    [House Hearing, 111 Congress]
    [From the U.S. Government Publishing Office]

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

    =======================================================================

                                    HEARING

                                   BEFORE THE

                        SUBCOMMITTEE ON COMMERCE, TRADE,
                            AND CONSUMER PROTECTION

                                     OF THE

                        COMMITTEE ON ENERGY AND COMMERCE
                            HOUSE OF REPRESENTATIVES

                         ONE HUNDRED ELEVENTH CONGRESS

                                 FIRST SESSION

                                   __________

                                 MARCH 24, 2009

                                   __________

                               Serial No. 111-19

          Printed for the use of the Committee on Energy and Commerce

                            energycommerce.house.gov

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                        COMMITTEE ON ENERGY AND COMMERCE

                     HENRY A. WAXMAN, California, Chairman
    JOHN D. DINGELL, Michigan            JOE BARTON, Texas
      Chairman Emeritus                    Ranking Member
    EDWARD J. MARKEY, Massachusetts      RALPH M. HALL, Texas
    RICK BOUCHER, Virginia               FRED UPTON, Michigan
    FRANK PALLONE, Jr., New Jersey       CLIFF STEARNS, Florida
    BART GORDON, Tennessee               NATHAN DEAL, Georgia
    BOBBY L. RUSH, Illinois              ED WHITFIELD, Kentucky
    ANNA G. ESHOO, California            JOHN SHIMKUS, Illinois
    BART STUPAK, Michigan                JOHN B. SHADEGG, Arizona
    ELIOT L. ENGEL, New York             ROY BLUNT, Missouri
    GENE GREEN, Texas                    STEVE BUYER, Indiana
    DIANA DeGETTE, Colorado              GEORGE RADANOVICH, California
      Vice Chairman                      JOSEPH R. PITTS, Pennsylvania
    LOIS CAPPS, California               MARY BONO MACK, California
    MICHAEL F. DOYLE, Pennsylvania       GREG WALDEN, Oregon
    JANE HARMAN, California              LEE TERRY, Nebraska
    TOM ALLEN, Maine                     MIKE ROGERS, Michigan
    JAN SCHAKOWSKY, Illinois             SUE WILKINS MYRICK, North Carolina
    HILDA L. SOLIS, California           JOHN SULLIVAN, Oklahoma
    CHARLES A. GONZALEZ, Texas           TIM MURPHY, Pennsylvania
    JAY INSLEE, Washington               MICHAEL C. BURGESS, Texas
    TAMMY BALDWIN, Wisconsin             MARSHA BLACKBURN, Tennessee
    MIKE ROSS, Arkansas                  PHIL GINGREY, Georgia
    ANTHONY D. WEINER, New York          STEVE SCALISE, Louisiana
    JIM MATHESON, Utah                   PARKER GRIFFITH, Alabama
    G.K. BUTTERFIELD, North Carolina     ROBERT E. LATTA, Ohio
    CHARLIE MELANCON, Louisiana
    JOHN BARROW, Georgia
    BARON P. HILL, Indiana
    DORIS O. MATSUI, California
    DONNA CHRISTENSEN, Virgin Islands
    KATHY CASTOR, Florida
    JOHN P. SARBANES, Maryland
    CHRISTOPHER MURPHY, Connecticut
    ZACHARY T. SPACE, Ohio
    JERRY McNERNEY, California
    BETTY SUTTON, Ohio
    BRUCE BRALEY, Iowa
    PETER WELCH, Vermont

                                      (ii)
            Subcommittee on Commerce, Trade, and Consumer Protection

                            BOBBY L. RUSH, Illinois
                                     Chairman
    JAN SCHAKOWSKY, Illinois             CLIFF STEARNS, Florida
        Vice Chair                            Ranking Member
    JOHN SARBANES, Maryland              RALPH M. HALL, Texas
    BETTY SUTTON, Ohio                   DENNIS HASTERT, Illinois
    FRANK PALLONE, New Jersey            ED WHITFIELD, Kentucky
    BART GORDON, Tennessee               CHARLES W. ``CHIP'' PICKERING,
    BART STUPAK, Michigan                    Mississippi
    GENE GREEN, Texas                    GEORGE RADANOVICH, California
    CHARLES A. GONZALEZ, Texas           JOSEPH R. PITTS, Pennsylvania
    ANTHONY D. WEINER, New York          MARY BONO MACK, California
    JIM MATHESON, Utah                   LEE TERRY, Nebraska
    G.K. BUTTERFIELD, North Carolina     MIKE ROGERS, Michigan
    JOHN BARROW, Georgia                 SUE WILKINS MYRICK, North Carolina
    DORIS O. MATSUI, California          MICHAEL C. BURGESS, Texas
    KATHY CASTOR, Florida
    ZACHARY T. SPACE, Ohio
    BRUCE BRALEY, Iowa
    DIANA DeGETTE, Colorado
    JOHN D. DINGELL, Michigan (ex
        officio)

                                 C O N T E N T S

                                  ----------
                                                                       Page
    Hon. Bobby L. Rush, a Representative in Congress from the State
      of Illinois, opening statement.................................     1
        Prepared statement...........................................     3
    Hon. George Radanovich, a Representative in Congress from the
      State of California, opening statement.........................     5
    Hon. Henry A. Waxman, a Representative in Congress from the State
      of California, opening statement...............................     6
    Hon. Joseph R. Pitts, a Representative in Congress from the
      Commonwealth of Pennsylvania, opening statement................     7
    Hon. Doris O. Matsui, a Representative in Congress from the State
      of California, opening statement...............................     8
        Prepared statement...........................................     9
    Hon. Joe Barton, a Representative in Congress from the State of
      Texas, opening statement.......................................    10
    Hon. Janice D. Schakowsky, a Representative in Congress from the
      State of Illinois, opening statement...........................    11
    Hon. Phil Gingrey, a Representative in Congress from the State of
      Georgia, opening statement.....................................    12
    Hon. Betty Sutton, a Representative in Congress from the State of
      Ohio, opening statement........................................    12
    Hon. Steve Scalise, a Representative in Congress from the State
      of Louisiana, opening statement................................    13
    Hon. Gene Green, a Representative in Congress from the State of
      Texas, opening statement.......................................    14
    Hon. Cliff Stearns, a Representative in Congress from the State
      of Florida, opening statement..................................    15
    Hon. John D. Dingell, a Representative in Congress from the State
      of Michigan, prepared statement................................   123

                                   Witnesses

    Jon Leibowitz, Chairman, Federal Trade Commission................    16
        Prepared statement...........................................    18
    James Tierney, Lecturer-in-Law, Columbia Law School..............    65
        Prepared statement...........................................    68
    Christopher Peterson, Professor of Law, S.J. Quinny College of
      Law............................................................    83
        Prepared statement...........................................    85
    Ira Rheingold, Executive Director, National Association of
      Consumer Advocates.............................................    99
        Prepared statement...........................................   101
    Nathan Benson, Chief Executive Officer, Tidewater Finance
      Company, Inc., for The American Financial Services Association.   109
        Prepared statement...........................................   111

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

                                  ----------

                            TUESDAY, MARCH 24, 2009

                      House of Representatives,
               Subcommittee on Commerce, Trade,
                               and Consumer Protection,
                              Committee on Energy and Commerce,
                                                        Washington, DC.
        The subcommittee met, pursuant to call, at 10:07 a.m., in
    Room 2123 of the Rayburn House Office Building, Hon. Bobby L.
    Rush (chairman) presiding.
        Members present: Representatives Rush, Schakowsky, Sutton,
    Stupak, Green, Barrow, Matsui, Waxman (ex officio), Radanovich,
    Stearns, Whitfield, Pitts, Terry, Myrick, Gingrey, Scalise, and
    Barton (ex officio).
        Staff present: Anna Laitin, Professional Staff; Christian
    Fjeld, Counsel; Michelle Ash, CTCP Chief Counsel; Valerie
    Baron, Legislative Clerk; Brian McCullough, Minority Senior
    Professional Staff; Will Carty, Minority Professional Staff;
    Sharon Weinberg, Minority Counsel; and Sam Costello, Minority
    Legislative Analyst.

     OPENING STATEMENT OF HON. BOBBY L. RUSH, A REPRESENTATIVE IN
                  CONGRESS FROM THE STATE OF ILLINOIS

        Mr. 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 is a hearing on
    Consumer Credit and Debt, the Role of the Federal Trade
    Commission in Protecting the Public. The chair would yield
    himself 5 minutes for the purposes of a 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 sub-prime mortgages, auto loans, or pay-day
    loans, too many companies have had a free reign to saddle
    Americans with debts 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 ``unfair or
    deceptive acts of practices.'' 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 the 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 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 the 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
    Magnusson-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 sub-prime mortgages and pay-day loans, but also tomorrow's
    unforeseen snake oil that will be sold to consumers in the
    future. I want to congratulate and welcome the new chairman of
    the FTC, Mr. Jon Leibowitz. I have had the 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 first in a 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.
        [The prepared statement of Mr. Rush follows:]

        [GRAPHIC] [TIFF OMITTED] T7816A.001

        [GRAPHIC] [TIFF OMITTED] T7816A.002

        Mr. Rush. And now I recognize my friend, the ranking member
    of this subcommittee, the gentleman from Georgia, Mr.
    Radanovich, for 5 minutes for the purposes of an opening
    statement.

     OPENING STATEMENT OF HON. GEORGE RADANOVICH, A REPRESENTATIVE
                IN CONGRESS FROM THE STATE OF CALIFORNIA

        Mr. Radanovich. 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 shone 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 San Joaquin Valley,
    which is suffering from one of the Nation's highest foreclosure
    rates due to the easy availability of credit, unfortunately, so
    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 are 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, had 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 rule should apply
    regardless of what entity sells the product. I am 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 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 Magnusson-
    Moss FTC Improvement Act. Congress established the Magnusson-
    Moss rulemaking procedures in the 1970's 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 am
    concerned that any significant change to this process would not
    allow for such careful consideration before rules are
    finalized. Congress set up the Magnusson-Moss process to be
    intentionally deliberative, but Congress also has been highly
    effective in 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 am particularly interested in hearing
    if there are any holes in the current law which prevent the FTC
    from pursuing bad actors and whether or not additional
    regulations 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 regulating 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.
        Mr. Rush. The chair thanks the gentleman. Now it is my
    privilege to recognize the chairman of the full committee for 5
    minutes for the purposes of opening statements, the gentleman
    from California, Chairman Waxman.

    OPENING STATEMENT OF HON. HENRY A. WAXMAN, A REPRESENTATIVE IN
                 CONGRESS FROM THE STATE OF CALIFORNIA

        Mr. Waxman. 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 am 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 have required no money down and
    no proof of income or assets, pay-day 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 at least in the
    last 8 years. The philosophy was the government was the source
    of the problem, that it posed obstacles to success and that it
    should be slashed wherever feasible. This was the ideology that
    led to FEMA's failure during Hurricane Katrina, billons 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 and markets should be allowed to
    work with little or no regulatory intervention. Now we have an
    opportunity to move beyond the flawed system of the previous 8
    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. I yield back the balance of my
    time.
        Mr. Rush. The chair thanks the chairman, and now recognizes
    the gentleman from Pennsylvania for 2 minutes for the purposes
    of opening statement, Mr. Pitts from Pennsylvania.

    OPENING STATEMENT OF HON. JOSEPH R. PITTS, A REPRESENTATIVE IN
             CONGRESS FROM THE COMMONWEALTH OF PENNSYLVANIA

        Mr. Pitts. Thank you, Mr. Chairman. Thank you for holding
    this important hearing on the role of the Federal Trade
    Commission and 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 has 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 is my hope that this committee
    moves forward in a wise, careful, and deliberative manner, and
    I look forward to hearing our distinguished witnesses today.
    Thank you, and yield back.
        Mr. Rush. The chair thanks the gentleman. And the chair now
    recognizes the gentlelady from California, my friend, Ms.
    Matsui, for 2 minutes for the purposes of opening statement.

    OPENING STATEMENT OF HON. DORIS O. MATSUI, A REPRESENTATIVE IN
                 CONGRESS FROM THE STATE OF CALIFORNIA

        Ms. Matsui. Thank you, Mr. Chairman. Thank you very much
    for calling today's hearing. I applaud your leadership on this
    issue. I would 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 have
    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, that has been a serious issue for many. In some
    cases, their original loan company is not a business or in some
    cases their lenders or services 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 the so-
    called agencies to save their homes. These scams are costing
    thousands of dollars and false promises to struggling
    homeowners.
        I am 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
    being properly protected from these shameful, unacceptable
    practices. We are here today to determine what more the
    government can and should do to stop these abuses from
    occurring today and in the future. I think you once again, Mr.
    Chairman, for holding this important hearing today, and I yield
    back the balance of my time.
        [The prepared statement of Ms. Matsui follows:]

        [GRAPHIC] [TIFF OMITTED] T7816A.003

        Mr. Rush. The chair thanks the gentlelady. The chair now
    recognizes the ranking member of the full committee, my friend
    from Texas, Mr. Barton, for 5 minutes for the purposes of
    opening statements.
        Mr. Barton. Thank you. And I haven't forgotten about that
    cowboy hat, Mr. Chairman.
        Mr. Rush. I thank you very much.
        Mr. Barton. It is on order.
        Mr. Rush. All right.
        Mr. Barton. The hat is in the mail.
        Mr. Rush. The hat is in the mail. All right.

       OPENING STATEMENT OF HON. JOE BARTON, A REPRESENTATIVE IN
                    CONGRESS FROM THE STATE OF TEXAS

        Mr. Barton. Thank you for this hearing today, Mr. Chairman.
    Its title, Consumer Credit and Debt: The Role of the Federal
    Trade Commission in Protecting the Public, is an important one.
    As you know, the subcommittee in the past has explored a
    multitude of consumer protection issues. We have looked into
    data security, spyware, spam, and children's on line privacy.
    We have inquired about how Social Security numbers are abused.
    We have investigated calling cards and also telemarketing.
    These areas are important and it is fitting that today we are
    considering consumer protection particularly given our current
    economic environment.
        The fraud in consumer credit is considerable, its
    ramifications beyond those suffered by the victims. The fall
    out 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 that activity of those fraudsters who
    seek to take advantage of consumers in a most repugnant way. I
    am 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 state attorneys general and 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 Magnusson-Moss Act in 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 that Congress
    imposed the Magnusson-Moss requirements in the first place. The
    FTC oversees an enormous jurisdiction. Its rules reach into
    enumerable industries and affect every commercial main street
    in the country. Given the breadth of that impact, Congress
    believes 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 side step the Magnusson-
    Moss Act when necessary and permit rulemaking under APA where
    it is appropriate and necessary.
        This is an ability this committee has never had a problem
    utilizing when we 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.
        Mr. Rush. The chair thanks the ranking member. Now the
    chair recognizes the gentleman from Georgia for 2 minutes for
    the purposes of opening statement of Mr. Barrow.
        Mr. Barrow. I thank the chair. I will waive an opening.
        Mr. Rush. The gentleman desires 2 minutes in addition to
    the 5 minutes that he is granted for questioning. So granted.
    The chair now recognizes my friend and vice-chair of the
    subcommittee, the gentle woman from Illinois, Ms. Schakowsky,
    for 2 minutes for the purposes of opening statement.

           OPENING STATEMENT OF HON. JANICE D. SCHAKOWSKY, A
         REPRESENTATIVE IN CONGRESS FROM THE STATE OF ILLINOIS

        Ms. Schakowsky. Thank you, Mr. Chairman, for holding this
    hearing. And congratulations to you, Mr. Leibowitz. We are glad
    to have you here. The repercussions of years of irresponsible
    mortgage lending continued 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 1 every
    13 seconds. We were trying to calculate how many since this
    hearing began. It is more than 100, in 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 are here not just because the banks were a
    problem, and it is not just bank lending that is 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 Country Wide and other non-
    bank mortgage lenders are responsible for 40 percent of the
    home loans made in 2007 and 55 percent of the sub prime 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, it is my understanding,
    auto loans, pay-day loans, car title loans, and other non-
    traditional forms of credit that often flows to non-bank
    entities and currency exchanges. We have those in Chicago big
    time. It is 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. I thank you again, Mr. Chairman.
        Mr. Rush. The chair thanks the gentlelady. The chair now
    recognizes the gentleman from Georgia, Dr. Gingrey, for 2
    minutes for the purposes of an opening statement.

      OPENING STATEMENT OF HON. PHIL GINGREY, A REPRESENTATIVE IN
                   CONGRESS FROM THE STATE OF GEORGIA

        Mr. Gingrey. Mr. Chairman, I thank you for calling the
    hearing today on such an important issue. It hadn't been
    examined in depth by this committee since 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 8 years, at least the past 8
    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 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 is 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 there
    continues to be strict scrutiny and transparency within the
    rulemaking process of the FTC. The Magnusson-Moss rulemaking
    structure is unique because in order to ensure transparency it
    was specifically designed in the 70's to be difficult to make
    sporadic whimsical changes. As we are about to begin this
    hearing and future deliberation on the legislative changes to
    the FTC, I am 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 thank you so much for holding the hearing.
        Mr. Rush. The chair thanks the gentleman. The chair now
    recognizes the gentlelady from Ohio, Ms. Sutton, for 2 minutes
    for the purposes of opening statement.

      OPENING STATEMENT OF HON. BETTY SUTTON, A REPRESENTATIVE IN
                    CONGRESS FROM THE STATE OF OHIO

        Ms. Sutton. Thank you so much, Mr. Chairman. Thank you for
    holding this hearing. It is extremely important to the people
    that I represent in Ohio. You know, time and time again we have
    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 pay-day 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 improved a referendum on pay-day lenders
    to end 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
    have 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 is our responsibility
    to strengthen the Commission and restore Americans' confidence,
    and I look forward to being a part of making that happen.
        Mr. Rush. The chair thanks the gentlelady. And now it is my
    pleasure to recognize the gentleman from Louisiana, Mr.
    Scalise, for the purpose of 2 minutes of opening statement.

     OPENING STATEMENT OF HON. STEVE SCALISE, A REPRESENTATIVE IN
                  CONGRESS FROM THE STATE OF LOUISIANA

        Mr. Scalise. 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 of those illegal and
    unethical practices that are going on where we would have the
    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 investigates themselves as well
    as local attorneys general that were 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.
        Mr. Rush. The chair thanks the gentleman. The chair now
    recognizes my friend, my colleague, my classmate, the gentleman
    from Texas, Mr. Green, for 2 minutes for the purposes of
    opening statement.

       OPENING STATEMENT OF HON. GENE GREEN, A REPRESENTATIVE IN
                    CONGRESS FROM THE STATE OF TEXAS

        Mr. Green. Mr. Chairman, thank you for your friendship over
    the last 17 years. I thank you for holding this hearing on the
    consumer credit and debt protection and to look at the role
    that the FTC should play. I would 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 is even more so. As the primary federal agency
    that enforces consumer credit laws at entities other than
    banks, the 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 services.
        The FTC enforces a number of federal laws governing
    mortgage lending, Truth in Lending Act, the Home Ownership 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
    Consumer Leasing Act, Fair Debt Collection Practice 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 non-traditional
    loans such as pay-day loans and car title loans, which can
    carry enormous interest rates and fees. In 2006, Congress
    enacted to cap the pay-day loans made to military personnel to
    a 36 percent annual percentage rate after pay-day loans grew 34
    percent to reach a total of 500 million the previous 2 years.
    That figures has doubled since 2002. In an economic climate
    such as the one we are 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 pay-day lenders, alleged mortgage foreclosure rescue
    companies, and companies claiming they remove negative
    information from the 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. The Congress may need to act
    particularly to give FTC authority to issue rules under the
    Administrative Procedures Act. Again, Mr. Chairman, thank you
    for calling the hearing, and I appreciate the opportunity.
        Mr. Rush. The chair thanks the gentleman. The chair now
    recognizes my friend from Florida, Mr. Stearns, for 2 minutes
    for the purposes of an opening statement.

     OPENING STATEMENT OF HON. CLIFF STEARNS, A REPRESENTATIVE IN
                   CONGRESS FROM THE STATE OF FLORIDA

        Mr. Stearns. Good morning, and thank you, Mr. Chairman.
    Welcome the new chairman. Mr. Leibowitz had been on the FTC as
    commissioner, I think, since September, 2004, so we have
    someone, Mr. Chairman and members, who is experienced and can
    help us out. He has 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 has mentioned
    is perhaps giving them more jurisdiction over the banks to
    credit unions and the thrifts that my colleague from Texas
    mentioned they do not have jurisdiction, and of course that is
    75 percent of the credit cards, so I think the people across
    the hall here will probably not like that, but it would fall in
    their jurisdiction. I think it is something that we should not
    not discuss.
        The FTC has authority, but as I pointed out earlier, it is
    sort of limited because 75 percent of the credit cards go
    through credit union, 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 by both the FTC and
    consumer protection groups acknowledge that more can be done to
    protect consumers. And I think with his over 4 years experience
    as a commissioner he will certainly have some ideas that bring
    it to bear on this problem. The FTC has taken more aggressive
    action, I think, more recently against companies such as
    Internet pay-day 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 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.
        Mr. Rush. The chair thanks the gentleman. Now all the
    members of the subcommittee have had an opportunity to issue
    opening statements. And it is now my distinct honor and
    privilege to welcome the new chairman of the FTC, Mr. Jon
    Leibowitz, to this committee. I want to say, Mr. Liebowitz, we
    are excited about your chairmanship. We look forward to working
    with you and 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?
        [Witnesses sworn.]
        Mr. Rush. Let the record reflect that the witnesses all
    answered in the affirmative. Chairman Leibowitz, you are now
    recognized for 5 minutes for purposes of an opening statement.

     TESTIMONY OF HONORABLE JON LEIBOWITZ, CHAIRMAN, FEDERAL TRADE
                               COMMISSION

        Mr. Leibowitz. Thank you, Mr. Chairman, Mr. Radanovich, Ms.
    Schakowsky, members of the subcommittee, I am Jon Leibowitz. I
    am 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 of several you
    mentioned, and let me just say this. You are an authorizing
    committee. We want to work with all of you. We will not be
    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 have used those tools to
    protect and advocate for consumers of financial services. We
    brought about 70 cases involving financial services since I
    came to the Commission 4-1/2 years ago, and we have gotten $465
    million in redress for consumers over the past 10 years 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 upfront 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 company's assets. We are announcing a
    third action today against yet another rogue rescue scam. Less
    than 2 weeks ago, FTC investigators discovered a foreclosure
    rescue web site that was impersonating the HUD web site 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 differed 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 sub-prime
    buyer's loans.
        Second, the 2009 Omnibus Appropriations Act gave us
    authority to find violators in this area for the first time.
    And, third, we are going to use the regulatory authority given
    to use 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 are 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 have 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
    it 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 are 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 is what we do.
        We are not beholding to any providers of financial
    services, and we have substantial experience effectively and
    cooperating working with the states, especially 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 and what we are going to do. We
    look forward to working with this committee, and I am pleased
    to answer your questions. Thank you.
        [The prepared statement of Mr. Leibowitz follows:]

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        Mr. Rush. The chair thanks the chairman. The chair
    recognizes himself for 5 minutes for the purposes of
    questioning our witness. Chairman Leibowitz, during the housing
    boom the FTC had clear jurisdiction over many of the worse
    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 when there are abusive lending
    practices in the sub-prime mortgage market. In the second panel
    Attorney 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
    action 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, 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--and
    we spent a lot of time doing things like stopping fraud, going
    after spyware, you know, because we talked about that together.
    Having said that, I think we did a pretty good job. You know,
    we brought 75 cases in the last 5 years. We have gotten in the
    last 10 years $465 million in consumer redress, and that is
    just in this area of financial services alone.
        Could we have done more? Yes, I think we could have done
    more. Will we do more in the future? Yes. And do we need to
    work with the state attorneys general? Yes, and we do it all
    the time. We are part of several regional task forces. The
    director of or Atlanta office or southeastern regional office
    has actually set up a task force with state AGs, and they are
    going after predatory lending. But, yes, we can do more. I have
    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 are 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 is welcome by all the state AGs, and it will
    allow us to help coordinate even more.
        Mr. Rush. You asked for new authority 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 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 8 years, why should we give this authority to you
    now? How can you assure us that you will use these authorities
    to aggressively protect American consumers?
        Mr. Leibowitz. Well, I think, you know, you raise a very
    fair question, but I would say this. We are hamstrung, speaking
    for myself, we are hamstrung by the Magnusson-Moss rulemaking
    process. When you pass laws like Can-Spam, Gramm-Leach-Bliley,
    FACTA, you have given us APA rulemaking authority so that we
    can do rules more quickly. But in a Mag-Moss rule, and I think
    Mr. Radanovich raised the rationale for making rulemaking, and
    Congressman Stearns too, we are making rulemaking more
    complicated under Mag-Moss. It is a legitimate argument. But
    what we have found is that sometimes it takes 6 or 8 years to
    do rulemakings, and when it takes 6 or 8 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, 2 years ago we did a sweep of Internet
    advertising for mortgages, and we found facially deceptive ads,
    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 worse
    malefactors. We wrote letters to everybody. Some people cleaned
    up their work. But we couldn't do a rulemaking because under
    Mag-Ross 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 is a legitimate debate. I think when you reach
    reauthorization, which I know you want to do this year, we will
    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 streamline rulemaking
    authority too.
        Mr. 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 5 minutes, Mr.
    Radanovich.
        Mr. Radanovich. Thank you, Mr. Chairman. And welcome, Mr.
    Leibowitz, to this subcommittee. Congratulations on your recent
    appointment. I did want to ask a couple questions. This first
    one, I am 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. Why isn't the current Section 5 authority
    sufficient?
        Mr. Leibowitz. Well, it is two things. First of all, in the
    Omnibus Act we have a fining authority for the rules that the
    fed issued under the FTC Act and rulemaking authority. We are
    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--where you have many, many actors it is better to try
    to set standards, and also we have 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.
        Mr. Radanovich. Do you have thoughts on what kind of rules
    you would 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 would 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.
        Mr. Radanovich. OK. 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 would say this. We
    found a fair amount of fraud in the entire life cycle of the
    mortgage instrument, and when you have an economic downturn as
    severe as the one that we are in now, I think there is more of
    an incentive to see more of this, so we are--in the mortgage
    area we now have that rulemaking authority that was given to us
    in the Omnibus. We think that is going to be helpful. We think
    we are going to be able to find malefactors and write good
    rules, but I think--and we have deployed more resources. We
    have really doubled our resources in the last 2 years to go
    after predatory financial practices.
        Having said that, there is just no shortage of bad acts
    that we could look at in this area. Most companies, of course,
    do the right thing but there are a lot of people who have just
    been ripping off consumers and the cases that we brought today
    sort of attest to that.
        Mr. Radanovich. Right. Yes. And I will 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 are
    not--if it is 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.
        Mr. Radanovich. OK. Thanks. Now with regard to the cases
    that you mentioned that you have 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, and we will have some of this
    discussion going forward when you look at our reauthorization,
    and growing the agency would be something that would be
    enormously important. We have about 1,100 employees. We do
    anti-trust and consumer protection. In 1980, we had 1,800
    employees and the population of 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--the ability to
    have rulemaking authority.
        Mr. Radanovich. And you have 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 the
    other side of over enforcement is higher compliance costs, and
    where do you find the balance to where you are regulating so
    much that, you know, we have higher cost of goods out there as
    a result of it?
        Mr. Leibowitz. Well, Congressman, you are right. We have to
    strike the right balance, and reasonable people can disagree
    about exactly where that balance should be. But, look, we have
    brought 68 cases in the last 5 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 an very important tool in our arsenal. And,
    by the way, when you pass pieces of legislation like Can-Spam,
    which came out of this committee, you have given us that fining
    authority, at least for specific matters. So it is a discussion
    we want to have with you going forward but that would be one
    thing that would make us more effective, I think.
        Mr. Radanovich. All right. Thank you for your answers. And
    thank you, Mr. Chairman. I yield back.
        Mr. Rush. The chair thanks the gentleman. The chair now
    recognizes the gentlelady from California, Ms. Matsui, for 5
    minutes for questioning.
        Ms. 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 number 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
    payments, 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 home, but this help usually comes with a price tag in the
    form of an advanced fee between $1,500 up to $9,000.
        That being said, I would 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 the total to eight
    such cases. Is enforcement the right approach to ending this
    type of fraud? You initiated 8 cases. Will those cases serve as
    a deterrent to other scammers and other steps that the FTC can
    take to end these practices?
        Mr. Leibowitz. Well, that is 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 are needed in the mortgage servicing area, in the
    mortgage modification, and rescue area, and going after rescue
    scams. So we would like to be able to use the whole arsenal. We
    have been given some authority in the Omnibus Appropriations
    Act that will be helpful. We are looking for more authority
    from this committee and we want to move forward with that if
    the committee believes it is appropriate.
        Ms. Matsui. OK. Some examples of fraudulent schemes are, as
    we mentioned, advance fee scams where, you know, consumers are
    charged for services that are never rendered, and in exchange
    for this fee, it is 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, which
    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. I mean 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 done.
    So when we bring these cases, we try to ask for a disgorgement
    of profits. We try to get redress to consumers. In the case we
    brought against Bear Stearns as a subsidiary, EMC we got 86,000
    redress checks issued. But it is tough because sometimes these
    assets dissipate and sometimes it is hard to determine, you
    know, not in these cases but in other cases which ones were
    fraudulently made or which advertisements were deceptive and
    which ones weren't and that is why a penalty authority will be
    very helpful to us if we can get it.
        Ms. 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. I would want to think about that. We
    certainly see experience--we certainly had experience with
    these advance fee scams including advance fee credit card scams
    that make us think that certainly the practice of a lot of
    companies should be prohibited. But as far as 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.
        Ms. Matsui. So would you think then that the FTC should
    declare its view that it is 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, so ban advance fees in the financial services area
    so it is something we can take a look at. I think we probably
    should in the context of any rulemaking authority we have been
    given in the Omnibus or that you give us additionally.
        Ms. Matsui. Well, thank you very much, and I see my time is
    up. Thank you.
        Mr. Rush. The chair now recognizes the gentleman from
    Nebraska, Mr. Lee Terry.
        Mr. Terry. 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 is if we are
    going to stream line rules, the procedures for the rules, we
    want to make sure that it is going to be effective in
    protecting consumers and that you will 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 is obvious where you
    can put 100 people together and they will 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
    are not deceptive.
        And so how are we going to split those hairs if you are
    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, I think that is right and in some
    practices maybe deceptive as practiced by some companies
    whereas other companies may do them in a legitimate way.
        Mr. Terry. That is why it is really----
        Mr. Leibowitz. Right. It is a good question and whether we
    have--whether we are bringing cases or whether we are enforcing
    rules that we promulgated, we have to go before a federal
    judge, so there is that mechanism as a check and balance
    against any excesses of the FTC, but I don't believe 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 are a pretty good--I think people think that we are a
    pretty good agency and we try to do the right things with our
    limited resources and leverage of resources.
        Mr. Terry. In specific about streamlining the rule process
    so you can be more nimble, do you have specifics for us or is
    that just kind of a general statement that would be helpful for
    you?
        Mr. Leibowitz. Well, I think it is both in the sense that
    if we have a--if we have more agile rulemaking, something
    closer to APA rulemaking, we can respond more quickly. I do
    think that we are going to, you know, 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 have 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 are being hit with.
        Mr. Terry. Yes, those get to be fairly obvious.
        Mr. Leibowitz. And let me just add my point to that that
    advance fees are prohibited under CROA. We prohibit the under
    the telemarketing sales rules which is an FTC rule, and in some
    instances, not in every, but in some instances it has really
    sort of helped clean up bad practices that harm consumers.
        Mr. Terry. All right. And those were developed within your
    own rules? You decided in those instances----
        Mr. Leibowitz. The telemarketing sales rules were
    promulgated by us pursuant to legislation enacted by Congress
    in the early 1990's, I believe.
        Mr. 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 is exactly right.
        Mr. Terry. And that is the point that I am getting to. I
    guess there are two sides of the coin that we can look at here
    and one is we can criticize the FTC over the last 8 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 is 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 are an agency that has a track record for being
    aggressive but balanced, you might want to err on the side of
    giving us more authority. Believe me, in the 1960's and 70's
    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 have
    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----
        Mr. Terry. In my last 14 seconds, I am just very curious,
    in the last several years in the financial services area you
    have brought 40 or 60----
        Mr. Leibowitz [continuing]. Sixty-eight cases.
        Mr. Terry [continuing]. Sixty-eight complaints. Generally
    what were those? What is the major area?
        Mr. Leibowitz. It is really a combination of different
    areas. It is 7 mortgage advertising, 5 pay-day loan cases--6
    pay-day loan cases, a couple of fair lending cases, mortgage
    servicing cases, 9 foreclosure rescue scam cases, and 12 credit
    counseling cases, and 11 debt collection cases. Those are the--
    and, sorry, 17 credit repair cases as well. So it is a
    combination of--it is different areas mostly within our
    financial services group, and then we have had our regions. We
    have 7 regional offices around the country doing more in this
    area because it is a high priority for us.
        Mr. Rush. The gentleman's time is up. The chair now
    recognizes the vice chair of the subcommittee, Ms. Schakowsky,
    for 5 minutes.
        Ms. 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. You know, some of those cases took place
    before I came to the Commission. I believe in AmeriQuest, which
    is a terrific case by the state AGs, we approached them about
    whether they needed our help because we are always happy to
    help with cases and we work a lot with state AGs, and I think
    that they were--I think that they demurred on that, that they
    were----
        Ms. Schakowsky. But my understanding 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 8
    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 so would you
    agree with this assessment?
        Mr. Leibowitz. Well, I would say this. 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 I am 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 1990's and sort of was flailing in the last 8
    years. It is a way for us to help coordinate with the Justice
    Department and with state AGs through regular meetings, regular
    consumer protection activities, so I think that will be a big
    plus.
        Ms. Schakowsky. Wonderful. 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 of 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 or 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 the sort of incredible balkanization, right?
        Ms. Schakowsky. Right.
        Mr. Leibowitz. Consumers don't know whether they got--
    consumers don't care whether they got a mortgage from a bank or
    whether it came from a mortgage, a non-bank mortgage.
        Ms. Schakowsky. Right.
        Mr. Leibowitz. If it is deceptive, if it is, you now, a
    sub-prime loan or a non sub-prime loan with hidden fees that
    they don't know about, it is hurting them. So we have a sort of
    balkanization of authority here. There are three or four
    different banking entities or banking agencies that have some
    jurisdiction over the 60 percent of the mortgages that are
    issued by banks. We have jurisdiction over the others. And I
    think that is why Elizabeth Warren and the professor at Harvard
    and a variety of folks on the hill are thinking, you know, that
    it may be time to have one single entity 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 are a
    consumer protection agency.
        Ms. Schakowsky. So you could do banks as well is what you
    are saying?
        Mr. Leibowitz. We could do banks as well, I would say with
    this qualification. The banking agencies, you know, they are
    mostly concerned with safety and soundness. We don't do safety
    and soundness. We are 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.
        Ms. Schakowsky. Let me ask the final thing.
        Mr. Leibowitz. Sure.
        Ms. Schakowsky. There was a colloquy on the Senate floor
    that clarified the authority that is this trigger under Section
    18 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 this as
    a missed opportunity? I certainly think Congress needs to look
    at the notion of a single entity whether it is housed in the
    FTC or whether it is 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 is a real opportunity
    to do rulemaking, and after we do rulemaking to actually be
    able to have standards, get those from rules, and to find
    malefactors who fall below those standards.
        So I see your point, and we are very supportive of Congress
    having a discussion about creating an entity to protect
    consumers here, but I also think we have been struggling for
    this legislation for quite some time. It is going to be helpful
    to us.
        Mr. Rush. The chair now recognizes the gentlelady from
    Ohio, Ms. Sutton, for 5 minutes.
        Ms. 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 am going to
    probably going to 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 is kind of confusing for
    anyone who is watching this hearing to figure out who has
    authority over what, and who has the responsibility to protect
    them let alone, you know, know where to turn. So in the last
    line of questioning from my distinguished colleague,
    Representative Schakowsky, we are 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 is whole other 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.
        Ms. Sutton. Let me go on record as saying I don't think
    that makes any sense.
        Mr. Leibowitz. That makes a lot of sense, and again in
    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 for 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 Magnusson-Moss
    and it would never get done because contested rulemakings under
    Magnusson-Moss just don't get done, so we are glad that they
    promulgated these rules. We are glad we can enforce them.
        We think those rules are going to be helpful in curbing bad
    advertising and things like liar's loans but it is like trying
    to--even for the Commission, and all the commissioners are
    very, very hard working, 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.
        Ms. 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 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 is 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 advance fee cases is they will
    say you can have a credit card, give us $500, and then when you
    give them $500 some of it is taken away by fees, 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 have
    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 sub-prime borrowers, people who couldn't otherwise get
    credit, so that is 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.
        Ms. Sutton. OK. 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 are 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.
        Ms. Sutton. That is my point, and that is my concern. OK.
    Mr. Chairman, I will hold my questions at this point until the
    next round.
        Mr. Rush. The chair thanks the gentlelady. The chair now
    recognizes my friend, the gentleman from Pennsylvania, Mr.
    Pitts, for 5 minutes.
        Mr. 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 investigating these
    cases? 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 is
    criminal we generally refer it to the Justice Department, and
    if they will take it they have more appropriate sanctions than
    we do. We generally can only get redress and disgorgement and
    stop the bad conduct, so sometimes we are sort of the fallback
    entity for going after fraudulent behavior in this area, but I
    will get back to you on whether we have worked with the FBI
    task force specifically.
        Mr. Pitts. OK. 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
    desk. If not, we will make sure we get you copies. But
    sometimes what is happening is that consumers don't see
    imbedded fees, and what we have done with our sort of
    disclosure form, it is simple. We have copy tested it. In other
    words, we have asked consumers to look at this and compare it
    to the existing HUD, RESPA and TILA forms that they use. And
    those forms have both--they are 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 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 are dealing maybe not with deception but more with
    unfairness? We think it might have. And even, by the way, for
    consumers these forms or this draft form and others like it, it
    doesn't just help the consumer who is being ripped off. It
    helps the consumer who wants to be able to make informed
    choices, and say, well, here, you know, the fees are going to
    be more and here the fees will be--here the fees and the
    overall cost of the loan will be less. So that is just helping
    consumers like all of us make choices from among competitors.
        Mr. Pitts. The FTC prohibits both unfair and deceptive
    practices.
        Mr. Leibowitz. That is correct.
        Mr. 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. 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.
    It is harder to show unfairness. Unfairness is sometimes a more
    amorphous term, so when we see--when we are going after a
    typical bottom feeder who is ripping off consumers, we just see
    it is 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 will use
    unfairness. We have been using it actually more in the last
    several years because we think it is important.
        Mr. 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 1970s, and through the late 1970s,
    and then Congress asked us to modify first of our own volition
    and then it 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 would love to work with you on
    this.
        Mr. Pitts. Thank you. My time is up. Thank you, Mr.
    Chairman.
        Mr. Rush. The chair now recognizes the gentleman from
    Texas, Mr. Green, for 5 minutes.
        Mr. Green. Thank you, Mr. Chairman. Mr. Chairman, an 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 it referred to the Justice
    Department that actually are taken by the Justice Department
    because I think that is something we would like to see.
        Mr. Leibowitz. Yes, we will get you--we will get you that
    information. We do have Tim Yuris, who is the first chairman
    under Chairman Bush, set up a criminal liaison unit and which
    we still have and which takes some of the cases that are
    clearly of a criminal nature where we started 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----
        Mr. Green. We just need the numbers.
        Mr. Leibowitz. Yes, we will get them.
        Mr. Green. The percentages, and if there are 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.
        Mr. Green. OK. And you have the ability to do it yourself?
        Mr. Leibowitz. Not as a criminal matter but as a civil
    matter so to stop ongoing harm.
        Mr. Green. Our office has been hearing from constituents
    concerned that the free credit reports 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. Yes. We brought a case, I think in 2002-2003
    before I got to the Commission freecreditreport.com. I think I
    am summarizing it but I believe they are 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 is 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 You Tube
    and by a variety of other media outlets just 2 weeks ago. So
    this is an area of some concern to us, and I know the
    consumers--we do get complaints on this.
        Mr. Green. That is what I was going to say. There may be
    things that the consumer may not--that is not on that report
    that is being used for their credit rating.
        Mr. Leibowitz. Credit source, are you talking about credit
    source? Yes, they are included in the free credit report.
        Mr. Green. And is there any restriction on what can be
    considered to go into your credit score either by practice or
    by rule or statute?
        Mr. Leibowitz. Let me, Congressman, get back to you on
    that. It is a legitimate question and I want to give you the
    right answer.
        Mr. 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 that the
    consumer's home will be safe from pending foreclosure
    permanently. Most consumers end up losing their home, however,
    as well as the money they paid to these scammers. I am 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 ones
    you see but it seems like some of it may be cottage industries
    that we are seeing in regional areas and not maybe national.
        Mr. Leibowitz. Right. Well, with the entity that we just
    brought an action against today that is impersonating HUD, we
    are having sort of a whack-a-mole problem with them because we
    found the site. We found the site. The HUD inspector general
    took it down. Then it popped up again under a web site from
    Germany, registered in Germany, and then we have 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 provision that Senator Jorgen 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.
        Mr. Green. If you would share that with us even though we
    are not a writer of 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 to help.
        Mr. Green. Thank you.
        Mr. Rush. The chair now recognizes the gentleman from
    Michigan, Mr. Stupak, for 5 minutes.
        Mr. Stupak. Thank you, Mr. Chairman. Chairman Leibowitz,
    thanks for being here. The Commission, as you have indicated,
    has authority under Section 18 of the Federal Trade Commission
    Act, and I understand it is particularly cumbersome. Instead of
    promulgating rules under the APA, the Commission must go
    through a far more difficult process known as the Magnusson-
    Moss Act. So my question is since you have been chair, has the
    Commission considered promulgating the rule under the
    Magnusson-Moss Act or have you just sort of disregarded the
    whole process?
        Mr. Leibowitz. We have a few rules that we are in the
    process of promulgating outside of this area under Mag-Moss,
    but they are generally sort of not good government rules but
    non-controversial rules because under Mag-Moss if you want to
    promulgate a rule and there is an opposition to that rule they
    get to require an independent referee, multiple rounds of
    submissions, and it takes a really long time.
        Mr. 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.
        Mr. Stupak. Can you give me one reason why they would give
    you such a burdensome procedure if our purposes----
        Mr. Leibowitz. Off the top of my head, no, but I would say
    this. I certainly think some relief from Magnusson-Moss would
    be justified. I think the original--look, we are an agency that
    Congress wanted to give us when they created us in 1914
    enormously broad jurisdiction but fairly limited remedies, as
    opposed to the Justice Department where they have to go after
    more specific crimes and they put people in jail. They have
    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 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 530, 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.
        Mr. Stupak. In order to protect consumers, you have to move
    quicker. I mean we don't want you to be the Justice Department,
    you indicated 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 Magnusson-Moss is
    just the opposite. It slows you down so you cannot be nimble
    and react to current trends.
        Mr. Leibowitz. That is exactly right. In a controversial
    rulemaking, you know, in a rulemaking where there is
    opposition, and many good rulemakings have opposition, you
    know, we would always look to see what all stakeholders want.
    Of course we are going to do that, and we are going to do that
    in the rulemakings that we got in the Omnibus Appropriations
    which will be APA rulemakings.
        Mr. Stupak. Right, but even that is limited in the Omnibus.
    Your rulemaking authority, that is somewhat limited, is it not?
        Mr. Leibowitz. It is limited. It applies to mortgages but
    not other financial instruments not issued by banks, and of
    course it only goes to non-bank issued mortgages, but it is
    still better than what we had so we are very grateful for it
    and we thank this committee for protecting it in the Omnibus.
        Mr. Stupak. Well, let me ask you this. Since 2001, the
    attorneys general 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 abuse of practices,
    inflated appraisals, fabricated income statements,
    misrepresentations of 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 have done it on
    their own, and I believe demurred when we offered help. And
    then probably there are some cases again in hindsight that we
    should have been involved in earlier but they took the lead.
    The attorneys general have been terrific in protecting
    consumers. I don't think we have been slackers at all. I think
    we have been pretty good but on a going forward basis we are
    going to work more with the attorneys general.
        Mr. Stupak. OK. So how do you envision working closer
    relationship between the states as you are now the newly
    appointed chairmanship because I think it is important while
    the states bring forth but sometimes they look to you for
    resources and to help them with these investigations, and I
    would think 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 hear that, and of course
    we can have--it is easier for us to get remedies that apply
    across all states, and so many of the bad acts in the mortgage
    industry----
        Mr. Stupak. Well, have you reached out to the AGs?
        Mr. Leibowitz. Yes. We have reached out to the AGs, and we
    have also reached out to the attorney general. You may not have
    been here when I talked about this, but we are in the process
    of trying to resurrect something called the Executive Working
    Group which was very active in the 1990's, sort of stopped in
    the last 8 years, that involves Justice, the attorneys general,
    and the Federal Trade Commission having regular meetings to
    coordinate activities. That is going to be very, very helpful
    going forward.
        Mr. Stupak. You are right. I didn't hear that earlier
    testimony but I am glad to hear it and urge you to continue
    that progress. Thanks.
        Mr. Rush. The chair thanks the gentleman. The chair now
    recognizes himself for 2 minutes of additional questions.
    Chairman Leibowitz, if this Congress would enhance your
    authority, can the Commission set up a separate office to
    regulate and enforce consumer abuses and, if so, would this
    cover other substance of the FTC?
        Mr. Leibowitz. Well, I would say this. As you know, Mr.
    Chairman, we are 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 I 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 to discharge--what you
    don't want us to do is to take people 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 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
    of years because they like what we are doing, but we probably
    need additional resources on top of that.
        Mr. Rush. I have less than 1 minute, and I just want to ask
    another question on pay-day lending. I believe that pay-day
    lenders have a role in our economy but there are far too many
    abuses. Does the FTC have authority to crack down on pay-day
    lending practices such as rollover fees and the specific
    statutory language leading to direct the Commission to
    adequately deal with certain abusive pay-day lending features?
        Mr. Leibowitz. Well, I would say yes and no. We have
    brought about a half dozen pay-day lending cases in the last 5
    years. We don't have obviously--Congress set a cap, I believe,
    for pay-day 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 found in our pay-day loan cases is
    the imbedded--is that malefactors have sort of imbedded fees
    that consumers don't know about, and so they will pay off their
    loan in 2 weeks but it will be a day late, and so then there
    will be a fee that pops up and then it is compounded and then
    they are sort of in a worse circle of debt. So we have the
    authority to do that.
        I think if you gave us the authority to 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 pay-day lenders.
        Mr. Rush. The chair recognizes Mr. Radanovich for 2 minutes
    for additional questioning.
        Mr. Radanovich. Thank you, Mr. Chairman. Mr. Leibowitz, you
    had mentioned that the commissioners decided not to initiate a
    rulemaking on deceptive Internet advertising, and the reason
    was because Congress would eventually act on the issue which
    you would have if you could proceed under the APA. And it
    sounds like, and we can have a discussion about this, that you
    are suggesting that the FTC APA rulemaking would obviate the
    need for legislative body at all. And adding to that question,
    I think I would ask isn't the Magnusson-Moss process
    intentionally deliberate similar to the congressional
    legislative process? I mean 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 for a
    proper approach----
        Mr. Leibowitz. All of us think our jobs should be made
    easier, but 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 are
    in, but I do think we could have cleaned things up more quickly
    if we had APA rulemaking or something close 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 is the problem with Mag-Moss rulemaking. I don't
    mean to say--I don't know if you were here when I was having a
    conversation with Mr. Stupak. There is 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 1970's 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
    is worth, and I know you are interested in just discussing this
    issue further about whether it makes sense to give us some
    relief from Mag-Moss. It 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 agile and more quickly, maybe not in every area but in
    some.
        And when you pass new rules or new laws like Can-Spam, you
    have given us that APA rulemaking, and we have that APA
    rulemaking in the Omnibus for mortgages, for everything in the
    mortgage life cycle. So 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.
        Mr. Radanovich. Thank you.
        Mr. Rush. The chair now recognizes the gentlelady from Ohio
    for 2 minutes.
        Ms. Sutton. Thank you, Mr. Chairman. You heard some
    discussion here about the state attorneys general, 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 am
    going to read to you the headline of a report from the Housing
    Research and Advocacy Center that is in Cleveland. The headline
    reads pay-day lenders operating in 81 Ohio counties charging up
    to 680 percent interest. Lenders avoiding the 28 percent APR
    cap passed by legislature and voters, and that is at the state
    level, in 1,020 stores statewide. And just to give you an idea
    of what is happening here despite legislation passed in 2008
    aimed at lowering interest rates on short-term loans pay-day
    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 have avoided the 28 percent cap by using other
    laws, so they are very crafty and they are very quick 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 there is no magic bullet for
    solving these problems, as I am 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 2000 percent, so you borrow $100, you
    forget about it, the next year you owe $2,000. Look, one part
    is working with attorneys general because we have to leverage
    our limited resources, and that is a part of it. Another part
    is consumer education. We have a terrific consumer education
    group and that is a part of it. You know, I wish I could tell
    you there is a particular answer to this problem but it is--
    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 are going to see more of these problems. You
    are going to see more people borrowing from pay-day lenders.
        Now Congress made the determination that outside of
    military bases pay-day lenders should be capped at, I think, 36
    percent. I suppose Congress could make the determination that
    pay-day lenders should be capped at 36 percent and limited in
    fees, but that is a decision for you to make. I will say this.
    If you give us more authority to do rulemaking in this area, we
    will take a look at pay-day loans.
        Ms. Sutton. With the chair's indulgence, I appreciate that,
    and thank you for bringing up the issue about loans near
    military bases, and I would 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.
        Mr. Rush. The chair thanks the gentlelady, and the chair
    thanks the chairman again for the extensive 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 we
    just want to let you know that we appreciate your presence
    here.
        Mr. Leibowitz. Thank you.
        Mr. Rush. The chair now calls the second panel to the
    witness table. The chair wants to welcome this extraordinary
    panel before the committee, and we want to introduce you
    individually, and then we will ask that you all stand after
    your introduction so that we can swear you in. To my left, Mr.
    James Tierney. He is a Lecturer-in-Law at Columbia Law School,
    and he is the former attorney general of Maine. Welcome, Mr.
    Tierney. Next to Mr. Tierney is Mr. Christopher Peterson,
    Professor of Law at the S.J. Quinny College of Law. Welcome,
    Mr. Peterson. Next to Mr. Peterson is Mr. Ira Rheingold. He is
    the Executive Director of the National Association of Consumer
    Advocates. Mr. Rheingold, welcome. And next to Mr. Rheingold is
    Mr. Nathan Benson. He is the CEO of the Tidewater Finance
    Company, Inc., and he is testifying on behalf of the American
    Financial Services Association. Welcome, Mr. Benson. And now I
    would like to swear the witnesses in. Will the witnesses please
    stand and raise your right hand?
        [Witnesses sworn.]
        Mr. Rush. Let the record reflect that the witnesses all
    answered in the affirmative. The chair recognizes Mr. Tierney
    for 5 minutes for the purposes of an opening statement.

       TESTIMONY OF JAMES TIERNEY, LECTURER-IN-LAW, COLUMBIA LAW
      SCHOOL; CHRISTOPHER PETERSON, PROFESSOR OF LAW, S.J. QUINNY
      COLLEGE OF LAW; IRA RHEINGOLD, EXECUTIVE DIRECTOR, NATIONAL
      ASSOCIATION OF CONSUMER ADVOCATES; AND NATHAN BENSON, CHIEF
      EXECUTIVE OFFICER, TIDEWATER FINANCE COMPANY, INC., FOR THE
                AMERICAN FINANCIAL SERVICES ASSOCIATION

                       TESTIMONY OF JAMES TIERNEY

        Mr. Tierney. Thank you, Mr. Chairman. My name is Jim
    Tierney. I am the Director of the National State Attorney
    General Program at Columbia Law School, and in that capacity I
    work closely with the men and women who serve as your attorneys
    general and your staff, all of whom are deeply committed to
    rooting out fraud in the area of credit. My testimony is
    obviously my own, but I have discuss it with a number of
    attorneys general, including your own, Mr. Chairman, Lisa
    Madigan, and I think I broadly reflect the views of those
    attorneys general who are committed to this important issue. I
    think if there is one thing that is clear is that we have
    insufficient consumer protection in the field of credit. That
    is the bottom line. We are not doing enough. The crisis is real
    and it is growing. And if there is one single lesson that has
    to be received in the halls of Congress and the halls of
    federal regulators, including the Federal Trade Commission, is
    that the states got it right and the states got it first.
        Speaking bluntly, until we have effective state regulation
    from state attorneys general and state banking commissioners,
    we will never get ourselves out of this hole. The question is
    how do we get from here to there, and that is a challenge.
    There is a long history of relationships between the federal
    and state approach to working with these issues. The federal
    government has a number of very narrow federal statutes
    enforced by not the Federal Trade Commission but enforced by
    banking regulatory agencies whose first job is to assure the
    safety and soundness of the banking community, and we see how
    well they have done that.
        But in addition to that, it is their responsibility
    allegedly to deal with consumer protection and they just don't
    do it. It is not their highest priority. It never will. On the
    state side you have broader laws, state unfair, deceptive and
    trade practices act, which are flexible, and state attorneys
    general get it right and get it first not because of--although
    they show great leadership and great courage they get it
    because they are structured to do it. They live in communities.
    Like you, they have constituents. They are able to move and
    move quickly, and they are able to move on a national basis and
    on a bipartisan basis so that they are able to achieve some
    very specific and concrete results.
        Now get to the hearing of the Federal Trade Commission.
    There is a long history between the Federal Trade Commission
    and the state attorneys general. Sometimes it is very positive.
    In the 1970s federal funding with the help of the Federal Trade
    Commission actually went to the states to get states more
    involved in consumer protection. Again, during the terms of the
    first President Bush and President Clinton, again we had warm
    and solid relationships with the Federal Trade Commission and
    the states were on the same side. The last 8 years have been
    very cold years. And I commend our new chairman. Our new
    chairman did the best he could to explain the facts as he found
    them, but the bottom line is that the Federal Trade Commission
    has been on the sidelines on a number of very, very important
    cases, and this is very unfortunate.
        Not only were they not involved in the cases but even
    informally they never called up an attorney general and said
    what did you learn? What are you seeing about the patterns of
    fraud? And this is a serious problem. I commend the chairman
    for reinstituting the Executive Working Group, which I called
    for in my formalized testimony. It is extraordinarily
    important. There are some regional directors of the FTC who
    work with the states, there are some who not. Certainly, the
    FTC are bringing cases but are these the biggest cases or is
    the FTC showing an instinct for the capillary. Are they
    striking at the major issues or are they grabbing onto low
    hanging fruit when they go after a case? We don't know. We
    don't know because people are not sitting down in the same work
    and discussing how do we put together a systematic,
    sophisticated process by which we can root out consumer fraud,
    and that requires a lot of work because there will never be
    enough lawyers in the Federal Trade Commission, never, never,
    never, to track down the kind of consumer fraud we are seeing.
        The FTC has to work with the states, state banking
    commissioners, the private bar, consumer advocacy groups, in
    other words, all the people that the states work with every day
    as they fashion the kind of priority prosecutions that are
    absolutely necessary to make this happen. Now not only have the
    states brought the cases that have been alluded to in the
    earlier testimony, the Household, the AmeriQuest, and the
    Countrywide, but they had to do it with one hand tied behind
    their back because they are litigating with the same federal
    agencies who are trying to pre-empt them from bringing these
    cases at all. That case is back before the United States
    Supreme Court again in April. It is a serious issue. The
    Banking Committee has held hearings on this. It is
    extraordinarily important that the Federal Trading Commission
    and the chair of the Federal Trade Commission stand up as has
    the chair of the FDIC, Sheila Bare, and said this is not a time
    to pre-empt states. We have a problem. We need more consumer
    protection, not less, and the timing is of extreme importance.
    So with that, Mr. Chairman, thank you for giving me this
    opportunity, and I look forward to answering any questions that
    you might have.
        [The prepared statement of Mr. Tierney follows:]

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        Mr. Rush. Thank you. The chair now recognizes Mr.
    Christopher Peterson. Mr. Peterson, you are recognized for 5
    minutes.

                   TESTIMONY OF CHRISTOPHER PETERSON

        Mr. Peterson. Thank you, Mr. Chairman, ranking member. It
    is an honor to be here today and share a few thoughts. I would
    like to start with two quick statistics, if I could, about the
    sub-prime and alternative mortgage product crisis. The first is
    roughly 6 million foreclosures coming through the pipe
    according to Credit Suisse, and then foreclosure rescue scam
    cases brought by the Federal Trade Commission, 6. According to
    their testimony in the Senate last month, they brought 6
    foreclosure rescue scam cases for 6 million foreclosures. That
    is 1 in a million. Where I come from that is sort of a cliche
    you talk about when you said he is not doing anything, right?
    In my view, honorably, the Federal Trade Commission is a good
    agency that does their best but they are not doing anything. We
    are talking about taking teacups of water out of an ocean. It
    is just not even close to the sort of magnitude of problems
    that we are talking about.
        And so if I could just quickly, you talk about the rule of
    the law. We all have been talking about all these
    generalizations about separating good loans from bad loans.
    Just talk about the laws for a second. There is equal credit--
    they have four titles of the Consumer Credit Protection Act,
    and then they have their deceptive trade practices authority.
    The Equal Credit Opportunity Act is designed to prevent
    discrimination in awarding credit. It doesn't do anything in
    the way of preventing bad loans from being made. The Fair
    Credit Reporting Act tries to clear up inaccurate credit
    information, but that is not the problem that we had here. Lots
    of people had prime credit histories and were still getting
    non-amortizing loans that have gone in waves into foreclosure.
        The Fair Debt Collection Practices Act is a nice gesture
    but it generally doesn't apply to home mortgage loan servicers
    and it comes too late. I mean at the point where the loan is
    already in default and there is debt collection problems, it is
    too late at that point. Then the Truth in Lending Act is a nice
    idea but it is too late. The disclosures are confusing. People
    generally just don't read them. They ignore the disclosures.
    And even if that was a great strategy the statute that is
    designed to promote honesty in origination of loans doesn't
    apply to mortgage brokers who are the people that actually talk
    to consumers. What sort of a truth in lending idea doesn't
    apply to the people who talk to the borrower?
        And then in addition to those four statutes, they also have
    two significant regulations that they have done under their
    deceptive trade practices authority. The holder in due course
    notice rule which doesn't apply to home mortgages, and that was
    back in 1975 and it has never been updated. And, second, the
    credit practices rule which bans about 5 different problematic
    contractual provisions including confessions of judgment and
    pyramiding late fees, but it hasn't been updated since 1984.
    And this regulation doesn't talk about any of the non-
    amortizing products and sub-prime products that we are talking
    about in the past few months.
        And that is it. I just did it. In 3 minutes I summed up
    their entire regulatory structure, and it really doesn't do
    much of anything to try and prevent home mortgage fraud. And
    what are the barriers that prevent more stuff from taking
    place? Well, it is true that they have this inefficient
    regulatory rulemaking process, and it seems to me it would be
    helpful to speed that up. But the real problem is the
    fragmented federal regulatory system. On my hand I can count 11
    different agencies that are supposed to be dealing with this
    problem, the Federal Reserve Board of Governors, the Office of
    the Comptroller, the Office of Thrift Supervision, FDIC, the
    National Credit Union Administration, the new Federal Housing
    Finance Administration, if I am getting that right, the new
    OFHEO, HUD, SEC, the FBI and Justice at the same time, and then
    finally the Federal Trade Commission.
        In this fragmented system, the capital flows to the weakest
    regulator like water going down into the basement. And the
    result is that there is very, very little actual rulemaking to
    try and deal with the problematic practices that are actually
    in our industry. So I have been coming up with a list of all
    the things that I think needs to get done, and I have this
    gigantic list of problems in our statutory system. It is a big
    list. We are talking a lot of changes that need to be made.
    Congress could do that but it is going to be a long and
    complicated bill. It is going to be very controversial. You
    could give it to a federal agency to try and do it but which
    one would you choose? The only plausible existing candidates
    are the Federal Reserve, which already have that authority
    under the Home Ownership and Equity Protection Act or the
    Federal Trade Commission, which is a good choice but has
    nowhere near the resources and has a too expansive mission.
        In my view, respectfully, it is time for a new regulatory
    agency that deals exclusively with this issue and has authority
    to pursue protection of consumers on consumer finance issues.
    And if you are not talking about that, if you are just talking
    about more tinkering then you are just kind of kidding yourself
    and you are not really going to fix anything.
        [The prepared statement of Mr. Peterson follows:]

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        Mr. Rush. The chair thanks the gentleman. The chair now
    recognizes Mr. Rheingold for 5 minutes.

                       TESTIMONY OF IRA RHEINGOLD

        Mr. Rheingold. Thank you, Chairman, and thank you, Ranking
    Member Radanovich. It really is quite a honor to testify before
    you, Congressman Rush. I started my career as a consumer
    advocate in Chicago where I began a legal assistance foundation
    foreclosure prevention project, and I worked through the mid-
    90's dealing with all the mortgage crises that we had in Austin
    and Roslin, all over Chicago. And the things that we saw in
    Chicago in the 90's, we are seeing nationwide today. What I
    think disappoints me most about today's hearing is I am going
    to go through a litany of things that we consumer advocates saw
    in the 90's, saw in the early 2000's, and we see the exact same
    thing today. Nothing has changed except that things have gotten
    worse, and there has not been a federal response to it,
    including the FTC.
        I think about the world I see. I run an organization called
    the National Association of Consumer Advocates. We are the
    private attorneys, the legal service attorneys across this
    country who actually do the consumer advocacy work. We are on
    the ground every single day representing consumers who are
    losing their houses or having their car repossessed or being
    harassed by debt collectors. We see what is going on there but
    the federal regulatory agencies and the FTC have not talked to
    us. So what do we have out here? Oh, I should mention I also
    run a project called the Institute for Foreclosure Legal
    Assistance, so I am in contact and talk daily with all the
    private attorneys, the legal service attorneys in the community
    who are actually fighting foreclosures. We are on the ground.
    We know who the bad actors are. We see the bad practices, and
    we see what is going on out there.
        So what do we have? We have a completely broken mortgage
    lending industry. There is no question about it. Unfairness
    runs rampant. Bad lending practices are everywhere. We have a
    broken mortgage servicing system, completely broken. It is
    unaccountable. They can't figure out how much money people owe.
    They can't modify a loan to save their lives. We have seen,
    Chicago is a perfect example of it, a dual credit market. If
    you are middle income or rich, you have banks. If you are poor
    or you are low income, what do you have? You have currency
    exchanges and you have pay-day lenders, and you have rent to
    own, and you have refund anticipation loans. It is stealing
    wealth out of the communities that we care about most, and it
    has gone on unabated for the last decade with nobody really
    taking any real action and it is only getting worse.
        We have a debt collection industry that is completely out
    of control. We have growth of a debt buying industry that is
    sort of mind boggling in the way they go about collecting debts
    without actually even knowing--not having the contract that the
    person actually had that debt originally from. They don't have
    any proof that that is owed, yet they are using our nation's
    court and using our nation's private arbitration system to
    collect debts against people. We have a broken credit reporting
    system where consumers can't get real access to their credit
    reports. They don't get the information necessary and they
    can't fix those reports once they are broken.
        All of those things is what our credit market looks like
    today. And I went and talked with consumer advocates who I talk
    with every single day in this country. I asked them about the
    FTC and their role over the last 8 years and the last 10 years
    in protecting consumers. I will just pick some of the
    adjectives that I got responded, passive, antagonistic,
    irrelevant, disengaged, counterproductive, stuck in a world
    that doesn't regulate. They have not been part of the ballgame
    here. They can cite statistics. They can talk about some cases
    that they brought. In the scheme of things, it is mostly
    irrelevant. Now to be fair to them, they are under resourced,
    and there are good career attorneys there who do their best.
    But the fact is they have been disengaged.
        I have been in Washington now 7 years after I left Chicago,
    and some day I hope to return. And on one hand I can count the
    conversations I have had with the FTC. We are the people out
    there doing this kind of work. We are out there on--it really
    is sort of mind boggling to me that we sit here today with the
    problems that existed 10 years ago and we have had federal
    regulatory agencies who have done nothing except exacerbated
    the problem. The Federal Trade Commission, as Chris said, was
    using the spoon to clean out an ocean. They simply did not do
    the job. There is a number of things that can be done to
    improve them. Hopefully in the new Administration they will be
    more assertive and more aggressive. They have been completely
    passive in using their unfairness authority. They need to use
    it. They need to declare things--we know when things are
    unfair.
        When you give somebody a loan that they can't afford to pay
    back, that is unfair. It is not a really hard thing to figure
    out. They do need greater rulemaking authority. It is crazy.
    Six to 8 years to make a rule to protect consumers, that is
    just not the way it should work. Hopefully, they will have
    leadership, and I hope Chairman Leibowitz will demonstrate some
    leadership in terms of being assertive and aggressive in this
    area. They should have concurrent authority over the banks.
    There is a special place in regulatory hell for the federal
    bank regulators over the last 8 years and their complete
    failure to what has happened here. So hopefully the FTC can use
    of their consumer protection powers. I will stop there but be
    happy to answer any questions you might have about the FTC and
    the credit crisis we are facing.
        [The prepared statement of Mr. Rheingold follows:]

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        Mr. Rush. Thank you. The chair now recognizes Mr. Benson
    for 5 minutes.

                       TESTIMONY OF NATHAN BENSON

        Mr. Benson. Good morning, Chairman Rush, Ranking Member
    Radanovich, and members of the subcommittee. My name is Nathan
    Benson, and I am the CEO of Tidewater Finance Company, which
    was established in 1992 to purchase and service retail
    installment contracts. The company is based in Virginia Beach,
    Virginia, and has two lines of business, Tidewater Credit
    Services for consumer goods and Tidewater Motor Credit for auto
    services. I am here today in my capacity as a board director of
    American Financial Services Association, AFSA, whose 350
    members include consumer and commercial finance companies, auto
    finance companies, card issuers, mortgage lenders, industrial
    banks and other firms that lend to consumers and small
    businesses. AFSA appreciates the opportunity to provide
    testimony to the members of the subcommittee.
        Today, I will focus my testimony on the role that the
    Federal Trade Commission has played, and continues to play, in
    helping to restore confidence in the financial services
    industry. I will also address the installment loan industry's
    importance in providing access to credit to millions of
    Americans. The FTC is the effective regulator. The FTC has been
    very successful in enhancing consumer protection under its
    current authority. It has addressed the economic crisis in two
    ways, first, by using its enforcement authority under Section 5
    of the FTC Act to pursue bad actors in the sub-prime mortgage
    industry, and, second, by setting federal policy through
    guidance and public comment. I will start by providing some
    examples that fall into the first category.
        The FTC successfully negotiated a $40 million settlement
    with Select Portfolio Services in November 2003 for engaging in
    unfair and deceptive practices in servicing sub-prime mortgage
    loans. The settlement was modified in August 2007 to provide
    additional protections to borrowers, including mandatory
    monthly mortgage statements, a 5-year prohibition on marketing
    optional products such as home warranties and refunds for
    foreclosure attorney fees for services that were not actually
    performed. The FTC has entered into a $65 million settlement
    with First Alliance Mortgage Company for making deceptive sub-
    prime mortgage loans. The FTC distributed the $65 million to
    nearly 20,000 affected borrowers.
        The FTC has successfully pursued other sub-prime mortgage
    lenders engaged in what the Commission deemed to be
    inappropriate conduct, including Capital City Mortgage
    Corporation and Quicken Loans. I want to just move on to the
    installment lending and its role in providing credit to
    consumers. At the outset, let me say that AFSA shares Congress'
    concern about predatory lending. We support the goal of
    protecting consumers from unfair, abusive, or deceptive lending
    and servicing practices while preserving access to responsible
    lenders.
        The installment lending industry was born in 1916 out of a
    need to provide credit to working men and women. The Russell
    Sage Foundation worked with lenders to develop a set of
    principles by which they would abide in their lending
    activities. Lenders agreed to make the cost of their loans
    transparent so that borrowers understood the true cost of the
    loan. Loans would be structured over a period of time allowing
    a repayment schedule that was long enough to match the earning
    power of the borrower. Finally, the lender would price the loan
    based on the character of the borrower, which was defined as a
    combination of the borrower's employment stability and previous
    history of handling credit.
        Today's installment lenders are a key element in improving
    the socio-economic status of poorer citizens and supporting our
    company's economic health. They do this by adhering to basic
    principle of economics, that people should borrow so they can
    consume based on their permanent income, and that such
    consumption is the fuel of our economy. Typically, the middle
    and upper class borrow through traditional banking and
    financial services relationships. However, average wage earners
    with few financial assets often cannot borrow in this way.
    Traditional banks simply are not equipped to offer products and
    services to these consumers in a manner that is profitable for
    the enterprise. As a result, these consumers need access to
    safe forms of small-sum credit. These are the very products the
    installment loan industry, an industry fully and completely
    regulated and examined at the state level, have been providing
    successfully for decades.
        Certainly, people turn to installment lenders for multiple
    reasons. Key among these, however, is the need to access small
    sums to deal with unforeseen circumstances. I could go on but
    if there are any questions.
        [The prepared statement of Mr. Benson follows:]

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        Mr. Rush. Thank you. I certainly want to thank the panel
    for their excellent testimony. The chair now recognizes himself
    for a round of questioning for 5 minutes. I want to address my
    first question to the entire panel, and each one of you can
    take a few seconds to answer the question as you will. Most of
    you have testified this morning that the FTC has not done
    enough to address consumer credit issues over the past years,
    particularly over the last 8 years. And let me just ask each
    one of you, do you believe that this has occurred because of a
    lack of action, political or structure in nature? In other
    words, do you believe the Commission has failed to act because
    of a lack of will or because of some underlying obstacles such
    as the lack of statutory authority, the lack of resources,
    burdensome procedures, or all of the above? If you could
    explain to me in your answer why you believe the FTC has failed
    to act. Mr. Tierney.
        Mr. Tierney. Well, we can go in the same order,
    Congressman. I think it is clear that the leadership of the
    Federal Trade Commission at the very highest level in the last
    8 years, very highest level, shared the de-regulatory
    philosophy that was predominant at the time, and the philosophy
    was clearly stated to state attorneys general on a regular
    basis that you were vicious intermeddlers, you were denying
    credit to people who need it, you are applying the wrong
    standards, that we should let the marketplace prevail and it
    will be a self-regulatory procedure. And although time and
    again attorneys general would expressly predict, it turned out
    conservatively, a million home foreclosures they were
    characterized as alarmists, not necessarily by the Federal
    Trade Commission but by the tone of the times and by the
    interest groups that surrounded the Commission, so the
    Commission at the top reflected the reality.
        I would also make another smaller point that our past two
    presidents have persisted in naming people to the Commission
    with an anti-trust background, not a consumer protection
    background, and that is a bipartisan characterization of our
    past three presidents actually. And that it would be a really
    good idea if the Federal Trade Commission had someone on the
    Commission who had a consumer protection background, and,
    secondly, actually had worked with the states and did not come
    from a large law firm or from the Hill. And I don't mean the
    personal characterization, but I really do believe that the FTC
    is lacking that kind of background and experience at the very
    highest level.
        Mr. Rush. Does the other panel want to weigh in on this?
        Mr. Peterson. I do. I would like to say that in the past 12
    years it has been primarily a political or lack of willpower
    issue, but going forward it is more likely to have something to
    do with the structural issues. I think that there are
    structural problems but even if 12 years ago we had cleared out
    all those structural problems they still wouldn't have done
    anything. Going forward, I think they are going to try and do
    some things now, and it is going to be harder for them to do it
    than it should be because of the structural barriers and it
    would probably help if we cleared some of those out. But even
    still, I think we are still talking about tinkering with
    things. We are not talking about the magnitude change that
    needs to happen in order to help facilitate more efficient and
    effective commerce.
        Mr. Rheingold. I would concur with my fellow panelists, I
    think a lot of it was ideological. I think there was this
    notion that self regulation would work and the FTC should not
    interfere in the commerce of credit, so I think that is part of
    it without a doubt. And in part that is why a lot of consumer
    advocates did not engage with the FTC and the AGs didn't engage
    with the FTCs because we fear that the work we did would
    actually be undercut by their philosophy. I do think that
    resources are a significant problem there. They have an awful
    lot of jurisdiction. They have very limited resources. They
    have very little rulemaking, and I also agree that if they had
    that authority over the last decade nothing would have changed,
    but I think going forward we have some opportunity to do
    something.
        Mr. Rush. Mr. Benson, I have 30 seconds so please.
        Mr. Benson. Yes. We felt that through those cases that they
    have done anything about, that has affected over 10,000 people,
    and when they pick on an entity in an industry that has helped
    everyone that is tied to that industry, so it is not just that
    entity that is being affected. It is everyone in that
    environment that gets cleaned up pretty quick, so we think they
    have been pretty effective. When they pick on one entity it
    goes through to the whole industry doing the same things, so we
    think so far they have been effective.
        Mr. Rush. Thank you very much. The chair now recognizes the
    ranking member, Mr. Radanovich, for 5 minutes.
        Mr. Radanovich. Thank you, Mr. Chairman. Mr. Benson,
    welcome to the subcommittee. I appreciate your testimony. I
    want to start off with you on a couple of questions. Do you
    believe the FTC needs APA procedures in order to be effective
    or can it use the existing authority that it has to effectively
    regulate the industry?
        Mr. Benson. We believe that it can use its existing
    authority that it has.
        Mr. Radanovich. Let me ask you, how can regulation be used
    to reduce fraud without adding unnecessary compliance costs
    that are inevitably passed on to the consumer?
        Mr. Benson. Well, most of our members through AFSA are
    state regulated so we are controlled by them. We are in favor
    of disclosure with all our members, so we work with those
    people so we believe with full disclosure and with obviously
    the regulations with the state, we believe that fraud will come
    out as long as it is monitored.
        Mr. Radanovich. I was looking at the new sample disclosure
    form by the FTC, which I thought was kind of interesting. Can
    you tell me your opinion of it? It seems it is easy to read.
    Have you seen it?
        Mr. Benson. No, we haven't seen it.
        Mr. Radanovich. OK. OK. My first glance at is it is
    something that looks kind of positive. I was curious to know
    what your thoughts would be on it.
        Mr. Benson. As I said earlier, our view is more disclosure
    and the simpler it gets, a lot better it is.
        Mr. Radanovich. OK. One last question. The FTC has proposed
    disclosure simplification forms for mortgage--I think you have
    already answered that one. Thank you, Mr. Benson. I appreciate
    that. Mr. Rheingold, can I ask you, you testified that the
    FTC--that had the FTC had the will to actively engage in
    oversight much of the current credit crisis could have been
    avoided. We are talking about increasing authority through the
    APA and we are discussing that additional authority. Isn't that
    kind of a duplicative entry statement?
        Mr. Rheingold. I don't think so. I actually think there are
    two things happening here, and I think to be fair the FTC was
    not the controlling regulatory agency. The OCC and the OTS
    really failed and they had a lot of things that they could have
    done to prevent the disaster we have today. I think the OCC
    through its enforcement powers, if they in fact had been
    effective enforcers and using those decisions, I think the
    perfect example of a strong enforcement agency can do is what
    the Massachusetts AG did in the Freemon case where they brought
    a case against the mortgage company who was engaged in unfair
    practices, where they were making loans that people could not
    afford, and using the unfairness authority that court declared
    that these practices, A, B, C, and D, making a loan at a teaser
    rate that explodes and people can't afford it is unfair.
        Making a loan to people over 50 percent of their gross
    income is per se unfair. If the FTC would have taken some of
    those actions, even in the Fairbanks case there was an
    opportunity to declare certain practices that the service
    industry does as unfair, it could have had a real impact on the
    type of practices that exist throughout the mortgage industry.
        Mr. Radanovich. Using that example, where was the problem
    then? Was it in the lack--was it in the application of
    Magnusson-Moss or was it----
        Mr. Rheingold. Well, I am talking about their enforcement
    power. There is a difference between rulemaking--there are a
    couple of ways that they can set the law. By bringing in--if
    the FTC brings an action and gets a court order that declares
    as part of their court-agreed order that this practice is
    unfair, that will have a pretty large impact in terms of the
    rest of the industry because it will send a clear signal that
    this is an unfair practice and hopefully would stop it. That is
    one way they could do it, through their court enforcement
    procedures.
        I think the easier thing they could have done if they, in
    fact, had normal every day authority to make rulemaking is they
    could have done that without having to bring court cases. And
    the fact is, as someone who has been a veteran of dealing with
    a lot of the rulemaking that is done through all sorts of
    regulatory agencies, industry and consumer groups have ample
    opportunity through the APA procedure to get their voices heard
    and influence that process. And the notion that they need 6 to
    8 years with this lengthy, excuse me, cockamamie system of
    developing a way of rulemaking really it is counterproductive
    and useless, and anything that they could do with the current
    system that we have in place if it takes 6 to 8 years by the
    time you get a decision the problems out there would have
    evolved to something completely different.
        Mr. Radanovich. All right. Thank you very much, Mr.
    Rheingold. I yield back, Mr. Chairman.
        Mr. Rush. The chair thanks the gentleman. The chair now
    recognizes the gentlelady from Ohio, Ms. Sutton, for 5 minutes.
        Ms. Sutton. Thank you, Mr. Chairman. We have heard
    repeatedly here today about some of the shortcomings of what we
    are trying to accomplish in the process that now exists. A
    couple of those, of course, revolve around the fact that the
    FTC, we hear over and over again, doesn't have the authority
    over banks that it has over other entities, and we also hear
    about the rulemaking process being too cumbersome, but I guess
    one of the questions for this committee and for the Congress
    and for all of us here is if the FTC had rulemaking authority
    that was more streamlined, APA rulemaking authority, and they
    had greater authority over the banks, and they had resources to
    do the job, is it better for the FTC to be the agency that
    deals with this or some of you have suggested there should be a
    new entity to do so. If you could just answer those questions
    for me, I would appreciate your opinion.
        Mr. Tierney. I guess I would say, Congresswoman, I, like
    many of us, was studying the proposal by Professor Warren. It
    has been called the so-called Durbin-Delahunt bill. I have not
    taken a position on it yet but it has a lot to it. But, if I
    may, to go back to your earlier point about pay-day lending,
    and remember the name of the song, If You Can't Be With the One
    You Love, Love the One You're With, we have enough authority
    now between the states and the trial lawyers and the
    legislatures and the Federal Trade Commission. If we just want
    to do something and focus on the problem such as pay-day, take
    the resources we have, set a national strategic goal, and just
    go do it.
        And my concern about discussion of the larger institution
    is that while we play that huge congressional effort that goes
    on for so long, that we have millions of people suffering every
    day, and we should do something right now.
        Mr. Benson. I believe that the way you regulate it, and I
    am the only, I think, business person here, is you got to have
    some skin in the game, you got to have some money in the game,
    so if you are going to securitize you got to have--someone has
    got to hold a portion of the securitization on the books. If
    you are going to have loans out there, you got to have the risk
    factor, that you shouldn't be able to go and draw on someone's
    back account. You should be able to analyze the person's
    credit, make the loan that they can afford over time, payments
    over time, equal payments. That would solve the problem rather
    than the risk factor. When you have got nothing at risk, the
    issues come out.
        Mr. Peterson. If I could, I think that a new agency is the
    way to go. That is my honest opinion. The second choice would
    be the Federal Trade Commission. I don't think you should give
    it to the Federal Reserve Board. They have demonstrated that
    they are bankers at their heart and soul, and they have the
    authority to pass--they have extensive authority under the 1994
    Home Ownership and Equity Protection Act. You passed that
    statute and gave them all the power that they needed and they
    did nothing. The Federal Reserve Board could have stopped this
    easily with their rulemaking authority under HOEPA, and they
    didn't do anything, so what is to think that that is going to
    change now?
        And what is more with the Federal Reserve Board, they have
    so much political autonomy. It is so hard to exercise oversight
    over them because of their justified and needed monetary policy
    independence. I just don't think that it is a good political
    entity that is going to be at the beck and call of Congress and
    will be responsive to the people. It is time for a new consumer
    finance regulator that deals with these types of questions, and
    if you can't get that passed the Federal Trade Commission is
    the next best choice. But the problem is that the FTC has a lot
    of other important stuff to do. It needs to be out there on the
    anti-trust watchdog beat. It needs to be dealing with privacy
    issues, telemarketing issues, all very important issues, and
    very different than the consumer finance problems that we are
    talking about now. If this is ever going to happen, it is now,
    and if you don't do it now it will never happen, and we will
    continue to suffer from these systemic problems for the next 50
    to 100 years.
        Mr. Rheingold. I agree.
        Ms. Sutton. Is that an I agree, Mr. Rheingold?
        Mr. Rheingold. I absolutely agree.
        Ms. Sutton. OK. Thank you, and I yield back.
        Mr. Rush. The chair thanks the witnesses. We don't intend
    to go into a second round of questioning. I think that we have
    been well served by both panels today, and the chair really
    again--we are most grateful to this panel for the extensive use
    of your time. And we want to commend you on your patience with
    us through this particular issue. I just want to note that all
    witnesses should be prepared to receive and answer written
    questions from members of this subcommittee. And with that,
    thank you very much.
        Mr. Benson. Could I ask that my complete statement be
    included in the record?
        Mr. Rush. So ordered. And I would like to request unanimous
    consent to enter into the record a statement from the
    organization, Public Citizen. Without objection, so ordered.
        [The information was unavailable at the time of printing.]
        Mr. Rush. This subcommittee now stands adjourned.
        [Whereupon, at 12:30 p.m., the subcommittee was adjourned.]
        [Material submitted for inclusion in the record follows:]

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