Financial Services Committee Passes Congresswoman Maxine Waters’ Amendment

Waters: Attorneys who participate in deceptive foreclosure assistance schemes
should be regulated by Consumer Financial Protection Agency

Washington, DC – The House Financial Services Committee today passed an amendment offered by Congresswoman Maxine Waters (D-CA) to crack down on foreclosure rescue scams that prey on vulnerable homeowners. The amendment subjects attorneys participating in foreclosure prevention services to regulation by the proposed Consumer Financial Protection Agency.

As the number of foreclosures has skyrocketed since the subprime mortgage meltdown started, many “foreclosure consultants” have popped up, promising to protect homeowners. Typically, they charge an excessive fee for services that can be obtained for free from a qualified nonprofit counseling agency or deliver little or nothing for the money received. Although many states prohibit foreclosure rescue consultants from collecting up-front fees, by partnering with an attorney, they can evade such restrictions. An example is the Federal Home Loan Modification Law Center, which qualified as a law firm and charged homeowners as much as $3,495 upfront for services never provided.

Congresswoman Waters, who chairs the Housing and Community Opportunity Subcommittee, has been a leading advocate of loan modifications as a way to prevent foreclosures. “Unfortunately, many consumers are being victimized by scam artists offering bogus services. Perhaps some turn to so-called ‘foreclosure rescue consultants” out of frustration when their loan servicer delays providing a loan modification, or they are deceived by the advertising they see. Certainly, it’s easy to understand that many consumers would falsely believe that Federal Home Loan Modification Law Center had some affiliation with the federal government. In any case, clearly too many people are being ripped off when they seek assistance to save their homes, and I want to make sure American homeowners are fully protected by the Consumer Financial Protection Agency,” she said.

Under the proposed language for the Consumer Financial Protection Agency, non-depository financial service providers engaged in financial activity are subject to registration and reporting requirements and examination standards and procedures. However, the bill exempts all attorneys from CFPA’s authority. Congresswoman Waters’ amendment would not affect most attorneys, as it would hold only those who provide foreclosure prevention services to the same registration and reporting requirements as anyone else who offers to assist in avoiding foreclosure, a group that the bill clearly regulates.

The proliferation of attorneys engaged in this type of loan modification scam is so prevalent that at least 23 states have enacted legislation to limit the role of attorneys in loan modification firms. The amendment would not affect attorneys engaged in legal filings related to bankruptcy or foreclosure court proceedings, an exception that is consistent with Massachusetts’ law, one of the strongest anti-foreclosure scam laws in the country.

Congresswoman Waters’ amendment has received the support of prominent consumer and civil rights advocates including Americans for Financial Reform; Center for Responsible Lending;

Consumer Action; Consumers Union; Empire Justice Center; National Association of Consumer Advocates; National Community Reinvestment Coalition; National Council of La Raza; National Consumer Law Center; National Fair Housing Alliance; Public Citizen; Sargent Shriver National Center on Poverty Law; and U.S. PIRG.

The Financial Services Committee approved Congresswoman Waters’ amendment before passing legislation to establish a Consumer Financial Protection Agency (H.R. 3126).

CFPA is a central part of financial regulatory reform efforts that President Obama and Congress are engaged in as a response to last year’s financial crisis. Congresswoman Waters has been a strong supporter of CFPA. In addition to the amendment cracking down on load modification scams, she offered another amendment approved today to include consumer advocates on the CFPA Oversight Board.