[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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