, the FTC has initiated a stepped-up consumer outreach and education initiative on foreclosure rescue and loan modification fraud. The FTC has warned consumers about these mortgage-relief scams that charge hefty fees for their services – the same services that consumers can undertake by contacting their mortgage servicer directly or obtain for free through non-profit organizations like the Hope Now Alliance.”

I’m not even going to comment on that. Oh God damn it, yes I am. Listen, please go back and read that paragraph again. She said that the FTC was warning consumers about the “hefty fees” companies were charging for “the same services that consumers can undertake by contacting their mortgage servicer directly or obtain for free through non-profit organizations like the Hope Now Alliance.”

I’m so confused. Is she saying that the firms that charge you hefty fees won’t do anything, but that you can go to your own mortgage servicer or a nonprofit AND they won’t do anything either , but for free? Or is she saying that that the firm that charges the hefty fee will do the same thing that your service or a nonprofit will do for free. If it’s the latter, then didn’t she just admit that the firm charging the hefty fee isn’t a scam, but simply a way to pay for something you might be able to get for free? She’s making me dizzy… wrap it up, Peg… I’m starting to feel a little nauseous…

“Most recently, the FTC announced a new education initiative to reach borrowers directly with the help of a broad array of government, non-profit organizations, and mortgage industry members. Through this initiative, borrowers will receive materials about how to spot and avoid mortgage rescue scams directly from their mortgage companies, at housing counseling outreach centers, and online.”

Well, that sounds just fine with me. And I’m sure the FTC wanted the legitimate loan modification firms to help distribute the educational materials too, right Peg?

“Joining the FTC in the effort are the Hope Now Alliance, the Homeowners Preservation Foundation, and NeighborWorks America, which are non-profit organizations that work to help distressed homeowners get free help and counseling through HUD-certified housing counselors, all of whom work directly with borrowers to help them stay in their homes.”

Yeah, yeah… that’s all fine, but you also want the private sector firms that aren’t scams to help get the message out, right Peg?

“Several national mortgage companies, including Chase Home Lending, Suntrust Mortgage, and GMAC Mortgage, will be voluntarily sending FTC consumer education information directly to consumers through a variety of methods, including during loan counseling sessions, in monthly statements, in correspondence to delinquent borrowers, and on their Web sites. Freddie Mac also is distributing consumer education materials to its servicing partners. This week, the Commission provided mortgage servicers and others with audio public service announcements (PSAs) from the FTC warning consumers about mortgage foreclosure scams and giving them tips on how to avoid them. The FTC has encouraged servicers to play these PSAs while borrowers are on hold with servicers’ customer service and loss mitigation departments as part of our efforts to reach out directly to borrowers.”

So, just so I understand… the FTC is now providing the banks and servicers with materials that tell homeowners not to hire a private sector firm to help them negotiate their loan modification? The FTC is providing the banks with government printed literature that tells people how to avoid private sector companies and go to the bank directly? And they’re thanking the banks and servicers for helping to get this message out? Okay fine… now I have officially seen everything. You know what… no, never mind.

But let’s give credit where credit is due… Playing something educational while borrowers are on hold with lenders is one hell of a good idea. Great idea, actually. You could learn how to speak Mandarin while waiting for Indy Mac to answer the phone… you’d lose your house anyway, but then you could probably get a job at the U.N. afterwards.

WRAP IT UP PEG… I’m done listening to your blathering…

In addition to its work protecting consumers from foreclosure rescue and loan modification scams, the Commission has continued its overall efforts to protect consumers in the financial services marketplace. In particular, the FTC has focused on six additional critical areas: (1) mortgage servicing; (2) fair lending; (3) credit advertising; (4) debt collection; (5) debt settlement; and (6) credit repair. The FTC believes that its past efforts have provided important protections to American consumers in the credit marketplace.”

You know what, Peg… you go ahead and keep “focusing” your little heart out. You’ve already explained that the banks aren’t subject to your rules or your enforcement, so what’s the point… Wrap it up I said…

“Under the burdensome and time-consuming procedures for rulemaking set forth in Section 18 of the FTC Act, 15 U.S.C. 57a, Commission rulemakings typically have required from three to ten years to complete. Second, the FTC recommends that Congress…

Nope… that’s enough for me. I’m outa’ here. Check please. The clock on my computer just struck 12:00 am and I’ve wasted a little over an hour screwing around with you Peg. I’m too old to sit up all night listening to any more of this twaddle. “From three to ten years to complete?” For the love of…

Clowns to the left of me, jokers to the right, here I am… stuck in the middle with you.

Ergo bibamus.

P.S. And in case someone out there doesn’t believe that I’ve quoted my gal Peg accurately… here’s the link to the actual transcript of her testimony, read it for your damn self: http://www.ftc.gov/os/2009/05/P064814foreclosuretescue.pdf

I’m not recommending it, mind you… I’m just saying it’s there if you want to. Don’t blame me for the headache you may get as a result of reading it. Journalistic integrity, that’s the only reason I’m providing the link. Just so we’re clear…

Page Rank