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Panel I of a Hearing of the Commerce, Trade and Consumer Protection Subcommittee of the House Energy and Commerce Committee - Consumer Credit and Debt: The Role of the Federal Trade Commission in Protecting the Public


Panel I of a Hearing of the Commerce, Trade and Consumer Protection Subcommittee of the House Energy and Commerce Committee - Consumer Credit and Debt: The Role of the Federal Trade Commission in Protecting the Public

PANEL I OF A HEARING OF THE COMMERCE, TRADE AND CONSUMER PROTECTION SUBCOMMITTEE OF THE HOUSE ENERGY AND COMMERCE COMMITTEE

SUBJECT: CONSUMER CREDIT AND DEBT: THE ROLE OF THE FEDERAL TRADE COMMISSION IN PROTECTING THE PUBLIC

CHAIRED BY: REP. BOBBY RUSH (D-IL)

WITNESS: JON LEIBOWITZ, CHAIRMAN, FEDERAL TRADE COMMISSION

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REP. RUSH: The Subcommittee on Commerce, Trade and Consumer Protection will come to order.

Today's hearing is a hearing that we are anxiously awaiting to conduct. It's a hearing on "Consumer Credit and Debt: The Role of the Federal Trade Commission in Protecting the Public."

The chair will yield himself five minutes for the purposes of an opening statement.

Three weeks ago, the Subcommittee on Commerce, Trade and Consumer Protection held a hearing on abusive credit practices in the used car industry. Today I want to expand our inquiry into the world of consumer credit and debt in general.

For the past decade, if not longer, American consumers, particularly low-income Americans, have been swimming in shark- infested waters. Whether it is subprime mortgages, auto loans or payday loans, too many companies have had a free rein to saddle Americans with debt that they simply cannot afford. They sold their snake oil by taking advantage of the people's circumstances or with outright deception.

Unfortunately, there wasn't a strong enforcement or regulatory authority at the federal level protecting consumers from these abusive practices. The result has been a wrecked economy and, I might add, wrecked lives.

The purpose of today's hearing is twofold. First, I want us to examine the actions taken by the Federal Trade Commission in cracking down on abusive credit practices. The FTC has broad authority under the FTC Act to enforce against, I quote, "unfair or deceptive practices or acts," end of quote. How was this broad authority exercised is one question that we may ask. If the commission took insufficient action in the past, then why was that the case is another looming question. Was it political will or was it because the commission lacks sufficient statutory authority and resources is a third question that we should explore.

Second, in this hearing I want members of the subcommittee to deliberate on reforms that Congress can initiate to make the FTC as effective as possible in protecting consumers from abusive credit and debt practices in the marketplace. I am working on legislation that will better equip the commission to aggressively address abusive lending practices. How can we utilize the commission's historical authority to prohibit and enforce against, again, unfair or deceptive acts or practices to our advantage?

The FTC is America's foremost consumer protection agency and we need to take advantage of its historical authority by enhancing the commission's underlying regulatory and enforcement powers. I believe the basic cornerstones of a consumer credit protection agency are already in place, but some reforms are more than likely necessary. Does the commission need more resources? Should the commission be given regulatory or rulemaking authority under the Administrative Procedures Act to replace its current burdensome rulemaking process under Magnuson-Moss? Should the commission be given additional civil penalty authority? If the FTC has one hand tied behind its back, I believe that we should untie that one hand, but if we do so, we must be assured that the commission will aggressively utilize these tools to protect consumers to the fullest extent.

Today I want to explore how the FTC can be equipped to adequately deal with not only today's abusive practices, such as subprime mortgages and payday loans, but also tomorrow's unforeseen snake oil that will be sold to the consumers in the future.

And I want to congratulate and welcome the new chairman of the FTC, Mr. Jon Leibowitz. I've had an opportunity to meet with him and I find him an outstanding and fine gentleman and a dedicated public servant. And this is his first appearance on Capitol Hill as chairman of the FTC, and I hope that this hearing today will be the first in series of constructive hearings.

As chairman of this subcommittee, I want to have a constructive relationship with Chairman Leibowitz and with our friends at the commission to ensure that both Congress and the FTC are doing everything we can to protect the American consumers, particularly poor American consumers, from the unfair, deceptive and abusive practices that are far too prevalent in the American economy.

With that, I yield back the balance of my time.

And now I recognize my friend, the ranking member of this subcommittee, the gentleman from Georgia (sic), Mr. Radanovich, for five minutes for the purposes of opening statements.

REP. GEORGE RADANOVICH (R-CA): Thank you, Mr. Chairman.

I want to thank you so much for holding today's hearing on the FTC's role in financial consumer protection.

Given the current economic downturn and the slow-thawing freeze in the credit markets, this discussion is particularly timely. Abuses must have the disinfectant of sunlight shown brightly on them, and it is our responsibility as representatives of our constituents to examine the protections afforded to consumers by the law. Any credit scam that takes advantage of innocent consumers is deplorable and we must have our regulators pursue all those responsible for this kind of despicable crime behavior with vigor.

My district is located in California's San Joaquin Valley, which is suffering from one of the nation's highest foreclosure rates due to the easy availability of credit. Unfortunately, some of the easy money was available to consumers because of deception and fraud. These were cases of mortgage fraud, appraisal fraud and income fraud that all played a part in creating the current mess that we're in. It is reprehensible that people who may have been taken advantage of when they bought their house could now be victims in their time of need.

Today we focus on the Federal Trade Commission's efforts. The FTC deals with matters that affect the economic life of all our constituents. The commission's consumer protection mission is to ensure consumers are protected from unfair and deceptive practices in or affecting commerce.

That herculean task puts the commission in the position of overlooking a multitude of industries, and the commission's responsibility to protect consumers of financial service products are a critical part of this work.

The commission helps to protect consumers at every stage of the consumer credit market, from the advertising and the marketing of financial products to debt collection and debt relief. However, the commission's legal authority does not extend to all entities that provide financial services to consumers. The FTC Act and the statutes the commission enforces specifically exempt banks, thrifts and federal credit unions. The FTC, however, has jurisdiction over non-bank financial companies, including non-bank mortgage companies, mortgage brokers and finance companies.

As the lead consumer protection agency, it has the expertise and the experience that was recognized by our colleagues on the House Financial Services Committee last Congress. They developed legislation to improve the existing framework of the consumer protection regulations to better coordinate banking regulators' rulemakings with those of the commission. And while avoiding duplicative efforts in the government, this coordinated approach to protect consumers of financial services is essential. The same rules should apply regardless of what entity sells the product. I'm anxious to hear about the FTC's recent activity in this area, the cooperative efforts among agencies and whether these efforts are effective.

I do have some concerns about some of the reforms that have been discussed over the years that would change how the commission operates. As I mentioned, the FTC's jurisdiction is enormous. Except for the few exempted entities, the commission's authority to promulgate regulations impacts nearly our entire economic spectrum.

Unlike some other agencies who promulgate rules using the procedures of the Administrative Procedures Act, the FTC's rulemaking process is laid out in the Magnuson-Moss FTC Improvement Act. Congress established the Magnuson-Moss rulemaking procedures in the 1970s specifically to be more rigorous than the APA process, in part to provide affected industries the opportunity to present arguments in an evidentiary hearing.

The FTC must base any rule on that hearing record, and substantial evidence must be presented to justify it. I'm concerned that any significant change to this process would not allow for such careful consideration before rules are finalized.

Congress set up the Magnuson-Moss process to be intentionally deliberative, but Congress also has been highly effective enacting consumer protection legislation on specific issues and providing the commission with APA rulemaking authority in those cases where it is warranted, such as the Do Not Call Act.

I want to thank all our witnesses for being here today and I look forward to their insight and expertise on how consumers can be best protected. I'm particularly interested in hearing if there are holes -- any holes in the current law which prevent the FTC from pursuing bad actors and whether or not additional regulation should be -- would be effective in deterring unscrupulous lenders and others.

If the testimony and the evidence we receive lead to the conclusion that the commission should be doing more including regulation entities that it currently does not, I stand ready to work with you, Mr. Chairman, to develop the appropriate legislation.

Thank you, Mr. Chairman, and I yield back.

REP. RUSH: The chair thanks the gentleman.

Now it is my privilege to recognize the chairman of the full committee for five minutes for the purposes of opening statements, the gentleman from California, Chairman Waxman.

REP. HENRY A. WAXMAN (D-CA): Thank you very much, Mr. Chairman. I want to commend you for holding this hearing and the fact that your subcommittee is taking a close look at consumer protection in the area of credit and debt.

This committee has an important role in ensuring that consumers are protected from unfair, abusive and deceptive practices throughout the marketplace, including the credit market, and I'm pleased to join you in welcoming the chairman, the new chairman of the Federal Trade Commission, Jon Leibowitz.

Congratulations on your appointment. I look forward to working with you on this and other issues before our committee.

The current financial crisis has brought to light a host of schemes that have hurt both individual consumers and the economy as a whole: mortgages that require no down -- no money down and no proof of income or assets, payday lenders who charge 500 percent interest for a short-term loan, companies that take money from individuals based on false offers or they offer to fix a credit report or save a home from foreclosure.

These are schemes and they are allowed to happen because of a fierce anti-regulatory ideology that was prevailing in the -- at least the last eight years. The philosophy was that government was the source of the problem, that it posed an obstacle to success and that it should be slashed wherever feasible. This was the ideology that led to FEMA's failure during Hurricane Katrina, billions of dollars of contracting abuse at the Defense Department, and a food safety system that could not keep unsafe peanuts and spinach off the grocery shelves.

The agencies of government responsible for protecting our financial system and Americans' hard-earned assets also suffered under this ideology. There was a feeling that government should step aside, that markets should be allowed to work with little or no regulatory intervention.

Well, now we have an opportunity to move beyond the flawed system of the previous eight years and strengthen consumer protections across the financial system. Today's hearing focuses on the Federal Trade Commission, which plays an essential role in overseeing consumer credit. An aggressive and rejuvenated FTC could prevent unfair and deceptive practices before they become commonplace and it could use its enforcement authority to deter fraudulent schemes.

I look forward to working with you, Mr. Chairman and the members of this committee, to making sure that the FTC has the authority, the resources and the will to be an aggressive consumer protection agency.

And I yield back the balance of my time.

REP. RUSH: The chair thanks the chairman and now recognizes the gentleman from Pennsylvania for two minutes for the purposes of opening statements.

Mr. Pitts of Pennsylvania.

REP. JOSEPH PITTS (R-PA): Thank you, Mr. Chairman. Thank you for holding this important hearing on the role of the Federal Trade Commission in protecting consumers of credit and debt.

I think we all agree that we need to ensure that strong consumer protection measures are in place. The recent housing and the credit crises our country has faced have made that abundantly clear. We must do this prudently, though, avoiding duplicity and jeopardizing processes that work well and this is why we should examine legislation already in place to see if it has been successful in protecting consumers.

While there may be room for improvements in our consumer protection laws, we should also consider that a complete overhauling of legislation may actually force negative and overly burdensome requirements on those who are being truthful and honest. Again, we all desire effective and efficient enforcement of consumer protection laws and it's my hope that this committee moves forward in a wise, careful and deliberative manner.

And I look forward to hearing our distinguished witnesses today and thank you and yield back.

REP. RUSH: The chair thanks the gentleman.

And the chair now recognizes the gentlelady from California, my friend Ms. Matsui, for two minutes for the purposes of opening statements.

REP. DORIS O. MATSUI (D-CA): Thank you, Mr. Chairman. Thank you very much for calling today's hearing. I applaud your leadership on this issue.

I'd also like to thank Chairman Leibowitz for being here today with us and congratulate him also.

In today's economic recession, many families in my home district of Sacramento are really struggling to make ends meet. I've heard countless stories about people struggling to keep their homes, their jobs and their way of life.

As we all know, the housing crisis has had an unprecedented effect on our economy. The rising unemployment will cause even more Americans to face foreclosure. California, and in particular my home district of Sacramento, has been greatly impacted by the foreclosure crisis. Many of my constituents were victims of predatory lending and were steered into high-cost bad loans. Now many of these homeowners are seeking assistance in modifying their loans to more affordable loan terms. However, there has been a serious issue for many. In some cases, their original loan company is not in business or in some cases their lenders or servicers are not being responsive, leaving struggling homeowners feeling desperate to save their homes. As a result, many have been tricked into contacting scam artists posing as so-called foreclosure consultants or their so-called agencies to save their homes.

These scams are costing thousands of dollars in false promises to struggling homeowners.

I'm a member of the Sacramento District Attorney's Foreclosure Task Force, which is charged with cracking down on mortgage fraud. Many of these unfortunate scams have been well documented in my district. It is clear that consumers are not begin properly protected from these shameful, unacceptable practices. We're here today to determine what more the government can and should do to stop these abuses from occurring today and in the future.

I thank you once again, Mr. Chairman, for holding this important hearing today and I yield back the balance of my time.

REP. RUSH: The chair thanks the gentlelady.

The chair now recognizes the ranking member of the full committee, my friend from Texas, Mr. Barton, for five minutes for the purposes of opening statements.

REP. JOE BARTON (R-TX): Thank you. And I haven't forgot about that cowboy hat, Mr. Chairman.

REP. RUSH: I thank you very much.

REP. BARTON: It's on order.

REP. RUSH: All right.

REP. BARTON: (Laughs.) The hat's in the mail, as they say.

REP. RUSH: The hat's in the mail. All right. (Laughs.)

REP. BARTON: Thank you for this hearing today, Mr. Chairman; its title, the "Consumer Credit and Debt: The Role of the Federal Trade Commission in Protecting the Public," is an important one. As you know, this subcommittee in the past has explored a multitude of consumer protection issues. We've looked into data security, spyware, spam and children's online privacy. We've inquired about how Social Security numbers are used. We've investigated calling cards and also telemarketing. These areas are important and it's fitting that today we are considering consumer protection, particularly given our current economic environment.

The fraud in consumer credit is considerable. It has ramification beyond those suffered by the victims. The fallout often damages the businesses with whom the consumer interacts and it nearly always harms consumers at large. Losses reach into the millions of dollars every year and the cost is borne by all of us.

We know that the FTC is a strong advocate for consumers, policing the activity of those fraudsters who seek to take advantage of consumers in a most repugnant way.

I'm interested today to learn what the chairman, Mr. Leibowitz, has to say about the tools that his agency has in its toolbox, how it complements the actions of sister agencies with similar authority and the states' attorneys generals, what additional tools, if any, the commission needs.

Let me add a cautionary note, however. I support efforts to strengthen the commission's authority where necessary. I am aware, too, that several stakeholders believe the commission's authority must be strengthened by eliminating the rulemaking requirements of the Magnuson-Moss Act of 1975 in favor of the Administrative Procedures Act.

As we move forward in this debate, I would ask yourself, Mr. Chairman, and the members of this subcommittee to remember the reasons the Congress imposed the Magnuson-Moss requirements in the first place. The FTC oversees an enormous jurisdiction. Its rules reach into innumerable industries and affect every commercial Main Street in the country. Given the breadth of that impact, Congress believed that the commission should take more than 180 days so that it could carefully consider its broad, sweeping rulemakings and the comments generated by that consideration.

We still have the power here to permit the FTC to sidestep the Magnuson-Moss Act when necessary and permit rulemaking under APA where it's appropriate and necessary. This is an ability this committee has never had a problem utilizing when we've found a situation that warrants it.

Again, thank you, Mr. Chairman, for holding the hearing. I want to thank our witnesses, and I look forward to reviewing their testimony.

REP. RUSH: The chair thanks the ranking member.

Now the chair recognizes the gentleman from Georgia for two minutes for the purposes of an opening statement, Mr. Barrow.

REP. JOHN BARROW (D-GA): I thank the chair. I'll waive an opening.

REP. RUSH: The gentleman (resides ?) two minutes in addition to the five minutes that he's granted for questioning, so granted.

The chair now recognizes my friend and vice chair of the subcommittee, the gentlewoman from Illinois, Ms. Schakowsky, for two minutes for the purposes of opening statements.

REP. JAN SCHAKOWSKY (D-IL): Thank you, Mr. Chairman, for holding this hearing.

And congratulations to you, Mr. Leibowitz. We're glad to have you here.

The repercussions of years of irresponsible mortgage lending continue to unfold. According to the Center for Responsible Lending, there have been nearly 550,000 new foreclosure filings since 2009 began -- 6,600 each day, or one every 13 seconds. We were trying to calculate how many since this hearing began; it's about -- more than 100, and every 13 seconds yet another.

In my state of Illinois, more than 100,000 families are projected to lose their homes to foreclosure this year, and this administration and this Congress are obviously taking steps to mitigate this crisis and ensure it never happens again.

But to do that, I really think we have to ask, how did we get here? We're here not just because the banks were a problem, and it's not just bank lending that's responsible for billions of dollars worth of bad loans that now must be dealt with in order to put our economy back on track. Lending by non-bank entities has exploded in recent years and a major factor in today's financial crisis.

Countrywide and other non-bank mortgage lenders are responsible for 40 percent of the home loans made in 2007 and 55 percent of the subprime loans. It was the Federal Trade Commission's responsibility to exercise oversight of these mortgages where abusive practices have hurt consumers. Clearly, they missed something.

The FTC's authority extends to -- as it's my understanding -- auto loans, payday loans, car title loans, and other nontraditional forms of credit that often flows through non-bank entities and currency exchanges -- is that -- we have those in Chicago, big-time.

MR. LEIBOWITZ: That's correct.

REP. SCHAKOWSKY: It's a vital role of this subcommittee to exercise oversight over FTC and its rulemaking enforcement actions over non-bank lenders, and I look forward to working with you -- our committee does -- to make sure that these improvements are made as we move forward.

And I thank you again, Mr. Chairman.

REP. RUSH: The chair thanks the gentlelady.

The chair now recognizes the gentleman from Georgia, Dr. Gingrey, for two minutes for the purposes of opening statements.

REP. PHIL GINGREY (R-GA): Mr. Chairman, I thank you for calling the hearing today on such an important issue that hadn't been examined in depth by this committee since the 106th Congress.

I join with my colleagues in congratulating the new chairman of the FTC, Jon Leibowitz, and I look forward to his testimony.

I think one of the most important things as we go forward is to strike a balance, and we heard testimony from our distinguished chairman a little bit earlier in regard to -- and I paraphrase -- the government during the past eight years, at least the past eight years, has taken sort of a hands-off or soft approach to regulation to the detriment of consumers.

Well, in the first 60 days of the current administration, a very aggressive intervention by the government led to over $200 million of egregious loans to AIG executives, so this is, I think, a perfect example of why we need to strike a balance.

No doubt both lenders and borrowers can share the blame for elements of the current credit climate within the economy, and as the economy begins to work toward recovery, one of the basic ways in which we can work in a bipartisan manner to prevent these problems from occurring again is through consumer credit reform.

Unfortunately, there will always be bad actors within the financial and credit markets, and this committee hopefully will play a role in mitigating this in the future.

First and foremost, credit scams that take advantage of innocent consumers are absolutely shameful. However, before we look to expand the role and the duties of the FTC, it's imperative that we examine how the FTC could be more effective given its current and very broad set of responsibilities.

Mr. Chairman, moving forward, we must ensure that these -- there continues to be strict scrutiny and transparency within the rulemaking process at the FTC. The Magnuson-Moss rulemaking structure is unique, because in order to ensure transparency, it was specifically designed in the '70s to be difficult to make sporadic, whimsical changes.

As we're about to begin this hearing and future deliberations and legislative changes to FTC, I'm reminded of the words of Speaker Pelosi when she took the gavel at the start of the 110th. She guaranteed that it would be the most open and honest Congress in the history of our nation. I hope that this subcommittee takes heed of these words as we begin to modify the role.

Mr. Chairman, transparency is everything, and with that, I look forward to the testimony of the Honorable Jon Leibowitz, and I think you so much for holding the hearing.

REP. RUSH: The chair thanks the gentleman.

The chair now recognizes the gentlelady from Ohio, Ms. Sutton, for two minutes for the purposes of opening statements.

REP. BETTY SUTTON (D-OH): Thank you so much, Mr. Chairman, and thank you for holding this hearing. It's extremely important to the people that I represent in Ohio.

You know, time and time again we've learned that sometimes the people who are hurt the most by what is going on out there are the ones who need our help the most. Today, there are a wide range of financial products advertised to assist consumers in paying off debt and emerging from debt; from payday lending to car title loans, short- term loans with incredibly high interest rates all but ensure that individuals remain in debt. And these individuals -- many of them are my constituents.

The American people expect their government to rein in unscrupulous and unfair lending. Last November, voters in Ohio overwhelmingly approved a referendum on payday lenders and predatory loans. Our referendum capped interest rates, provided borrowers with more time to pay back loans, and prohibited new loans to pay off old ones, which will help to break that cycle of debt.

However, we are now learning that these lenders are exploring new loopholes and operating under different licenses and adding new fees, such as inflated check cashing fees for checks they've just printed. And even as our attorney general, Richard Cordray, and our state legislature and our governor are working to address this situation, the Federal Trade Commission must aggressively act as the American people expect.

While I used Ohio as an example, this is a problem that severely impacts people in need throughout our country, and if the Federal Trade Commission does not have the tools or the authority to aggressively protect Americans, then it's our responsibility to strengthen the commission and restore Americans' confidence. And I look forward to being a part of making that happen.

REP. RUSH: The chair thanks the gentlelady.

And now it's my pleasure to recognize the gentleman from Louisiana, Mr. Scalise, for the purposes of two minutes of opening statements.

REP. STEVE SCALISE (R-LA): Thank you, Mr. Chairman. I appreciate you holding this hearing.

Fraudulent and deceptive practices that prey upon consumers are deplorable and shameful, especially during these tough economic times, because consumers are even more vulnerable to unethical scams.

We need to make sure that the FTC is fully utilizing the tools they already have available to them and also ensure that the FTC is working with our local state attorneys general -- those people that are closest in many cases to the practices -- those illegal and unethical practices that are going on where we would have an ability to actually go and get prosecutions and root out the things that are being done to take advantage of our consumers in this country.

Another critical issue that we need to look at is the coordination with other federal agencies like the FBI, who are also involved in some of these investigations themselves as well as local attorney generals so that we're not duplicating the scarce resources that we do have.

So I look forward to hearing from Chairman Leibowitz of the Federal Trade Commission and yield back the balance of my time.

REP. RUSH: The chair thanks the gentleman.

The chair now recognizes my friend, my colleague, my classmate, the gentleman from Texas, Mr. Green, for two minutes for the purposes of opening statement.

REP. GENE GREEN (D-TX): Mr. Chairman, thank you, one, for your friendship over the last 17 years, but I thank you for holding this hearing on the consumer credit and debt protection and to look at the role the FTC should play.

I'd like to welcome our new FTC chairman, Jon Leibowitz, and congratulate him on the new position as the chair of the commission. I look forward to working with you.

The FTC is important all the time, but in this day and time it's even more so. As the primary federal agency that enforces consumer credit laws at entities other than banks, thrifts and federal credit unions, the FTC has broad responsibility regarding consumer financial issues in the mortgage market, including those involving mortgage lenders, brokers and servicers.

The FTC enforces a number of federal laws governing mortgage lending, including the Truth in Lending Act, the Homeownership and Equity Protection Act, and the Equal Credit Opportunity Act. The commission also enforces Section 5 of the Federal Trade Commission Act, which more generally prohibits unfair and deceptive acts or practices in the marketplace. That is probably one of the most important that we can deal with. In addition, the commission enforces a number of other consumer protection statutes that govern financial services, including the Consumer Leasing Act, the Fair Debt Collection Practices Act, the Fair Credit Reporting Act, the Credit Repair Organization Act, and the privacy provisions of the Gramm-Leach-Bliley Act.

I also have a particular concern about nontraditional loans, such as payday loans and car title loans which can carry enormous interest rates and fees. In 2006 Congress enacted to cap payday loans made to military personnel to a 36 percent annual percentage rate after payday loans grew 34 percent to reach a total of $500 million the previous two years and a figure that has doubled since 2002.

In economic climates such as the one we're in today, where credit availability is shrinking, consumers may be more inclined to turn to these options which are much less regulated and therefore the potential for predatory practice is much greater. In recent months the FTC has taken significant steps to protect consumers and crack down on scam artists by going after Internet payday lenders, alleged mortgage foreclosure rescue companies, and companies claiming they remove negative information from the credit -- consumers' credit reports.

I look forward to hearing what other actions the FTC is making to protect consumers, what tools it may need from Congress, and what the rest of our witnesses believe could be done better to protect consumers in today's volatile economic environment.

All told, this gives the FTC broad authority to go after those predatory practices, but Congress may need to act particularly to give FTC authority to issue rules under the Administrative Procedure Act.

Again, Mr. Chairman, thank you for calling the hearing, and I appreciate the opportunity.

REP. RUSH: The chair thanks the gentleman.

The chair now recognizes my friend from Florida, Mr. Stearns, for two minutes for the purposes of an opening statement.

REP. CLIFF STEARNS (R-FL): Good morning, and thank you, Mr. Chairman.

I welcome the new chairman. Mr. Leibowitz has been on the FTC as commissioner I think since September '04, so we have someone, Mr. Chairman and my members, who's experienced and can help us out. He's seen some of the problems and some of the accomplishments.

Obviously, as members have talked about, the current financial situation and housing crisis has brought a lot of relevant consumer protection issues to the forefront, and we need to see how much more authority we should give the Federal Trade Commission. Something that no one's mentioned is perhaps giving them more jurisdiction over the banks, the credit unions and the thrifts that my colleague from Texas mentioned they do not have jurisdiction over, and of course that's 75 percent of the credit cards. So I think that people across the hall here will probably not like that, but it would fall in their jurisdiction. I think it's something that we should not not discuss.

The FTC has authority, but as I pointed out earlier, it's sort of limited because 75 percent of the credit cards go through credit unions, banks and thrifts, but they can issue and prohibit unfair and deceptive acts, particularly dealing with advertising. The FTC's stated goal is to protect consumers at every stage of the credit life cycle, but both the FTC and consumer protection groups acknowledge that more can be done to protect consumers. And I think with his over four years experience as a commissioner, he'll certainly have some ideas that could bring it to bear on this problem.

The FTC has taken more aggressive action I think more recently against companies such as Internet payday lenders and credit repair companies who purposely deceive consumers. But the issue of whether the FTC should expand its jurisdiction, as I mentioned earlier, is still up in the air. It should be something of a consideration.

But I look forward, Mr. Chairman, in a bipartisan manner to see what we can do to help the Federal Trade Commission and I appreciate you having this hearing. Thank you.

REP. RUSH: The chair thanks the gentleman.

Now all the members of the subcommittee have had an opportunity to issue opening statements. It is indeed now my distinct honor and pleasure, privilege to welcome the new chairman of the FTC, Mr. Jon Leibowitz, to this committee.

I want to say, Mr. Leibowitz, that we are excited about your chairmanship. We look forward to working with you. We look forward to having a meaningful and productive relationship on behalf of the American people.

First of all, it is the practice of the subcommittee beginning with this Congress to swear in all witnesses, so would you please stand up and raise your right hand? (Witness is sworn in.)

MR. LEIBOWITZ: (Off mike.)

REP. RUSH: Let the record reflect that the witness has answered in the affirmative.

Chairman Leibowitz, you are now recognized for five minutes for the purposes of an opening statement.

MR. LEIBOWITZ: Thank you, Mr. Chairman, Mr. Radanovich, Ms. Schakowsky, members of the subcommittee. I'm Jon Leibowitz, I'm the chairman of the Federal Trade Commission, and I really do appreciate the opportunity to appear before you today to discuss the FTC's role in protecting consumers from predatory financial practices.

This is my first hearing, as several of you mentioned, and let me just say this: You're our authorizing committee; we want to work with all of you. We will not be a successful agency unless we can work together, and I hope that we will be doing that over the coming weeks and months.

The commission's views are set forth in the written testimony, which was approved by a vote of the entire commission, though my answers to your questions represent my own views.

Mr. Chairman, during these times of difficulty for so many American consumers, the FTC is working hard. Whether Americans are trying to stave off foreclosure, lower their monthly mortgage payments or deal with abusive debt collectors, the FTC is on the job, enforcing the law, offering guidance and in the process of issuing new regulations.

The written testimony describes in great detail the commission's enforcement, education and policy tools and how we've used those tools to protect and advocate for consumers of financial services. We've brought about 70 cases involving financial services since I came to the commission four and a half years ago, and we've gotten $465 million in redress for consumers over the past 10 years alone -- in this area alone.

But let me highlight just a few recent cases.

In the fall, Bear Stearns and its EMC subsidiary paid $28 million to settle Federal Trade Commission charges of illegal mortgage servicing practices. For example, they misrepresented the amounts consumers owed, they collected unauthorized fees, they made harassing and deceptive collection calls. In January we sent out more than 86,000 redress checks -- 86,000 -- to reimburse consumers who were harmed.

And today the FTC announced two more cases against so-called mortgage rescue operations that allegedly charged thousands of dollars in up-front fees but failed to provide any assistance in saving people's homes.

Even worse, these scurrilous companies -- Hope Now and New Hope -- gave consumers false hope by impersonating the HUD-endorsed HOPE NOW Alliance, which helps borrowers with free debt management and credit counseling services, mostly low-income consumers. I am pleased to report that the courts have issued temporary restraining orders stopping these fraudulent claims and freezing the companies' assets.

We're announcing a third action today against yet another rogue rescue scam. Less than two weeks ago FTC investigators discovered a foreclosure rescue website that was impersonating the HUD website itself. The HUD inspector general had the site taken down. Last week, however, we were told that the same site had popped up again on a different ISP. Within hours we filed a complaint against the unknown operators of the site and, armed with a court order, we shut it down. Let me assure you, particularly in this economic climate, the FTC will continue to target fraudulent mortgage rescue operations. But we can do better and we will.

Mr. Chairman, you mentioned the lack of statutory authority, the one hand tied behind our back. First, we are going to vigorously enforce new mortgage rules issued by the Federal Reserve Board that go into effect this fall that will prohibit a variety of unfair, deceptive and abusive mortgage advertising, lending, appraisal and servicing practices, such as banning subprime liars' loans.

Second, the 2009 Omnibus Appropriations Act gave us authority to fine violators in this area for the first time.

And third, we're going to use the regulatory authority given to us by the omnibus to issue new regulations that will protect consumers from other predatory mortgage practices. We expect these rules to address foreclosure rescue scams and unfair and deceptive mortgage modification and servicing practices.

At the same time, we're going to focus more attention on empirical research about how to make mortgages and other disclosures more effective so that consumers have accurate, easily understandable information about a mortgage's terms. We put a prototype disclosure form on your desks; it is clearly better -- and we have copy tested this -- than what people are using under current law.

But we could use more help. FTC law enforcement would be a greater deterrent if we were able to obtain civil penalties for all unfair and deceptive acts and practices related to financial services beyond mortgages -- for example, in-house debt collection and debt negotiation.

The FTC could also do more to assist consumers if we could use streamlined APA rulemaking procedures to promulgate rules for unfair acts and practices related to financial services other than mortgage loans. These steps, of course, would require congressional action; they may perhaps require some more resources.

Will all these measures be enough? Well, they could certainly help to ensure that we're never in this kind of economic mess again.

Finally, Mr. Chairman, as you know, right now jurisdiction is balkanized between the FTC and the banking agencies about who protects American consumers from deceptive financial practices. Several bills have been introduced that call for an overall federal consumer protection regulator of financial services. As discussions about these proposals continue, we urge you to keep this in mind: The FTC, the commission, has unparalleled expertise in consumer protection. That's what we do. We're not beholden to any providers of financial services, and we have substantial experience effectively in cooperating with the states -- effectively and cooperatively working with the states.

In short, if your committee and if Congress determines that such an overall federal regulator is needed, if you do, we ask that the FTC be an integral part of the discussion about how to best protect the American public.

Thank you, Mr. Chairman, for the opportunity to speak today about what the FTC has done, what we're going to do. We look forward to working with this committee, and I'm pleased to answer your questions.

REP. RUSH: The chair thanks the chairman.

The chair recognizes himself for five minutes for the purposes of questioning our witness.

Chairman Leibowitz, during the housing boom the FTC had clear jurisdiction over many of the worst predatory lenders with the most objectionable practices. But the commission arguably didn't do much to address any of these activities. As a matter of fact, it was the states that successfully brought actions against lenders such as Countrywide and Ameriquest, for their abusive lending practices in the subprime mortgage market. In the second panel, former Maine Attorney General Jim Tierney will talk about these and other issues a little more.

But to begin with, I want to ask a simple question to you. What happened at the FTC? Why did the FTC not take aggressive actions against mortgage lenders in the earlier part of this decade?

MR. LEIBOWITZ: Well, Mr. Chairman, I would say sometimes the simple questions are the most difficult ones to answer, but let me try to respond.

First of all, I think, you know, as you know we are a tiny agency by Washington standards. We have 270 attorneys doing consumer protection, and as Mr. Radanovich and others mentioned, we cover the entire waterfront of the economy, with a few exceptions like common carriers.

So we have to -- I mean, we spend a lot of time doing things like stopping fraud, going after spyware, as you know, because we've talked about that together. Having said that, I think we did a pretty good job. You know, we brought 70 cases in the last five years. We've gotten in the last 10 years $465 million in consumer redress, and that's just in this area of financial services alone.

Could we have done more? Yeah, I think we could have done more. Will we do more in the future? Yes. And do we need to work with the state attorney's general? Yes, and we do it all the time. We're part of several regional task forces. The director of our Atlanta office, our Southeastern regional office, has actually set up a task force with the state AGs and they're going after predatory lending, but yes, we can do more.

I've been exchanging phone calls with Attorney General Holder about resurrecting something called the Executive Working Group, which involved the Federal Trade Commission, the state AGs and the Justice Department. And it was something that was used in the 1990s and the 1980s to sort of coordinate efforts. I think we're going to resurrect that and I think that would be -- you can ask Attorney General Tierney, but I believe that that will be something that's welcomed by all the state AGs and it will allow us to help coordinate even more.

REP. RUSH: You asked for new authorities for the FTC, such as additional rulemaking authority, the ability to seek civil penalties and possibly additional authority over banks and other depository institutions. But there are critics and some of them are on this panel, or on the next panel, rather, and they argue that the commission hasn't been aggressively using the authority it already has.

My question is, given the FTC's record over the past eight years, why should give this authority to you now? How can you assure us that you will use these authorities to aggressively protect America's consumers?

MR. LEIBOWITZ: Well, I think, you know, you raise a very fair question, but I'd say this: We are hamstrung -- speaking for myself -- we are hamstrung by the Magnuson-Moss rulemaking process. When you have passed laws like CAN-SPAM, Gramm-Leach-Bliley, FACTA, you've given us APA rulemaking authority so that we can do rules more quickly.

But on a Mag-Moss rule -- and I think Mr. Radanovich raised the rationale for making rulemaking -- and Congressman Stearns too -- for making rulemaking more complicated under Mag-Moss. It's a legitimate argument. But what we have found is that sometimes it takes six or eight years to do rulemakings, and when it takes six or eight years to do rulemakings, it is impossible to do a rulemaking in a timely manner to stop or to respond to a crisis.

So, for example, two years ago we did a sweep of Internet advertising for mortgages, and we found facially deceptive ads in over 200 different companies on the Internet.

And the commissioners had discussions about what should we do about this? Well, we ended up bringing some cases against the worst malefactors; we wrote letters to everybody. Some people cleaned up their work.

But we couldn't do a rulemaking because under Mag-Moss rules by the time we started or finished the rulemaking, we knew that Congress would legislate in this area as they should. And so if we could have some relief from Mag-Moss, I think we can be more effective in helping consumers.

And it's a legitimate debate. I think when you reach our reauthorization, which I know you want to do this year, we'll have a discussion about the broader, about broader Mag-Moss rulemaking relief and finding malefactors. But again, you can be much more effective if you have fining authority, which we don't have for violations of Section 5. You can be much more effective if you can do some sort of streamlined rulemaking authority, too.

REP. RUSH: My time is up, but I want to inform the members of the subcommittee, if the chairman will indulge us, we want to go through a second round of questioning.

The chair now recognizes the gentleman from California for five minutes, Mr. Radanovich.

REP. RADANOVICH: Thank you, Mr. Chairman.

And welcome, Mr. Leibowitz, to the subcommittee. Congratulations on your recent appointment.

MR. LEIBOWITZ: Thank you so much.

REP. RADANOVICH: I did want to ask a couple questions. This first one -- I'm going to ask about five questions to the subject matter about why would you like the FTC to have an APA notice and comment rulemaking to define unfair deceptive acts for financial services -- is why isn't the current Section 5 authority sufficient?

MR. LEIBOWITZ: Well, I'd say two things. First of all, on the Omnibus Act, we have fining authority for the rules that the Fed issued under the FTC Act and rulemaking authority. We're going to use that to go after deceptive and unfair mortgage servicing and in some other areas.

Why do we want expanded rulemaking authority? Because we think when you write rules, you can set standards for an entire industry. And here, where you have many, many actors, it's better to try to set standards. And also, we've already seen a pattern and practice of bad behavior by many companies -- not all, but many. And so we think it would be helpful; it would make us a more effective agency here.

REP. RADANOVICH: Do you have thoughts on what kind of rules you'd like to propose for the activities that are not already covered under existing statutes?

MR. LEIBOWITZ: We do. I think debt negotiation would be one area. We'd want to work with the committee in thinking about other areas, but yes, we do, and we can get back to you with some more thoughts on that.

REP. RADANOVICH: Okay. What about the -- what would be the most prevalent consumer fraud violations in financial services that you think the FTC should be pursuing that it currently can't?

MR. LEIBOWITZ: Well, I mean, I guess I'd say this: We've found a fair amount of fraud in the entire life cycle of -- with the mortgage instrument, and when you have an economic downturn as severe as the one that we're in now, I think there's more of an incentive to see more of this. So, you know, we're -- in the mortgage area we now have that rulemaking authority that was given to us in the omnibus. We think that's going to be helpful. We think we're going to be able to find malefactors and write good rules. But I think -- and we have deployed more resources; we've really doubled our resources in the last two years to go after predatory financial practices. Having said that, there's just no shortage of bad acts that we can look at in this area.

Most companies, of course, do the right thing, but there are a lot of people who just have been ripping off consumers, and the cases that we brought today sort of attest to that.

REP. RADANOVICH: Right, yeah. And I'll get on to those cases that you brought in just a second.

One more quick question, though: Why can't the commission use your existing authority to propose rules defining unfair acts and practices for financial services? Why can't you use what you have now?

MR. LEIBOWITZ: Well, again, we could do it. But if they're not -- if it's not under APA rulemaking, notice and comment rulemaking, then it takes us literally years to do the rulemaking. I don't think that serves the American people well. I don't think it effectuates what you want us to effectuate on this committee.

REP. RADANOVICH: Okay, thanks.

Now, with regard to the cases that you mentioned that you've listed, and presented a very good record of the cases that the commission has brought under a multitude of laws that you already have to enforce, but unscrupulous actors continue to violate the law. Will more laws or rules reduce that fraud?

MR. LEIBOWITZ: I think -- look, we'll have some of this discussion going forward when you look at our reauthorization. I think growing the agency will be something that would be enormously important. We have about 1,100 employees; we do antitrust and consumer protection. In 1980, we had 1,800 employees, and the population in the United States was a third smaller than it is now. So part of it is more resources, but I also think part of it is the ability to have rulemaking authority.

REP. RADANOVICH: And you've got to balance this idea of dealing with the bad actors, and there may be more of them out there, you know, during this financial crisis, or not; I don't know how you measure how many bad actors are out there. But, you know, the other side of over-enforcement is higher compliance costs, and where do you find the balance to where you're regulating so much that, you know, we have higher costs of goods out there as a result of it?

MR. LEIBOWITZ: Well, Congressman, you're right. I mean, we have to strike the right balance, and reasonable people can disagree about exactly where that balance should be. But, look, we've brought 68 cases in the last five years in the financial services area against malefactors. We have no fining authority. Forty-seven attorneys general, I believe, have fining authority to go after people who violate the law.

And so fining authority is something you get for violating a rule, and that would make us much -- that would be a very important tool in our arsenal. And by the way, when you cast pieces of legislation like CAN-SPAM which came out of this committee, you've given us that fining authority, at least for specific matters. So it's a discussion we want to have with you going forward, but that would be one thing that would make us more effective, I think.

REP. RADANOVICH: All right. Thank you for your answers.

And thank you, Mr. Chairman. I yield back.

REP. RUSH: The chair thanks the gentleman.

The chair now recognizes the gentlelady from California, Ms. Matsui, for five minutes for questioning.

REP. MATSUI: Chairman Leibowitz, as I mentioned in my opening statement, the issue of loan modification scams is a growing problem, particularly in California where we have the highest numbers of homes going into foreclosure. We hear individuals and companies advertising on radio and television with a simple message: that they can lower your mortgage payment and stop your foreclosure. And many of these people are calling themselves foreclosure consultants or in some cases acting like they were government agencies like HUD.

They make guarantees and promises to homeowners seeking help to save their homes. But this help usually comes with a price tag in the form of an advance fee between $1,500 up to $9,000. That being said, I'd like to hear what the FTC is doing to crack down on these fraudulent loan modification scams.

In your written testimony, you announced two new cases targeting mortgage foreclosure rescue scams, bringing your total to eight such cases. Is enforcement the right approach to ending this type of fraud? You initiate eight cases -- will those cases serve as a deterrent to other scammers, and are there other steps that the FTC can take to end these practices?

MR. LEIBOWITZ: Well, that's a great question, and we do think that these -- and by the way, I should mention that we are also members of the Sacramento task force and many task forces in your districts around the country.

Well, I do think that the cases against Hope Now and New Hope, which are two entities that are claiming to be affiliated with the HOPE NOW Alliance, are ones that will be helpful as a deterrent. But we also think that rulemaking authority and fining authority will make our ability to deter more effective.

And again, we want to do rules because they're needed in the mortgage servicing area, in the mortgage modification and rescue area, and going after rescue scams. So we like to be able to use the whole arsenal. We've been given some authority in the Omnibus Appropriations Act that will be helpful. We're looking for more authority from this committee and we want to move forward with that if the committee believes it's appropriate.

REP. MATSUI: Okay. Some examples of fraudulent schemes are, as we mentioned, the advanced fee scams, where, you know, consumers are charged for services never rendered. In exchange for this fee, it's up from $1,500 to $9,000, homeowners are promised guarantees to save their homes.

In some cases, consumers usually pay these fees with a credit card; we should make it easier to track the payment and help the consumer recoup their money. What is the government doing to help recoup these advance fees to make consumers whole again, and is there a mechanism in place to help consumers recoup their advance fees?

MR. LEIBOWITZ: Sure. When we bring these cases -- and, by the way, the Hope Now case is a case that involved an advance fee of ($)1,000 to $1,500. My understanding is that when consumers -- consumers got no help whatsoever, or very little assistance. When they asked for their money back, it was gone.

So when we bring these cases, we try to ask for disgorgement of profits; we try to get redress to consumers. In the case we brought against Bear Stearns' subsidiary, EMC, we got 86,000 redress checks issued. But it's tough, because sometimes these assets dissipate and sometimes it's hard to determine, you know, not in these cases but in other cases, which loans were fraudulently made or which advertisements were deceptive and which ones weren't. And that's why the penalty authority will be very helpful to us if we can get it.

REP. MATSUI: Well, do you think Congress should ban these advance fees?

MR. LEIBOWITZ: I would want to come back -- I would want to think about that. We've certainly seen experience -- we've certainly had experience with these advance-fee scams that -- including advance- fee credit card scams -- that make us think that certainly the practice of a lot of companies should be prohibited. But as for advance fees generally in the financial services area, I would want to think about that because there may be some value when legitimate companies are doing some things with advance fees.

REP. MATSUI: So would you think then that the FTC should declare its view that it's an unfair practice to charge an advance fee for services that do nothing to save a home?

MR. LEIBOWITZ: Well, I would certainly think that we could look at that in the context of our rulemaking, and some states, I believe, do ban advance fees in the financial services area. So it's something we can take a look at.

REP. MATSUI: Okay.

MR. LEIBOWITZ: And I think we probably should in the context of any rulemaking authority we've been given in the omnibus or that you give us additionally.

REP. MATSUI: Okay. Well, thank you very much, and I see my time is up.

REP. RUSH: Thank you.

The chair now recognizes the gentleman from Nebraska, Mr. Lee Terry.

REP. LEE TERRY (R-NE): Thank you, Mr. Chairman. I appreciate this.

The gentlelady brings up, I think, several good points, and, I think, really gets to the heart of the matter and that's if we're going to streamline rules, the procedures for the rules, we want to make sure that they're -- it's going to be effective in protecting consumers, and that you'll be able to use the FTC's authority. But the argument here about advance fees begs the question of who is ultimately going to be able to decide what is deceptive and what is not. Sometimes it's obvious where you can put 100 people together and they'll say that practice is deceptive. There are other things like maybe advance fees that some people will say are deceptive or that are wrong, but they're not deceptive. And so how are we going to split those hairs if you're coming to us and asking us to streamline the rules or the procedures to make your rulemaking? Who should have the authority in there to determine which specific practice is deceptive or not deceptive?

MR. LEIBOWITZ: Well, and I think that's right. And then some practices may be deceptive as practiced by some companies whereas other companies may do them in a legitimate way.

I'd only point this out --

REP. TERRY: That's why it's really hard.

MR. LEIBOWITZ: Right. It's a good question.

And whether we have -- whether we're bringing cases or whether we are enforcing rules that we've promulgated, we have to go before a federal judge. So there is that mechanism as a check and balance against, you know, any excesses of the FTC.

But I don't believe that anybody has suggested at least in the last 25 years that we have engaged in any excesses at our agency. I think people think that we're a pretty good agency and we try to do the right things with our limited resources and leverage those resources.

REP. TERRY: In specific about streamlining the rule process so you can be more nimble --

MR. LEIBOWITZ: Right.

REP. TERRY: -- do you have specifics for us, or is that just kind of a general statement that that would be helpful for you?

MR. LEIBOWITZ: Well, I think it's both in the sense that if we have more agile rulemaking, something closer to APA rulemaking, we can respond more quickly. I do think that we're going to use the APA rulemaking authority given to us in the omnibus act to address foreclosure rescue scams where we know there are very, very serious problems, mortgage modification, where we know there are problems; we know that both because we've testified to it and others have and also because of the Bear Stearns case, where we saw lots of embedded fees that consumers just didn't know about and were being it with.

REP. TERRY: Yeah, those get to be fairly obvious.

MR. LEIBOWITZ: And let me just add --

REP. TERRY: Go ahead.

MR. LEIBOWITZ: My staff pointed out that advance fees are prohibited under CROA. We prohibit them in the telemarketing sales rule, which is an FTC rule. And in some instances, not in every area but in some instances, it has really sort of helped clean up bad practices that harm consumers.

REP. TERRY: All right. And those were developed within your own rules? You decided that in those instances the advance fees --

MR. LEIBOWITZ: The telemarketing sales rules were promulgated by us pursuant to legislation enacted by Congress in the early 1990s, I believe.

REP. TERRY: Right. But for those specific instances with the specifics of advance fees, that was something that you did within the FTC by rulemaking?

MR. LEIBOWITZ: Yes. That's exactly correct.

REP. TERRY: And that's the point that I'm getting to. I guess there's two sides of the coin that we can look at here, and one is we can criticize the FTC over the last eight years for not being aggressive enough. Eight years from now are we going to look back at the FTC when we streamline your rules and say you were overly aggressive and without specific congressional approval defining general practices as deceptive practices thereby freezing trade?

MR. LEIBOWITZ: Look, it's a fair question, but I think in these times of, you know, where we have seen so much harm to consumers by deceptive acts and practices, you might want to, given that we're an agency that has a track record for being aggressive but balanced, you might to err on the side of giving us more authority. Believe me, in the 1960s and '70s, Congress was always able to pare us back when they thought we were going a little bit too far.

But again, you know, in areas like debt collection, in-house debt collection, where we've seen problems, including in the Bear Stearns case, and debt negotiation, those would be areas not covered by the omnibus where we think we could do --

REP. TERRY: In my last 14 seconds, I'm just very curious: In the last several years you said in the financial services area you've brought 40 or 60 --

MR. LEIBOWITZ: Sixty-eight cases.

REP. TERRY: -- 68 complaints. Generally what were those? What's the major area specifically?

MR. LEIBOWITZ: It's really a combination of different areas. It's seven mortgage advertising, five payday loan cases -- six payday loan cases, a couple of fair lending cases, mortgage servicing cases, nine foreclosure rescue scam cases, and 12 credit counseling cases, and 11 debt collection cases. Those are the -- I'm sorry -- and 17 credit repair cases as well.

So it's a combination of -- it's different areas, all mostly within our financial services group. And then we've had our regions -- we have seven regional offices around the country doing more of this, doing more in this area because it's a high priority for us.

REP. RUSH: The gentleman's time is up.

The chair now recognizes the vice chair of the subcommittee, Ms. Schakowsky, for five minutes.

REP. SCHAKOWSKY: Thank you.

Chairman Leibowitz, since 2001 state attorneys general have been active, often aggressively pursuing the bad actors in the field of consumer credit. They took the lead on cases like Household Finance, Ameriquest, Countrywide, and uncovered Not. Sometimes it's obvious where you can put 100 people together and they'll say that practice is deceptive. There are other things like maybe advance fees that some people will say are deceptive or that are wrong, but they're not deceptive. And so how are we going to split those hairs if you're coming to us and asking us to streamline the rules or the procedures to make your rulemaking? Who should have the authority in there to determine which specific practice is deceptive or not deceptive?

MR. LEIBOWITZ: Well, and I think that's right. And then some practices may be deceptive as practiced by some companies whereas other companies may do them in a legitimate way.

I'd only point this out --

REP. TERRY: That's why it's really hard.

MR. LEIBOWITZ: Right. It's a good question.

And whether we have -- whether we're bringing cases or whether we are enforcing rules that we've promulgated, we have to go before a federal judge. So there is that mechanism as a check and balance against, you know, any excesses of the FTC.

But I don't believe that anybody has suggested at least in the last 25 years that we have engaged in any excesses at our agency. I think people think that we're a pretty good agency and we try to do the right things with our limited resources and leverage those resources.

REP. TERRY: In specific about streamlining the rule process so you can be more nimble --

MR. LEIBOWITZ: Right.

REP. TERRY: -- do you have specifics for us, or is that just kind of a general statement that that would be helpful for you?

MR. LEIBOWITZ: Well, I think it's both in the sense that if we have more agile rulemaking, something closer to APA rulemaking, we can respond more quickly. I do think that we're going to use the APA rulemaking authority given to us in the omnibus act to address foreclosure rescue scams where we know there are very, very serious problems, mortgage modification, where we know there are problems; we know that both because we've testified to it and others have and also because of the Bear Stearns case, where we saw lots of embedded fees that consumers just didn't know about and were being it with.

REP. TERRY: Yeah, those get to be fairly obvious.

MR. LEIBOWITZ: And let me just add --

REP. TERRY: Go ahead.

MR. LEIBOWITZ: My staff pointed out that advance fees are prohibited under CROA. We prohibit them in the telemarketing sales rule, which is an FTC rule. And in some instances, not in every area but in some instances, it has really sort of helped clean up bad practices that harm consumers.

REP. TERRY: All right. And those were developed within your own rules? You decided that in those instances the advance fees --

MR. LEIBOWITZ: The telemarketing sales rules were promulgated by us pursuant to legislation enacted by Congress in the early 1990s, I believe.

REP. TERRY: Right. But for those specific instances with the specifics of advance fees, that was something that you did within the FTC by rulemaking?

MR. LEIBOWITZ: Yes. That's exactly correct.

REP. TERRY: And that's the point that I'm getting to. I guess there's two sides of the coin that we can look at here, and one is we can criticize the FTC over the last eight years for not being aggressive enough. Eight years from now are we going to look back at the FTC when we streamline your rules and say you were overly aggressive and without specific congressional approval defining general practices as deceptive practices thereby freezing trade?

MR. LEIBOWITZ: Look, it's a fair question, but I think in these times of, you know, where we have seen so much harm to consumers by deceptive acts and practices, you might want to, given that we're an agency that has a track record for being aggressive but balanced, you might to err on the side of giving us more authority.

Believe me, in the 1960s and '70s, Congress was always able to pare us back when they thought we were going a little bit too far.

But again, you know, in areas like debt collection, in-house debt collection, where we've seen problems, including in the Bear Stearns case, and debt negotiation, those would be areas not covered by the omnibus where we think we could do --

REP. TERRY: In my last 14 seconds, I'm just very curious: In the last several years you said in the financial services area you've brought 40 or 60 --

MR. LEIBOWITZ: Sixty-eight cases.

REP. TERRY: -- 68 complaints. Generally what were those? What's the major area specifically?

MR. LEIBOWITZ: It's really a combination of different areas. It's seven mortgage advertising, five payday loan cases -- six payday loan cases, a couple of fair lending cases, mortgage servicing cases, nine foreclosure rescue scam cases, and 12 credit counseling cases, and 11 debt collection cases. Those are the -- I'm sorry -- and 17 credit repair cases as well.

So it's a combination of -- it's different areas, all mostly within our financial services group. And then we've had our regions -- we have seven regional offices around the country doing more of this, doing more in this area because it's a high priority for us.

REP. RUSH: The gentleman's time is up.

The chair now recognizes the vice chair of the subcommittee, Ms. Schakowsky, for five minutes.

REP. SCHAKOWSKY: Thank you.

Chairman Leibowitz, since 2001 state attorneys general have been active, often aggressively pursuing the bad actors in the field of consumer credit. They took the lead on cases like Household Finance, Ameriquest, Countrywide, and uncovered extensive abusive practices -- inflated appraisals, fabricated income statements, misrepresentations to borrowers, illegal and deceptive fees and rates. Was the FTC approached to participate in these activities?

MR. LEIBOWITZ: I, you know, some of those cases took place before I came to the commission. I believe in Ameridebt, which is a terrific case done by the state AGs, we approached them about whether they needed our help because we're always happy to help with cases. We work a lot with state AGs and I think that they were -- I think that they demurred on that, that they were -- (inaudible).

REP. SCHAKOWSKY: My understanding is that in fact, the commission has often opted not to participate. In fact, a former attorney general, James Tierney, who will be sitting on our second panel, in his testimony he states that the past eight years have been a time of limited cooperation between the FTC and state attorneys general with respect to enforcing consumer protection in the areas of consumer credit and debt. So would you agree with this assessment?

MR. LEIBOWITZ: Well, I would say this: I can't speak for the first -- I can't speak for the first four -- from 2000 to 2004; I wasn't at the commission. From 2005 through now, we have been working fairly often with the states. We are involved in regional task forces.

But look, we can certainly step it up and we certainly will. And one of the things that I'm very heartened about is our very positive conversations with Attorney General Holder about resurrecting the Executive Working Group, which had sort of -- which was very active in the 1990s and sort of flailing in the last eight years. It's a way for us to help coordinate with the Justice Department and with state AGs through regular meetings or consumer protection activities. So I think that will be a big plus.

REP. SCHAKOWSKY: Wonderful.

MR. LEIBOWITZ: And we want to do more going forward.

REP. SCHAKOWSKY: Let me talk about a different area. Under Section 18 of the FTC Act, whenever the commission promulgates a rule on unfair or deceptive acts or practices dealing with consumer credit matters, the Federal Reserve and other banking agencies are required to promulgate a similar rule for depository institutions or explain why such a rule is unnecessary. So were we to give the FTC speedier APA rulemaking under Section 18 of the FTC Act, would this not ameliorate, at least somewhat, the lack of functional regulatory parity because of the reciprocal requirements under Section 18 whereby banking agencies have to consider the FTC's lead?

MR. LEIBOWITZ: Well, Congresswoman, it might very well be helpful. But I think what your question touches on, and I know you know this, is this sort of incredible balkanization, right?

REP. SCHAKOWSKY: Right.

MR. LEIBOWITZ: Consumers don't know whether they've got -- consumers don't care whether they got a mortgage from a bank or whether it came from a mortgage -- a non-bank mortgage company, right?

REP. SCHAKOWSKY: Right.

MR. LEIBOWITZ: If it's deceptive, if it's, you know, a subprime loan, or a non-subprime loan with hidden fees that they don't know about, it's hurting them. So we have this sort of balkanization of authority here. There are three or four different banking entities or banking agencies that have jurisdiction over the 60 percent of the mortgages that are issued by banks.

REP. SCHAKOWSKY: Right.

MR. LEIBOWITZ: We have the jurisdiction over the others. And I think that that's why Elizabeth Warren, professor at Harvard, and a variety of folks on the Hill are thinking, you know, that it may be time to have one single entitle that protects consumers from predatory financial instruments.

And certainly I know people on this committee are thinking about that, and I want to make sure that you know from our perspective we're a consumer protection agency.

REP. SCHAKOWSKY: So you could do banks as well, is what you're saying.

MR. LEIBOWITZ: We could do banks. We could do banks as well. I would say with this qualification: The banking agencies, you know, they're mostly concerned with safety and soundness. We don't do safety and soundness, so we're not those kinds of bank regulators. But if you want an entity to do consumer protection for consumers who have financial instruments, we can do that really, really well.

REP. SCHAKOWSKY: Okay, let me ask the final thing.

MR. LEIBOWITZ: Sure.

REP. SCHAKOWSKY: There was a colloquy on the Senate floor that clarified the authority, that is, this trigger under Section 18 only applied -- was not under Section 18 and only applied to non-banks. Do you see this, if it goes forward, as a missed opportunity?

MR. LEIBOWITZ: Well, you know -- do I personally see it as a missed opportunity? I certainly think Congress needs to look at the notion of a single entity, whether it's housed in the FTC or whether it's a new one, to protect consumers from predatory financial instruments, deceptive and unfair ones.

I see this as actually an opportunity for us because the language in the Omnibus Appropriations Act gives us rulemaking throughout the entire life cycle of a mortgage, only, of course, for non-bank issued mortgages. But that's a real opportunity to do rulemaking and after we do rulemaking to actually be able to have standards, you get those from rules, and to find malefactors who fall below those standards.

So I see your point and I -- you know, we are very supportive of Congress having a discussion about, you know, creating an entity to protect consumers here. But I also think we've been struggling for this legislation for quite some time. It's going to be helpful to us.

Thank you.

REP. RUSH: The chair now recognizes the gentlelady from Ohio, Ms. Sutton, for five minutes.

REP. SUTTON: Thank you so much.

And thank you Mr. Chairman, for your commitment to look after the entire life cycle of credit.

There are so many questions that I have, I'm going to probably need to follow up after the course of this hearing to try and unravel exactly what is going on out there, because I can tell you that my constituents are feeling the effects of all of this confusion. It's kind of confusing for anyone who's watching this hearing to figure out who has authority over what and who has the responsibility to protect them, let alone, you know, nowhere to turn.

So in the last line of questioning from my distinguished colleague Representative Schakowsky, you were talking about the new opportunity you have, within limits, for rulemaking. But if I was to ask you this question, it sounds to me like you have limited opportunity for rulemaking that will provide some people protection, but there's a whole 'nother category of people out there who may be suffering from the very same thing and the same practices over which you have no ability to help them. Is that correct?

MR. LEIBOWITZ: That is correct.

REP. SUTTON: Okay.

Let me go on record as saying I don't think that makes any sense.

MR. LEIBOWITZ: No, that makes a lot of sense. And again, you know, and, I mean, going back to Ms. Schakowsky's questions, one of the other things that is sort of peculiar about this rulemaking is that the Fed can enact, promulgate rules under the FTC Act by notice and comment rulemaking, APA rulemaking, the simple rulemaking that we can then enforce over non-bank mortgage companies, over non-bank- issued mortgages. But if we want to do that rulemaking right now, it would have to be under Magnuson-Moss and it would never get done, because contested rulemakings under Magnuson-Moss just don't get done.

So we're glad that they promulgated these rules. We're glad we can enforce them. We think those rules are going to be helpful in curbing bad advertising and things like liars' loans. But it is like trying to -- even for the commission, and all of the commissioners are very, very hardworking, you know, it is like running through a rabbit warren to try to figure out how these laws interact and regulations interact with each other.

REP. SUTTON: Well, again, I appreciate that very much, because it seems like we should be able to inject some more sense into the process and into this puzzle.

In your testimony on Page 8, you talked about suing a credit card marketing company. Obviously you can reach the credit card marketing company. Can you tell me what -- what exactly is a credit card marketing company?

MR. LEIBOWITZ: Well, we can't reach -- as you know, we can't reach bank-issued credit cards, which is about, I think someone said, 75 percent; I think it's now probably up to about 95 percent. So a credit card marketing company is simply a non-bank affiliate or surrogate that markets the credit card. And what we found with some of our advanced-fee cases is they'll say you can have a credit card, give us $500, and then when you give then $500 some of them is taken away by fees, by monthly -- by prohibitive monthly costs, or you can only use the credit card to buy from their catalog. So those are some of the types of cases we've brought.

And then we had a major case involving a company called CompuCredit, which we brought jointly with the banking agencies, where they had -- and it was a credit card company that actually targeted subprime borrowers, people who couldn't otherwise get credit cards.

REP. SUTTON: Right.

MR. LEIBOWITZ: So that's sort of laudatory at some level. But the credit card limit was $300 and the first month had $185 in fees, which weren't accurately disclosed, we alleged. And we had a settlement for $115 million for consumers just the end of last year. That was very, very important for us.

REP. SUTTON: Okay. So the question that I have, though, is if a bank is engaging in the exact same activity, can you do anything about it?

MR. LEIBOWITZ: You know, we could run across the hall to the banking agencies where they're testifying and tell them they should take a look at it. We can go talk to them, but we can't do anything about it.

REP. SUTTON: That's my point and that's my concern. Okay.

Mr. Chairman, I'll hold my questions at this point until the next round.

REP. RUSH: The chair thanks the gentlelady.

The chairman now recognizes my friend, the gentleman from Pennsylvania, Mr. Pitts for five minutes.

REP. PITTS: Thank you, Mr. Chairman.

Mr. Leibowitz, as an overwhelming number of mortgage fraud cases began to surface in 2007, the FBI formed a Financial Crimes Task Force and has had more cases than it can handle and these are largely criminal fraud cases. Does the FTC have a role in investing these cases, and, if so, would you elaborate?

MR. LEIBOWITZ: I want to get back to you on those cases. We do a lot of work with the postal inspectors. We do some work with the FBI, of course. But when we see something that's criminal, we generally refer it to the Justice Department. And if they'll take it, they have, you know, more appropriate sanctions than we do. We, you know, generally can only get redress and disgorgement and stop the bad conduct. So sometimes we're sort of the fallback entity for going after fraudulent behavior in this area. But I will get back to you on whether we've worked with the FBI task force specifically.

REP. PITTS: Okay, thank you.

The commission has conducted research on ways to improve mortgage disclosure. If the disclosure documents were simplified in a manner that provided relevant information similar to the prototype disclosure developed by the commission, would that have prevented any of the fraud that occurred in the home mortgage loan market, in your opinion? Or might fraudsters simply find a way around that simplified uniform disclosure?

MR. LEIBOWITZ: Well, I would say this: Fraudsters, you know, can often find a way around even simplified disclosures.

And I hope all of you have the draft disclosure form on your desks. If not, we'll make sure we get you copies.

But sometimes what's happening is that consumers don't see imbedded fees. And what we've done with our sort of disclosure form, it's simple -- we've copy-tested it. In other words, we've asked consumers to look at this and compare it to the existing HUD, RESPA, TILA forms that they use. And those forms have both -- they're both over-inclusive and under-inclusive. They have too much information so consumers don't know what to focus on and they don't focus on some specific aspects of information.

So can I say to you that -- can I say to you that it would prohibit, it would have stopped a specific fraud? I don't think so. But would it have sort of helped some consumers make more informed decisions when they're dealing maybe not with deception but more with unfairness? We think it might have. And even for, by the way, for consumers -- I mean, these forms, or this draft form and others like it, you know, it doesn't just help the consumer who's being ripped off. It helps the consumer who wants to be able to make informed choices, right? He can say well here, you know, the fees are going to be more and here the fees and the overall cost of the loan will be less. So that's, you know, just helping consumers like all of us make choices from among competitors.

REP. PITTS: Now the FTC prohibits both unfair and deceptive practices?

MR. LEIBOWITZ: That's correct.

REP. PITTS: Unfair is defined as any act that causes or is likely to cause substantial injury to consumers which is not reasonably avoidable by consumers themselves and not outweighed by countervailing benefits to consumers or to competition. Bringing an enforcement action for violation of a deceptive practice is much more common for the FTC.

MR. LEIBOWITZ: Right.

REP. PITTS: Why are unfair cases brought so infrequently?

MR. LEIBOWITZ: Well, I think, you know, you articulated, I think you read directly from the statutory authority we have. They are -- it is harder to show unfairness. Unfairness is a sometimes more amorphous term. So when we see -- I mean, when we're going after your usual, a typical bottom feeder who's ripping of consumers, we just see -- I mean, it's clear deception. But sometimes, for example, in our spyware cases and in a variety of our other cases involving data security and Internet-related problems, we'll use our unfairness. We've been using it actually more in the last several years because we think it's important.

REP. PITTS: Should unfair acts be better defined to provide greater certainty, to make enforcement easier?

MR. LEIBOWITZ: I would say certainly if we had a little more leverage in our unfairness standard we might be able to bring unfairness cases more often. We had a much broader standard in the 1960s and '70s and then -- and through the late 1970s. And then Congress asked us to modify, first of our own volition and then put it in the statute I think in 1992, our unfairness authority. So this has been the subject of some debate going back and forth about whether we should have a little more flexibility here. We'd love to work with you on this.

REP. PITTS: Thank you.

My time is up. Thank you, Mr. Chairman.

REP. RUSH: The chairman now recognizes the gentleman from Texas, Mr. Green, for five minutes.

REP. GREEN: Thank you, Mr. Chairman.

Mr. Chairman, as issue came up just now and I was going to ask you: Is there any numbers that the FTC could share with the committee on the number of criminal prosecutions that are referred to the Justice Department that actually are taken by the Justice Department? Because I think that's something we'd like to see.

MR. LEIBOWITZ: Yeah. We will get you -- we will get you that information. We do have a -- Tim Muris, who was the first chairman under President Bush, set up a criminal liaison unit which is still -- which we still have and which takes some of the cases that are clearly of a criminal nature, where we start investigations, and sends it over to the Justice Department or to certain other prosecutors. So we can get you that information, some of it with the caveat that I have to go back and look. Some of it may be confidential. And then sometimes, again, as you know from the cases, because you know our agency --

REP. GREEN: We just need the numbers.

MR. LEIBOWITZ: Yeah, we'll get you the numbers.

REP. GREEN: And if they're cases that are definitely not controversial, it would be interesting to see what type of cases may not be accepted and what type would be.

MR. LEIBOWITZ: Right. I can just tell you, as a general matter, sometimes the cases don't rise to the level of ones that the Justice Department wants to prosecute so we do it ourselves.

REP. GREEN: And you have the ability to do it yourself?

MR. LEIBOWITZ: Not as a criminal matter but as a civil matter.

REP. GREEN: From the civil side.

MR. LEIBOWITZ: To stop ongoing harm.

REP. GREEN: Our office has been hearing from constituents concerned that the free credit reports that do not list all the information that credit lending entities have access to -- do you know if there is a case and, if so, do you believe consumers should have access to all this information? It seems that consumers should have access to all the credit information available to them. Have you heard of that or has that been an issue with the FTC?

MR. LEIBOWITZ: Yeah. I think if we're -- we brought a case I think in 2002 or 2003 before I got to the commission, against FreeCreditReport.com for -- I think -- I'm summarizing it, but I believe for actually charging fees. There is a place where consumers can go to get a free credit report without entering into a contract, a monthly contract, and I think that's called Annual Credit Report. And we actually, not to make light of this, but we actually put out a spoof of FreeCreditReport.com that got picked up by YouTube and by a variety of other media outlets just two weeks ago.

So this is an area of some concern to us and I know to consumers. We do get complains on this.

REP. GREEN: Well, what I was going to say, there may be things that the consumer may not -- that's not on that report that's being used for their credit rating. That was the issue.

MR. LEIBOWITZ: (Inaudible) -- credit reports? Are you talking about credit scores?

REP. GREEN: Yeah.

MR. LEIBOWITZ: Yeah. They're included in the free credit report.

REP. GREEN: And is there any restriction on those, what can be considered to go into your credit score, either by practice or by rule or statute?

MR. LEIBOWITZ: (Off mike consultation.)

REP. GREEN: Yeah, I don't think so. I can't imagine it being -- you know, if you have --

MR. LEIBOWITZ: Congressman, let me get back to you on that.

REP. GREEN: Okay.

MR. LEIBOWITZ: It's a legitimate question. I want to give you the right answer.

REP. GREEN: I know I only have a minute left but there are many varieties of mortgage foreclosure rescue fraud, but (in ?) each case the perpetrator makes misleading promises the consumer's home will be saved from pending foreclosure permanently. Most consumers end up losing their home, however, as well as the money they paid to these scammers.

I'm aware the FTC took action in February to sue a company operating one of these scams, and I commend you for that. How widespread is the problem, and does the commission have the tools and resources to go after a lot of bad actors, not only the one you sued but it seems like some of it may even be cottage industries that we're seeing in regional areas and not maybe national.

MR. LEIBOWITZ: Right. Well, with the entity that we just brought an action against today that's impersonating HUD, we're having a sort of whack-a-mole problem with them because we found the site. The site was -- we found the site. The HUD inspector general took it down. Then it popped up again under a website from Germany, registered in Germany. And then we've taken that site down. So we have a little long-arm problem in terms of asserting our jurisdiction.

The other thing is that if we can find these malefactors, which the Omnibus Appropriations Act will let us do -- or a provision that Senator Dorgan got into the Omnibus Appropriations Act will let us do -- I think that would be very, very helpful. And we will do a rulemaking on foreclosure rescue scams and also deceptive modifications and --

REP. GREEN: If you'd share that with us even though we're not on -- (inaudible) -- you know, a rider to the appropriations bill and maybe not rise to the need for an authorization, but some of us could help with getting the encouragement of the appropriators to include that.

MR. LEIBOWITZ: We would love to work with you. We would love your help.

REP. GREEN: Thank you.

REP. RUSH: The chair now recognizes the gentleman from Michigan, Mr. Stupak, for five minutes.

REP. BART STUPAK (D-MI): Thank you, Mr. Chairman.

Chairman Leibowitz, thanks for being here.

The commission, as you've indicated, has authority under Section 18 of the Federal Trade Commission Act, and I understand it's particularly cumbersome. Instead of promulgating rules under the APA, the commission must go through a far more difficult process known as the Magnuson-Moss Act.

So my question is: Since you've been chair, has the commission considered promulgating a rule under the Magnuson-Moss Act, or have you just sort of disregarded the whole process?

MR. LEIBOWITZ: We have a few rules that we're in the process of promulgating outside of this area under Mag-Moss, but they're generally sort of not -- good government rules, but noncontroversial rules, because under Mag-Moss, if you want to promulgate a rule --

REP. STUPAK: Right.

MR. LEIBOWITZ: -- and there's an opposition to that rule, they get to require an independent referee, multiple rounds of submissions, and it takes a really long time.

REP. STUPAK: Do you think Congress should just repeal that?

MR. LEIBOWITZ: I would say this: There are probably some legitimate reasons why Congress gave us this cumbersome rulemaking --

REP. STUPAK: Can you give me one reason why they'd give you such a burdensome procedure if our purpose is to protect the consumer from --

MR. LEIBOWITZ: Off the top of my head, no.

REP. STUPAK: Yeah.

MR. LEIBOWITZ: But I would say this: I certainly think some relief from Magnuson-Moss would be justified.

I think the original -- look, we're an agency that Congress wanted to give us, when they created us in 1914, enormously broad jurisdiction, but fairly limited remedies, right, as opposed to the Justice Department --

REP. STUPAK: Right.

MR. LEIBOWITZ: -- where they have to go after more specific crimes and they put people in jail; they having fining authority.

And so the rationale for Mag-Moss, I suppose, is that it sort of slows things down because we have such broad jurisdiction. I do think over time what we've found is that some relief to Mag-Moss would be helpful in allowing us to have leverage over the bad guys.

So, for example, I think 47 attorneys -- when you promulgate a rule, you can get a fine for a violation of a rule. Otherwise when we use our Section 5 authority, you can't do that. And so if we can find malefactors as 47 attorneys general can do, that would make us more effective in doing what you want us to do, which is protecting consumers from, you know --

REP. STUPAK: But in order to protect consumers, you have to move quicker. I mean, we don't want you to be the Justice Department, because you indicated well, you don't have fines and all that, but isn't -- really your power is to look for that unfair and deceptive practices and act quickly to cease and desist? Isn't that really the role of the FTC? It seems like Magnuson-Moss is just the opposite. It slows you down so you cannot be nimble and react to --

MR. LEIBOWITZ: Well, that's exactly --

REP. STUPAK: -- current events.

MR. LEIBOWITZ: -- I mean, that's exactly right. In a controversial rulemaking, you know, in a rulemaking where there's opposition, and many good rulemakings have opposition, you know, we would always look to see what all stakeholders want. Of course we're going to do that, and we're going to do that in the rulemakings that we've gotten in the omnibus appropriations, which will be APA rulemakings.

REP. STUPAK: Right, but even that's limited. In the omnibus your rule-make authority, that's somewhat limited is it not --

MR. LEIBOWITZ: It's limited --

REP. STUPAK: -- in the omnibus.

MR. LEIBOWITZ: It applies to mortgages --

REP. STUPAK: Right.

MR. LEIBOWITZ: -- but not other financial instruments not issued by banks. And of course, it only goes to non-bank issued mortgages. But it's still better than what we had, so we're very grateful for it, and we thank this committee for protecting it in the omnibus.

REP. STUPAK: Well, let me ask you this: Since 2001, the attorney generals have been active and very aggressive in pursuing bad actors in the field of consumer credit. They took the lead on cases against Household Finance, Ameriquest and Countrywide and uncovered extensive abusive practices -- inflated appraisals, fabricated income statements, misrepresentations to borrowers, and illegal and deceptive fees and rates.

Was the FTC approached to participate with the AGs in their --

MR. LEIBOWITZ: In some cases we have, and we have participated with them. In some cases they've done it on their own and I believe demurred when we've offered help. And then probably there are some cases, you know, again, in hindsight that we should have been involved in earlier, but they took the lead on.

The attorneys general have been terrific in, you know, protecting consumers. I don't think we've been slackers at all. I think we've been pretty good. But on a going-forward basis, we're going to work more with the attorneys general.

REP. STUPAK: Okay, so how do you envision a working closer relationship between the states as you're now the newly appointed chairman because I think it's important to all the states -- bring forth, but sometimes they look to you for resources and to help them with these investigations. And I would think that what goes on in one part of the country is probably going on in the other part of the country and therefore the FTC should be more involved and should have a closer working relationship with the state AGs.

MR. LEIBOWITZ: Well, I absolutely agree with that. And of course, we can have -- it's easier for us to get remedies that apply across all states. Right?

REP. STUPAK: Correct.

MR. LEIBOWITZ: And so much of the -- so many of the bad acts in the mortgage industry --

REP. STUPAK: Well, have you reached out to the AGs?

MR. LEIBOWITZ: Yes, we have reached out to the AGs. And we've also reached out to the attorney general. You may not have been here when I talked about this, but we're in the process of trying to resurrect something called the Executive Working Group -- which was very active in the 1990s; it sort of stopped in the last eight years -- that involves Justice, the attorneys general and the Federal Trade Commission having regular meetings to coordinate activities. That's going to be very, very helpful going forward.

REP. STUPAK: You're right. I didn't hear that earlier testimony. I'm glad to hear it and I urge you to continue that progress.

Thanks.

REP. RUSH: The chair thanks the gentleman.

The chair now recognizes himself for two minutes of additional questions.

Chairman Leibowitz, if this Congress would enhance and expand your regulatory authority, can the commission set up a separate office to regulate and enforce consumer credit abuses? And if so, would this compromise other core functions of the FTC?

MR. LEIBOWITZ: Well, I would say this: As you know, Mr. Chairman, you know, we're a small agency with a pretty large mission and we have to leverage our resources all the time, so if you give us that authority -- and I think a majority of the commission would be willing to embrace that authority and think we could do good things for consumers -- we will need more resources.

I don't know that we need to grow to the level we were at in 1980, which was 1,800 FTEs, but I think we, you know, to discharge -- what you don't want us to do is to take people away from spyware cases and other types of fraud cases and then simply move them to the newest, most problematic area and forget about all the other things we do.

So it's a -- I think we need more resources. I do know the appropriations committees are interested in giving us more resources and have given us small plus-ups over the last couple years because they like what we're doing, but we'd probably need additional resources on top of that.

REP. RUSH: I have less than one minute and I just want to ask another question. I'd like to touch on payday lending. I believe that payday lenders have a role in our economy, but there are far too many abuses.

Does the FTC have authority to crack down on payday lending practices such as rollover fees, and is specific statutory language needed to direct the commission to adequately deal with certain abusive payday lending features?

MR. LEIBOWITZ: Well, I would say yes and no. We've brought about a half dozen payday lending cases in the last five years. We don't have obviously -- Congress set a cap I believe for payday loans outside of military bases at 36 percent a couple of years ago.

We obviously don't have the authority to set a cap, but one thing we've found in our payday loan cases is that malefactors have sort of embedded fees that consumers don't know about. And so they'll pay off their loan in two weeks but it will be a day late, and so then there'll be a fee that pops up and then it's compounded and then they're sort of in a worse cycle of debt,

So we have the authority to do that. I think if you gave us the authority the go -- if you gave us the authority to do rulemakings, we would look at ways to promulgate rules that would require better behavior by a lot of the payday lenders.

REP. RUSH: The chair recognizes now Mr. Radanovich for two minutes for additional questioning.

REP. RADANOVICH: Thank you, Mr. Chairman.

Mr. Leibowitz, you had mentioned that commissioners decided not to initiate a rulemaking on deceptive Internet advertising and the reason was because Congress would eventually act on the issue, but you would have if you could proceed under the APA.

And it sounds like -- and I want to have a discussion about this -- that you're suggesting that the FTC APA rulemaking would obviate the need for a legislative body at all. And adding to that question, I think I would ask, isn't the Magnuson-Moss process intentionally deliberate, similar to the congressional legislative process?

I mean, you know, the Founding Fathers set this whole thing up so that legislating was difficult and should your job be made easier or should you have to deliberate with us --

MR. LEIBOWITZ: Well, we always --

REP. RADANOVICH: -- you know, on the proper approach to these problems?

MR. LEIBOWITZ: All of us think our job should be made easier, but --

REP. RADANOVICH: Right.

MR. LEIBOWITZ: -- I don't mean to suggest that we would have obviated the need for congressional legislation if we had been able to do a rulemaking.

And I don't mean to say that we wouldn't have stopped, you know, the economic mess that we all know we're in. But I do think we could have cleaned things up more quickly if we had APA rulemaking or something closer to APA rulemaking.

But, again, these were just discussions among commissioners because we knew that under APA -- we knew that under Mag-Moss rulemaking it would be very, very hard to do a rule in a timely manner. And that's the problem with Mag-Moss rulemaking.

I don't mean to say that there isn't -- I don't know if you were here when I was having a conversation with Mr. Stupak. There's a rationale for having us make rules more slowly, and certainly among folks who follow the FTC and have for years and decades, there might have been some excesses perceived or real in the 1970s that led to some of the restrictions, for example, the restriction on unfairness that makes, as Mr. Pitts pointed out, makes it difficult for us to bring an unfairness case.

But having said that, I think it's worth -- and I know you're interested in just discussing this issue further about whether it makes sense to give us some relief from Mag-Moss doesn't necessarily mean it has to go all the way over to APA rulemaking.

But I do think in some areas, you know, you want us to be able to act more nimbly, more agilely and more quickly, maybe not in every area, but in some. And when you've passed new rules or new laws, like CAN-SPAM, you've given us that APA rulemaking, and we have that APA rulemaking in the omnibus for mortgages, for everything in the mortgage life cycle.

So, I mean, one thing is watch to see how we do in the mortgage -- with the rulemaking authority we have. If we do a balanced job, maybe it makes sense to give us just a little bit longer leash.

REP. RADANOVICH: All right. Thank you.

MR. LEIBOWITZ: Thank you.

REP. RUSH: The chair now recognizes the gentlelady from Ohio for two minutes.

REP. SUTTON: Thank you, Mr. Chairman.

You heard some discussion here about the state attorney generals, and in my opening statement I talked about some of the actions that we have taken in Ohio.

But even after all that we have done, I'm going to read to you the headline of a report from the Housing Research and Advocacy Center that is in Cleveland. The headline reads: "Payday Lenders Operating in 81 Ohio Counties Charging Up To 680 Percent Interest. Lenders Avoiding the 28 Percent APR Cap Passed by Legislature and Voters" -- that's at the state level -- "in 1,020 Stores Statewide."

And just to give you an idea of what's happening here, despite legislation passed in 2008 aimed at lower interest rates on short-term loans, payday lenders are operating, as the headline reads, in 81 of Ohio's 88 counties, making loans in some cases that carry that extraordinary annual percentage rate -- 24 times more the rate that was approved by the legislature for such lending, and they've avoided the 28 percent cap by using other laws. So they're very crafty and they're very quick at making the necessary adjustments to continue to reap what they reap.

I guess my question just is: What can you do to help or what can we do to help?

MR. LEIBOWITZ: Well, I mean, you know, there's no magic bullet for solving these problems, as I'm sure you know.

I was asking my staff about usury laws in different states yesterday as I was preparing for the hearing, and someone pointed out that in Missouri the cap is 2,000 percent. So you borrow $100, you forget about it, the next year you owe $2,000.

Look, one part is working with the attorneys general because we have to leverage our limited resources and that's a part of it. Another part is consumer education. We have a terrific consumer education group and that's a part of it.

You know, I wish I could tell you there's a particular answer to this problem, but it there just isn't and we all have to sort of pull -- and by the way, as more people are unemployed, as the economy continues to spiral down, you're going to see more of these problems, you're going to see more people borrowing from payday lenders.

Now, Congress made the determination that outside of military bases payday lenders should be capped at I think 36 percent. I suppose Congress could make the determination that payday lenders should be capped at 36 percent and limited in fees, but that's a decision for you to make.

I will say this: If you give us more authority to do rulemaking in this area, we'll take a look at payday loans.

REP. SUTTON: With the chair's indulgence, I appreciate that.

And thank you for bringing up the issue about loans near military bases, and I'd like to follow up with you about that as well because I understand that still problems remain and I would like to talk about how we actually aggressively go after that.

REP. RUSH: The chair thanks the gentlelady.

And the chair thanks the chairman again for the expansive use of his time. We know that you are quite busy and we certainly thank you for your enlightening commentary to this committee. We do intend to work with you on these and other matters as we proceed, and now we just want to let you know that we appreciate your presence here.

MR. LEIBOWITZ: Thank you much.

REP. RUSH: And the chair now calls the second panel to the witness table.

END.


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