FTC touts TIL-related actions
By MortgageDaily.com staff
2/7/2006

Settlements with three mortgage companies over violations of the Truth in Lending Act were recently touted by the government.

The Federal Trade Commission released its annual roundup of enforcement actions related to the Truth in Lending Act, among other laws. The report was issued to the Federal Reserve Board, which requested the information for use in its annual report to Congress.

One of two mortgage-related settlements the commission entered last year was with PWR Processing Inc. The FTC charged that the operators of PWR, Phillip W. Ranney and a group of Colorado-based mortgage brokers, violated TILA and Regulation Z by promising consumers a "no-fee," low-interest loan following a process of multiple refinances.

PWR allegedly told consumers if they applied for a competitive-rate loan and a higher-than-market rate, the lenders of the latter loan would pay a premium to the broker that would be used to pay fees for the lower-interest loan. They claimed that the lower-priced loan would in turn be used to pay off the higher-interest loan, leaving the borrower with a low-interest, no fee loan. But instead, borrowers were left with a high-interest loan, the report said.

The settlement barred Ranney from making misrepresentations about refinance loans and required a $128,200 payment in consumer redress.

A settlement with Capital City Mortgage Corp. resolved charges that the company engaged in unfair or deceptive practices, such as putting false charges in borrowers' monthly statements, adding charges to loan balances, forcing borrowers to make monthly payments for the entire loan amount while withholding some loan proceeds, foreclosing on borrowers in good standing, and failing to release liens on borrowers' homes even after the loans were paid off, the FTC reported.

Among the settlement's requisites, Capital City was ordered to pay $750,000 in consumer redress, set up a $350,000 performance fund in case it failed to comply, and the company was banned from "making or servicing any home-secured loan, other than the one loan it is currently servicing," the FTC said.

In addition to settling charges of TILA, Regulation Z violations, Capital City also entered a settlement with the FTC to resolve charges that it violated the Equal Credit Opportunity Act and Regulation B by failing to take written applications for mortgages; failing to collect required information about the applicants; failing to provide rejected applicants with written notice of adverse action or, when it did provide notice, it failed to state the FTC's correct name and address.

Also in 2005, the commission continued its litigation against Chase Financial Funding and the company principals for alleged violations of the FTC Act, and the TILA and Regulation Z, in connection with advertisements for extremely low mortgage rates.

Chase allegedly sent consumers spam and direct mail that falsely offered a "3.5% fixed payment" loan, when in fact it was an adjustable rate mortgage. The mortgage brokerage additionally deceptively claimed that it offered a loan in which the minimum payment covered both interest and principal, a loan with no prepayment penalty or a penalty that would not apply if the loan was refinanced through Chase. Among other things, it failed to disclose the APR and terms of repayment as well, according to the report.

While litigation continues, last year a court held Chase Chief Executive James Berr in civil contempt of a stipulated preliminary injunction that was entered in May 2004. In connection to the order, Berr was subsequently arrested under a bench warrant. Thereafter, a stipulated order released Berr from confinement after his payment of $275,000 in sanctions and agreement to pay $400,000 in consumer redress, among other terms.

Among the consumer and business education efforts the FTC said it did last year was the revision of its publication Credit and your Consumer Rights and the addition of a Spanish-language area to its Web site that includes topics such as "Mortgage Discrimination" and "Getting Credit."

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