Introduction FTC Mortgage Rulemaking State Attorneys General Future Congressional Action A Word of Caution


On March 11 2009 President Barack Obama signed the Omnibus Appropriations Act 2009 into law. Although the primary purpose of the legislation was to appropriate funds to various federal agencies, members of Congress also used the legislation as a vehicle to enact substantive changes to various laws with little or no notice or debate. Of particular note to consumer lenders is Section 626 of the act.

Section 626 directs the Federal Trade Commission (FTC) to "initiate a rulemaking proceeding with respect to mortgage loans". It also grants state attorneys general new authority to enforce, on behalf of their states' residents, any FTC mortgage rules and the federal Truth in Lending Act in at least some circumstances. Section 626 was not the subject of any hearings and it contains many technical and other flaws.

For these and other reasons, key senators have publicly committed to one another to revise the language substantially in future legislation.

FTC Mortgage Rulemaking

The act states simply that the FTC "shall initiate a rulemaking proceeding with respect to mortgage loans" in accordance with the Administrative Procedures Act. The act also provides that any violation of this rule will be treated as a violation of a rule under Section 18 of the FTC Act regarding unfair or deceptive acts or practices.

Congress provided no guidance to the FTC regarding the types of rule it should promulgate or the issues that should be addressed in the rulemaking. Indeed, questions have been asked as to whether this unlimited and undefined grant of regulatory authority is so vague as to fall foul of the Constitution.

The act does not specifically define the entities that would be subject to the FTC's mortgage regulations, but neither does it expand the FTC's current jurisdictional boundaries. Therefore, there are serious questions as to whether the FTC's mortgage regulations could apply to those entities that are not subject to the FTC's jurisdiction under the FTC Act. This would exclude, for example, insured depositary institutions.

State Attorneys General

Currently, state attorneys general do not have the authority to enforce the Truth in Lending Act against any entity. However, Section 626 grants state attorneys general the ability to:

"enforce the provisions of [S]ection 128 of [the Truth in Lending Act, relating to closed-end loan disclosures], any other provision of [the Truth in Lending Act], or any mortgage loan rule promulgated by the [FTC]."

There are significant technical deficiencies in this provision, making it difficult to discern exactly how a state attorney general would enforce the Truth in Lending Act.

Regardless, this represents an attempt to expand the enforcement authority of state attorneys general in an area of law that could attract significant attention.

The exact authority of state attorneys general is not clear. As discussed below, the legislative history associated with this provision suggests that the authority of state attorneys general under Section 626 does not extend to depositary institutions, and is limited to those entities that are subject to the FTC's jurisdiction. However, especially given the lack of any express limitations, a state attorney general might attempt to enforce the Truth in Lending Act against a depositary institution, including a national bank or federally chartered savings association.

Future Congressional Action

Several senators discussed Section 626 on the floor of the Senate as part of a colloquy before the act was adopted by the Senate. Included in the colloquy were Senators Dodd, Dorgan and Crapo. Based on the colloquy, it appears that the congressional intent was to limit the FTC's rulemaking and the authority of state attorneys general to non-bank entities.The senators also agreed that they would amend Section 626 in the near future to ensure that the language more clearly reflects these intentions. At present, it is not clear when such amendments may be adopted or exactly how the amendments will be drafted.

A Word of Caution

Increased regulation of the financial services industry has been a significant issue for the 111th Congress. Numerous bills have been introduced specifically to address bank supervision, credit card lending, mortgage lending and other financial services.

Section 626 is an illustration of how significant changes can be introduced not only in specific bills, but also through amendments to otherwise unrelated legislation. In such cases, this process may provide an avenue for such changes to become law swiftly, without any opportunity for review and clarification in the ordinary legislative process.

For further information on this topic please contact James A Huizinga, John K Van De Weert or Karl F Kaufmann at Sidley Austin LLP by telephone (+1 202 736 8000) or by fax (+1 202 736 8711) or by email ( or or

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