The U.S. Federal Trade Commission will use new authority to bar lending practices by mortgage brokers who have deceived and bilked borrowers, the agency’s chairman said.
A $410 billion spending package passed by Congress this month authorizes the FTC to ban abusive practices such as deceptive advertising and servicing procedures, Chairman Jon Leibowitz said yesterday in his first interview since becoming the new head of the agency.
With the U.S. economy in deep recession, “we have to step up our vigilance on predatory practices in the financial services area” because “there are a lot of American consumers that are hurting,” he said.
Leibowitz, 50, also vowed more aggressive enforcement of antitrust laws to challenge business practices by companies that harm competition.
Saying that antitrust enforcement “has been circumscribed” by court decisions over the last three decades, “it could be time for the pendulum to swing back” to allow tougher enforcement, he said.
The FTC has suffered a series of antitrust defeats in the last eight years. Last month, the Supreme Court rejected the commission’s effort to impose antitrust penalties on memory-chip technology company Rambus Inc.
The FTC had accused Rambus of scheming to get secretly patented technology included in industry-wide standards so it could exact royalties. Leibowitz said the Supreme Court’s action won’t deter the FTC from trying to stop companies from using standard-setting organizations to hurt competitors.
‘A Good Case’
“We just need to find a good case,” he said.
In cases where it’s difficult to prove a violation of antitrust laws, the FTC will bring complaints under the Federal Trade Commission Act that empowers the agency to force companies to cease particular practices, he said.
The FTC will also make greater use of its authority to force companies to return ill-gotten gains to consumers, he said. “If you are taking money away illegally from consumers you ought to give it back.”
The new authority to ban specific practices was added to the spending bill by West Virginia Senator Jay Rockefeller, a Democrat who is chairman of the Senate Commerce Committee, and North Dakota Democrat Byron Dorgan, a member of the panel. The FTC’s regulatory power over mortgage lending extends only to finance companies not owned by banks.
The provision frees the agency, in the area of mortgage lending, from following “medieval” procedures that could delay issuance of new regulations for six to eight years, Leibowitz said.
‘Bottom Fell Out’
Before the ‘bottom fell out” of the housing market, the FTC had already assigned more staff lawyers to investigate complaints of predatory lending, he said.
“The one thing we couldn’t do” was “set rules about what’s permissible and what isn’t,” Leibowitz said. The FTC had to act by bringing a consumer-protection case against a particular practice.
The new authority “will be very, very helpful to us,” said Leibowitz, who said he hoped the agency would issue new mortgage lending regulations by year’s end.
In September, the FTC obtained a $28 million settlement from Bear Stearns Cos. and its mortgage servicing unit. The company, which was acquired by JPMorgan Chase & Co. last May after its collapse, was accused of imposing unauthorized fees for late payments, inspections and loan modifications. “We are sending redress checks to 86,000 consumers,” he said.
More cases will be announced soon, he said.
Rules for mortgage brokers are needed because “a lot of the advertising is clearly, facially deceptive” and “a lot of mortgage holders have been deceived” about what they must pay, he said. Such practices are not limited to subprime lending by mortgage brokers, he said.
Abusive and deceptive lending is “not the only reason for this problem” of foreclosures “but it is one of the reasons we are in this mess,” said Leibowitz, an FTC commissioner since 2004 who was appointed the agency’s chairman last month by President Barack Obama.
The FTC will work with Congress to expand its staff to meet the larger enforcement agenda, he said. The agency’s staff has shrunk from 1,800 in 1980 to about 1,100 today. “The quality of our work is being strained by the quantity of demands placed on us,” he said.
Lawmakers who oversee appropriations for the agency have voiced an interest in providing more staff, said Leibowitz, a former Senate aide and lobbyist for the Motion Picture Association of America.
A Democrat, Leibowitz replaced Commissioner William Kovacic, a Republican, as the agency’s chairman. Kovacic remains on the commission along with Pamela Jones Harbour, an independent and J. Thomas Rosch, a Republican. Obama has not yet nominated another Democrat to fill a vacant seat on the five- member commission.