Consumer Groups Urge FTC for New Protections from Mortgage and Auto-Lease Fraud

According to a recent article in American Banker, consumer advocates are pushing the Federal Trade Commission (“FTC”) to expand protections for borrowers who have defaulted on certain debts. The move is expected to particularly impact mortgage originators and auto lease providers who are both currently exempt from consumer challenges. The debate relates to a longstanding FTC rule regarding situations where a consumer finances the purchase of a product or service that is found to be defective or fraudulent. The FTC’s rule offers some protection to the consumer who decides to stop making loan payments, allowing that consumer to raise the seller’s misconduct in the ensuing dispute with the lender.

Consumer groups recently wrote a letter in which they asked the FTC to apply this rule to the auto-leasing business, which today accounts for approximately one-third of all financing for new vehicles. The letter also suggested similar protections should exist for residential mortgages, though the authors do not explicitly call for their inclusion in the regulations. According to American Banker, “consumer groups… argued that mortgage fraud was rampant during the 2000s because securitization trusts that purchased home loans had no incentive to police misconduct.” However, mortgage groups have countered that expanding the rule into the mortgage realm would disrupt investor confidence in the secondary market.

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