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FTC Compliance Lawyer Alert: Debt Relief Document Preparation Services and the MARS Rule

Richard B. Newman

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For years, the Federal Trade Commission and Consumer Financial Protection Bureau have actively investigated and taken action against entities and individuals that engage in deceptive mortgage assistance relief operations.

Red flags for regulators include, but are not limited to:
  • False claims - including those made via text messages and telephone calls - of affiliation with the federal government or lender

  • Creating a false sense of urgency

  • Unsubstantiated success rate claims

  • Charging illegal upfront fees
Marketers are debt relief services, including those engaged in document preparation services, must take care to ensure compliance with a number of laws and regulations, including, without limitation, the FTC Act, the Telemarketing Sales Rule and the Mortgage Assistance Relief Services Rule.

This article is intended to focuses upon the latter, the Mortgage Assistance Relief Services Rule (“MARS”).

The Federal Trade Commission issued MARS to curb unfair and deceptive practices associated with mortgage assistance relief services. If you offer mortgage assistance relief services – or work with companies that do – you must know about the provisions of the Mortgage Assistance Relief Services Rule.

MARS makes it illegal to charge upfront fees.

You cannot collect money from a consumer unless you deliver – and the customer agrees to – a written offer of mortgage relief from the consumer’s lender or servicer.

Additionally, you must clearly and prominently disclose certain information before you sign consumers up for mortgage assistance relief services. You must tell consumers upfront key information about your services, including:
  • the total cost

  • that they can stop using your services at any time

  • that you are not associated with the government or their lender

  • that their lender may not agree to change the terms of their mortgage
If you advise someone not to pay his/her mortgage, you must clearly and prominently disclose the negative consequences that could result. You must warn customers that failure to pay could result in the loss of their home or damage to their credit rating.

Do not advise customers to stop communicating with their lender or servicer. Under MARS, it is illegal to tell people they should not communicate with their lender or servicer.

You must disclose key information to your customer if you forward an offer of mortgage relief from a lender or servicer. You must give your customer a written notice from the lender or servicer describing all material differences between the terms of the offer and the customer's current loan. You are also required to inform consumers that if the lender or servicer's offer is not acceptable to them, they do not have to pay your fee.

Never misrepresent your services. Under MARS, it is illegal to make claims that are false, misleading or unsubstantiated.

Is your business covered by MARS?

Yes, if your business is a for-profit provider of mortgage assistance relief services.

MARS defines "mortgage assistance relief service" as a service, plan, or program that is represented, expressly or by implication, to help homeowners prevent or postpone foreclosure or help them get other kinds of relief, like loan modifications, forbearance agreements, short sales, deeds-in-lieu of foreclosure, or extensions of time to cure defaults or reinstate loans.

MARS applies whether you work directly with consumers’ lenders or servicers to get mortgage relief or you offer services to help consumers do it on their own (e.g., by conducting a review of consumers’ loan documents).

MARS covers mortgage brokers who promote loan origination or refinancing transactions as a way for homeowners to avoid foreclosure. It covers real estate agents who promote their services as a way to help consumers to avoid foreclosure.

MARS does not cover lenders and servicers that offer mortgage assistance relief services in connection with loans they own or service. Nor does it cover professionals like accountants or financial planners as long as they do not claim expressly or by implication that using their services will help a homeowner get a loan modification or other mortgage relief.

MARS contains special provisions for attorneys who provide mortgage assistance relief services. Having an attorney on your staff or using outside attorneys to perform some of your services does not exempt you from the Rule. Nor does having an attorney place fees in a client trust account, by itself, allow you to collect fees in advance.

Note, even if you do not provide mortgage assistance relief services, you still may have obligations under MARS.

It is illegal to provide “substantial assistance” to someone if you know – or consciously avoid knowing – that they are violating the Rule.

What amounts to substantial assistance depends on the facts.

Activities like procuring leads (the contact information of potential customers) for MARS providers, helping a MARS provider with its back-room operations, reviewing customer files, processing customers’ payments or contacting customers’ servicers are just a few examples.

If you work with MARS providers, review their policies, procedures and operations to make sure they are complying with the Rule because willful ignorance on your part simply is not a defense.

How do truth-in-advertising principles apply to service-related claims?

Under the Rule, it is illegal to misrepresent, either expressly or by implication, any “material aspect” of your services. That includes any information that is likely to affect a consumer’s decision to use your service or choose one service over another.

Here are some examples of claims that would be material:
  • the likelihood of negotiating, getting, or arranging a specific form of mortgage relief

  • how long it will take to get the advertised mortgage relief

  • an affiliation with the government, public programs, or lenders or servicers

  • the terms and conditions of homeowners’ mortgages, including how much they currently have to pay

  • your refund and cancellation policies

  • whether homeowners will be getting legal services

  • the benefits and costs of using alternatives to for-profit MARS providers

  • the amount homeowners may save if they use your service

  • the total cost of your service

  • the terms, conditions or limitations of a lender or servicer’s offer of mortgage relief, including how much time the homeowner has to accept the offer
In addition, if you make claims about the benefits, performance or efficacy of your services, your statements must be truthful and you must have competent and reliable evidence to back them up.

For example, if you make claims about how much consumers will save – like “We can reduce your mortgage payments by 20% to 50%” – your claims must accurately reflect the results you have achieved for previous customers.

Similarly, if you claim that your customers have reduced their mortgage debt by “up to 50%,” it is likely you are conveying to new customers that they, too, will get savings of around 50%. If you do not have solid proof to back up that claim, your claim is considered deceptive.

What information must be disclosed to consumers?

The Rule spells out several key pieces of information you must disclose clearly and prominently to consumers. Some disclosures must be made in all advertising for general audiences. Other disclosures must be made in one-on-one communications you have with prospective customers, like telephone calls, letters or email. A third type of disclosure must be made when you give a customer an offer of mortgage relief from his or her lender or servicer.

The Rule also requires that if you ever tell a customer that he or she should stop making timely mortgage payments, you must tell them, using these words, “If you stop paying your mortgage, you could lose your home and damage your credit rating.”

MARS requires certain disclosures in what it calls “general commercial communications” – that is, advertising meant for a general audience, like ads on TV, radio or the Internet. In those ads, you must clearly and prominently disclose two key facts, in these words:
  • “[Name of your company] is not associated with the government, and our service is not approved by the government or your lender;” and

  • “Even if you accept this offer and use our service, your lender may not agree to change your loan.”
The two disclosures must be presented together. The Rule has specific requirements for presenting them.

The Rule requires additional disclosures in any “consumer-specific commercial communication” – that is, a letter, phone call, email, text or the like, directed at a specific person you are soliciting for your service. In every communication you have with prospective customers, the Rule requires that you clearly and prominently disclose three key facts, in these words:
  • “You may stop doing business with us at any time. You may accept or reject the offer of mortgage assistance we obtain from your lender [or servicer]. If you reject the offer, you do not have to pay us. If you accept the offer, you will have to pay us [insert amount or method for calculating the amount] for our services.”

  • “[Name of your company] is not associated with the government, and our service is not approved by the government or your lender;” and

  • “Even if you accept this offer and use our service, your lender may not agree to change your loan.”
The three disclosures must be presented together. The Rule has specific requirements for presenting these disclosures to prospective customers.

Under the Rule, when you give a customer an offer of mortgage relief from their lender or servicer, there are additional disclosure requirements:
  • You have to give your customer a separate written page that clearly and prominently says “This is an offer of mortgage assistance we obtained from your lender [or servicer]. You may accept or reject the offer. If you reject the offer, you do not have to pay us. If you accept the offer, you will have to pay us [same amount you disclosed upfront] for our services.”

  • You have to give your customer a separate one-page written notice from the customer’s lender or servicer that explains all material differences between the offer of mortgage relief you got from the lender or servicer and the customer’s current loan. Some examples of differences in loan terms that would be material to customers – and would have to be disclosed – include: the principal balance; the interest rate on the loan, including the maximum rate and any adjustable rates; the number of payments on the loan; how much the customer must pay each month for principal, interest, taxes, and any mortgage insurance; any delinquent payments the customer owes; any fees or penalties; and the duration of the loan.

  • If the offer of mortgage relief you get for a customer is a trial loan modification – that is, a loan modification that's temporary – the written notice you give your customer from his or her lender or servicer also must disclose the material terms, conditions and limitations of this type of relief, including: that it is a trial loan modification and the duration of the trial period; that the customer may not qualify for a permanent mortgage loan modification; and if the customer does not qualify, the likely amount in suspended payments, arrears or fees the customer would owe once the trial loan modification period ends.
Disclosures about the nature of mortgage assistance relief services must be presented clearly and prominently. These requirements apply to “general commercial communications” – advertising meant for a general audience, like ads on TV, radio or the Internet – and to “consumer-specific commercial communications” – letters, phone calls email, and the like directed at a specific person who has not yet signed up for your service.

What makes a disclosure clear and prominent depends on the method you use to communicate with prospective customers. The Rule has more details on how to make sure your disclosures are clear and prominent.

The Rule says that you cannot collect any fee from a customer until you have met three requirements:
  • You get an offer of mortgage relief from your customer’s lender or servicer. You must have persuaded your customer’s lender or servicer to reduce, modify or otherwise change the terms of the customer’s mortgage loan;

  • You give your customer the written offer. You must provide your customer with a written agreement from the lender or servicer to reduce, modify or otherwise change the terms of the customer’s mortgage loan; and

  • Your customer accepts the written offer. The customer’s acceptance must be in the form of an executed written agreement with the lender or servicer that incorporates the changes to the terms of his/her mortgage loan.
You cannot collect any fees for intermediate steps you take as part of the process.

For example, it would be illegal to charge separately for:
  • conducting an initial consultation with a customer;

  • reviewing or auditing a customer’s mortgage or foreclosure documents to detect errors, including robo-signing or title problems;

  • gathering financial or other information from a customer;

  • sending an application for mortgage relief or any other request to a customer’s lender or servicer;

  • communicating with a lender or servicer on a customer’s behalf; or

  • responding to requests for information from a customer’s lender or servicer.
Lastly, the Rule requires you to keep certain records for at least two years from the date the document is created, generated, or received:
  • Advertising and promotional materials. You must keep a copy of each substantially different advertisement, brochure, telemarketing script, website, training document, or other material related to the advertising or marketing of your service. You do not have to keep separate copies of documents that have minor, immaterial differences.

  • Sales records. You have to keep records showing the name, last known address, and telephone number of each of your customers; the services they bought from you; and how much they paid you. You need to maintain records relating only to customers who agree to use your services. You do not have to keep records relating to people who asked about your services, but did not sign up.

  • Communications with customers. You must keep copies of all written communications between you and customers that occurred before they agreed to use your service.

  • Agreements with customers. You must keep copies of all contracts or other agreements between you and your customer.

  • You also must take reasonable steps to ensure that your employees and independent contractors comply with the Rule. At a minimum, that would include: performing random, blind monitoring and recording of sales and customer service calls involving your employees or people who do telemarketing on your behalf; establishing a procedure for receiving and responding to consumer complaints and investigating each one promptly and thoroughly; determining the number and nature of consumer complaints related to transactions involving individual employees or contractors and taking corrective action – which may include training, discipline, or termination – if they are not complying with the Rule; and keeping records sufficient to establish that you are meeting your monitoring responsibilities under the Rule.
Consult with an FTC compliance lawyer if you are the subject of a regulatory investigation or enforcement action.


ADVERTISING MATERIAL. These materials are provided for informational purposes only and are not to be considered legal advice, nor do they create a lawyer-client relationship. No person should act or rely on any information in this article without seeking the advice of an attorney. Information on previous case results does not guarantee a similar future result. Hinch Newman LLP | 40 Wall St., 35thFloor, New York, NY 10005 | (212) 756-8777
 
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