FTC To Crack Down On Deceptive Lenders

Sep 14th, 2007 @ 7:25 AM by Alden Smith

 If you watch the evening news at all, you have seen segments featuring people that are facing foreclosure stating that they had no idea of the terms of their contracts with the lending institution.  I witnessed just one example on NBC Nightly News.  The lady said that at closing they just kept shoving more and more paperwork at her, asking her to sign.  Becoming frustrated with the process, she failed to read the documents thoroughly.  She now faces foreclosure on a loan that has reset and placed her in a position where she can no longer meet monthly payment.

I know where she is coming from.  Even in a closing that is above board, the client gets confused with the myriad of paperwork.  Having been to several closings myself, I can clearly see how this can happen.  I have also dealt with a very shady lender that had all the classic attributes that people are constantly warned about, such as signing documents that aren’t fully filed out yet, and the lender inflating my income to secure the loan.

What Are The Feds Doing?

The Federal Trade Commission (FTC) has finally taken a stand against these practices.  They are clamping down on deceptive practices, such as the lenders that are prolific online.  One site mentioned in my research was LowerMyBills.com.  This site is owned by Experian, the large credit reporting agency.  In an article written by John W. Schoen on MSNBC.com, he reports that the Fed has sent warning letters to over 200 mortgage brokers, lenders and media outlets, warning them to do something about potentially deceptive ads that withholds information from prospective clients.

 One of the things targeted was the practice of low teaser rates that show low interest rates, and then failing to explain to the consumer that these rates would reset, sometimes at a much higher interest rates.  The FTC believes that these warnings should be prominently posted in as visible a manner as the beginning rate.  I agree.

Locking the Bar Door After the Horse is Stolen

 To my way of thinking, they are doing to little to late.  Surely, the Fed must have known these practices were going on, yet looked the other way.  Why did it take big crash in the sub-prime market to bring this deceptive practice to light?  I am reminded of a very dangerous S-curve on a road I lived on in the country.  We had people getting in serious accidents on those curves, and brought this issue to the attention of the Road Commission.  Their response as to why they would not put guard rails on this curve was “no one has been killed yet, so we cannot justify the expense.”  How many people need to face disaster and the pain of foreclosure before something is done about the deceptive practices of unscrupulous lenders?  Do they need to see a suicide rate begin to balloon first?

 What They’re Talking About on the Hill

Folks on Capitol Hill are debating this problem.  Many feel that the government should step in, and use the giant federally supported lending agencies Fannie Mae and Freddie Mac to take over loans for people facing foreclosure.  Opponents of that theory feel that it is not the government’s responsibility to bail out people who have made poor choices. Many of the people following the sub-prime debacle, however, feel that many of these consumers were duped by predatory lenders who did not properly disclose the effects of adjustable rate mortgages, which can reset at a very fast pace.  What we have here is “six of one, a half dozen of the other.”  There is no quick cure.

In Conclusion

 The recent troubles in the sub-prime market have done one good thing at least.  Financing for these potentially deadly loans has all but dried up.  That is a good thing.  However, many predatory lenders are still advertising these deceptive loans, and that is something that must be addressed.  We must see truth in lending and truth in the marketplace in order to bring the market back on an even keel.