The Mortgage Assistance Relief Services (MARS) Rule was issued in response to the mortgage relief scams that have mushroomed during the ongoing mortgage crisis."At a time when many Americans are struggling to pay their mortgages, peddlers of so-called mortgage relief services have taken hundreds of millions of dollars from hundreds of thousands of homeowners without ever delivering results," FTC Chairman Jon Leibowitz said in a statement.
"By banning providers of these services from collecting fees until the customer is satisfied with the results, this rule will protect consumers from being victimized by these scams."
Bogus operations falsely claim that, for a fee, they will negotiate with the consumer's mortgage lender or servicer to obtain a loan modification, a short sale or other relief from foreclosure. Many of these shady operators routinely pretend to be affiliated with the government and government housing-assistance programs in order to hoodwink victims.
As Consumer Ally has previously reported, the FTC has brought more than 30 cases against these scams, while state and federal law enforcement officials have prosecuted hundreds more.
All of the following provisions of the MARS Rule except the advance-fee ban go into effect on Dec. 29, 2010. The advance-fee ban takes effect on Jan. 31, 2011.
Advance Fee Ban
The most significant consumer protection under the FTC's new rule is the advance fee ban. Under this provision, mortgage relief companies may not collect any fees until they have provided consumers with a written offer from their lender or servicer that the consumer decides is acceptable, in addition to a written document from the lender or servicer describing the key changes to the mortgage if the consumer accepts the offer. The companies also must remind consumers of their right to reject the offer.
Mortgage relief companies must disclose key information to consumers to protect them from being misled and help them make more informed purchasing decisions. In both their advertising and communications directed at individual consumers (such as telemarketing calls), the companies must disclose that:
- They are not associated with the government, and their services have not been approved by the government or the consumer's lender.
- The lender may not agree to change the consumer's loan.
- If companies tell consumers to stop paying their mortgage, they must also tell them that they could lose their home and damage their credit rating.
The MARS Rule prohibits mortgage relief companies from making any false or misleading claims about their services, including claims about:
- The likelihood of consumers getting the results they seek.
- The company's affiliation with government or private entities.
- The consumer's payment and other mortgage obligations.
- The company's refund and cancellation policies.
- Whether the company has performed the services it promised.
- Whether the company will provide legal representation to consumers.
- The availability or cost of any alternative to for-profit mortgage assistance relief services.
- The amount of money a consumer will save by using its services.
- The cost of the services.
Attorneys are generally exempt from the rule if they meet three conditions: they are engaged in the practice of law, they are licensed in the state where the consumer or the dwelling is located and they are complying with state laws and regulations governing attorney conduct related to the rule. To be exempt from the advance fee ban, attorneys must meet a fourth requirement – they must place any fees they collect in a client trust account and abide by state laws and regulations covering such accounts.
The MARS Rule applies only to entities within the FTC's jurisdiction under the Federal Trade Commission Act, which excludes banks, savings and loans, federal credit unions, common carriers and entities engaged in the insurance business.
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