To the dismay of the consumer financial services industry, the Omnibus Appropriations Act, signed by President Obama on March 11, 2009, does more than appropriate funds. It gives the Federal Trade Commission new authority to write rules for mortgage loans and gives state attorneys general new authority to enforce those FTC rules and the Truth in Lending Act (TILA). A summary of this new authority follows.

FTC Mortgage Rules. Section 626 of the Appropriations Act directs the FTC to initiate an Administrative Procedure Act rulemaking proceeding with respect to "mortgage loans" by June 9, 2009. Once the final mortgage rules are in effect, a violation will be treated as a violation of a trade regulation rule under Section 18 of the FTC Act. That means that not only will the FTC be able to sue the violator to recover statutory penalties of up to $16,000 per violation, but the FTC will also be able to sue the violator to recover the monetary damages to consumers resulting from the violation.

The FTC does not have jurisdiction to enforce the FTC Act against depository institutions and has not previously had authority to adopt regulations applicable to such institutions. Section 626 does not explicitly address whether the new rules will extend to depository institutions but conceivably could be read to produce this result. To address that possibility, several Senators opined on the Senate floor that the Appropriations Act was not intended to provide the FTC with authority to apply the new rules to FDIC-insured depository institutions. In their exchange, the Senators also expressed their intention to amend Section 626 to clarify the scope of the FTC's authority and observed that the FTC "should be required to consult with the Federal Reserve Board in developing their rule" (presumably to promote consistency between the FTC's new rules and the mortgage rules already adopted by the Board under TILA). However, even if concerns about FTC authority are eliminated, Section 626 would still create the possibility that once the FTC adopts its new rules, the FTC Act would require the federal banking and credit union regulators to promulgate substantially similar rules for the entities they regulate.

State Attorneys General Enforcement Authority. Section 626 also gives state attorneys general authority to enforce TILA and the new FTC mortgage rules. Except in the case of violations of the requirements for "high cost" mortgage loans under the Home Ownership and Equity Protection Act provisions of TILA, state attorneys general currently do not have authority to enforce TILA. Enforcement authority rests with federal banking and credit union regulators as to depository institutions and with the FTC as to non-bank creditors. Because Section 626 does not specify the scope of the new enforcement authority it gives to state attorneys general, it creates the possibility that depository institutions, including national banks and federal savings institutions, which have historically been exempt from enforcement actions by state officials, could be sued by state attorneys generals. (As reported in our January 26, 2009, alert, the U.S. Supreme Court will hear a case next month involving the issue of whether a state authority can enforce state fair lending laws against a national bank.)

The same Senators indicated that the authority given to state attorneys general was not intended to allow enforcement actions against bank entities and once again expressed an intention to seek a clarifying amendment.

Ballard Spahr's Consumer Financial Services Group regularly represents lenders in litigation with regulatory authorities and private parties, including plaintiffs attempting to pursue class action lawsuits. For further information, please contact Alan S. Kaplinsky, 215.864.8544 or; Jeremy T. Rosenblum, 215.864.8505 or; John L. Culhane, 215.864.8535 or; or Barbara S.Mishkin, 215.864.8528 or

Copyright © 2009 by Ballard Spahr LLP.
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