FTC Issues Final Mortgage Assistance Relief Services (MARS) Rule, Banning Advance Fees and Requiring Various Disclosures

The FTC issued its final Mortgage Assistance Relief Services (MARS) Rule and Statement of Basis and Purpose concerning the practices of for-profit companies that, in exchange for a fee, offer to work on behalf of consumers to help them obtain modifications to the terms of mortgage loans or to avoid foreclosure on those loans.


In sum, the Final Rule, among other things, would: (1) prohibit providers of such mortgage assistance relief services from making false or misleading claims; (2) mandate that providers disclose certain information about these services; (3) bar the collection of advance fees for these services; (4) prohibit anyone from providing substantial assistance or support to another they know or consciously avoid knowing is engaged in a violation of the Rule; and (5) impose recordkeeping and compliance requirements.

A copy of the final rule is available online at: http://www.ftc.gov/os/2010/11/R911003mars.pdf

Advance fee ban

Under this provision of the Final Rule, MARS companies may not collect any fees until they have provided consumers with a written offer from their lender or servicer that the consumer decides is acceptable, and a written document from the lender or servicer describing the key changes to the mortgage that would result if the consumer accepts the offer. MARS companies also must remind consumers of their right to reject the offer without any charge.

Disclosures

In their advertising and in communications directed at individual consumers (such as telemarketing calls), MARS companies must disclose that:

• they are not associated with the government, and their services have not been approved by the government or the consumer’s lender;

• the lender may not agree to change the consumer’s loan; and

• if companies tell consumers to stop paying their mortgage, they must also tell them that they could lose their home and damage their credit rating.

MARS companies also must explain in their communications to consumers that they can stop doing business with the company at any time, can accept or reject any offer the company obtains from the lender or servicer, and, if they reject the offer, they don’t have to pay the company’s fee. MARS companies also must disclose the amount of the fee.

Prohibited claims

The MARS Rule prohibits mortgage relief companies from making any false or misleading claims about their services, including claims about:

• the likelihood of consumers getting the results they seek;

• the company’s affiliation with government or private entities;

• the consumer’s payment and other mortgage obligations;

• the company’s refund and cancellation policies;

• whether the company has performed the services it promised;

• whether the company will provide legal representation to consumers;

• the availability or cost of any alternative to for-profit mortgage assistance relief services;

• the amount of money a consumer will save by using their services; or

• the cost of the services.

In addition, the rule bars mortgage relief companies from telling consumers to stop communicating with their lenders or servicers. MARS companies also must have reliable evidence to back up any claims they make about the benefits, performance, or effectiveness of the services they provide.

Attorney exemption

Attorneys are generally exempt from the rule if they meet three conditions: (1) they are engaged in the practice of law; (2) they are licensed in the state where the consumer or the dwelling is located; and (3) they are complying with state laws and regulations governing attorney conduct related to the rule.

In order to be exempt from the advance fee ban, attorneys must also meet a fourth requirement: they must place any fees they collect in a client trust account, and abide by state laws and regulations covering such accounts.

The FTC and states may enforce the Rule. However, before a state brings such an action, states must give 60 days advance notice to the Commission or other “primary federal regulator” of the proposed defendant, and the regulator has the right to intervene in the action.

All provisions of the rule except the advance-fee ban will become effective December 29, 2010.

The advance-fee ban provisions will become effective January 31, 2011.