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The �鶹��ý Trade Commission has been working to protect consumers from illegal lending practices through enforcement actions and consumer education, Howard Beales, Director of the FTC’s Bureau of Consumer Protection, told the Senate Special Committee on Aging. “The damage to consumers that dishonest and unscrupulous lenders can cause, the loss of one’s life savings or even one’s home, is potentially catastrophic,” said Beales, in presenting testimony today. He noted that the FTC has maintained a vigorous enforcement program, achieving notable successes in halting illegal practices and returning hundreds of millions of dollars to defrauded borrowers. At the same time, Beales said, the FTC has been careful to avoid discouraging honest subprime lenders from making credit available to consumers.

The testimony explains the FTC’s legal authority to act against illegal subprime lending practices and describes the operation of the subprime lending market, including the considerable benefits that honest lenders can provide. It also discusses the Commission’s extensive enforcement record and consumer education program.

Subprime lending refers to the extension of credit to persons who are considered to be higher risk borrowers, usually due to their impaired credit histories. According to the testimony, subprime lending has increased dramatically in recent years. The increase in subprime mortgage lending is part of a broader trend in this country of increasing availability of credit to people that in the past could not qualify for it. For the subprime market to operate efficiently to benefit consumers, it is critical that it be free of deception and other illegal practices. As the market has grown, the testimony stated, some lenders and loan servicers have engaged in illegal practices to the detriment of borrowers.

Beales highlighted the FTC’s law enforcement efforts and noted that the FTC, working with its federal and state law enforcement partners, has been active in bringing enforcement
actions against such conduct. Beales said, “the agency has settled or prosecuted cases against 20 subprime mortgage companies of various sizes and located in different parts of the country.” Several of these cases have resulted in large monetary judgments, including a record-setting $215 million consumer redress order against Citigroup and The Associates, Beales noted.

The testimony further addresses the FTC’s consumer education initiatives. It highlights the Commission’s active role in educating older consumers about abusive lending practices, as well as other consumer issues. “Recognizing that the American population is aging, issues facing older consumers are a priority for the FTC,” Beales said.

In conclusion, the testimony states that the FTC “believes that it is very important to preserve the benefits that increased access to credit bring, while preventing illegal practices from flourishing in the marketplace.” Through enforcement and consumer education efforts, Beales noted, the Commission works to protect consumers of all ages.

The Commission approved the testimony by a vote of 5-0.

The views expressed in the written testimony represent those of the FTC. The oral presentation and responses to questions reflect the speaker’s views and not necessarily those of the Commission or any individual Commissioner.

Copies of the testimony are available from the FTC’s Web site at and also from the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint, or to get free information on any of 150 consumer topics, call toll-free, 1-877-FTC-HELP (1 877-382-4357), or use the complaint form at . The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.

(FTC Matter No. P033802)