WASHINGTON The new administration will soon replace Robert Pitofsky as Federal Trade Commission chairman, but his latest remarks on predatory lending and privacy show he does not plan to exit sheepishly.
For months a group of 11 federal agencies has been struggling to define predatory lending and how to use existing laws to combat it. But Mr. Pitofskys agency which has jurisdiction over nonbank financial services companies has used its current authority to bring 14 lawsuits against lenders since 1998.
In an interview with American Banker, he disputed the notion that the term predatory lending is tough to pin down.
Its a series of practices that take advantage of and exploit people who cannot borrow in the prime market, said Mr. Pitofsky, who is expected to touch on the subject in a speech to the Exchequer Club here next week. What we have seen in cases that weve filed are a wide range of abusive and deceptive practices that take advantage of these people, of their lack of sophistication, and their sometimes desperate need to borrow money.
Dubious practices include adding credit insurance to a loan without notifying the borrower, hiding points and fees that are not included in the annual percentage rate, and charging astronomical interest rates, Mr. Pitofsky said. He recalled a case that we settled in which the borrower was charged over 100% interest over a period of about a year.
But the chairman stopped short of recommending legislation to fight the problem. Case-by-case enforcement and self-regulation by the industry are the best solutions, he said.
Part of the reason he stresses self-regulation, he said, is that his agency has had a tough time taking alleged predatory lenders to court.
To the extent that government brings cases against predatory lending, it is extremely burdensome and time-consuming, Mr. Pitofsky said. The litigation turns out to be a separate case with respect to the lender and each borrower because the contracts tend to vary from borrower to borrower.
But that does not mean the FTC will shrink from pursuing other cases it thinks important, Mr. Pitofsky said. If egregious practices are found, then surely we will continue to enforce the law. Since I regard some of the practices as among the most abusive that Ive ever seen, we are going to carry out our responsibilities.
As for privacy legislation, Mr. Pitofsky said that lawmakers and regulators have made great strides in protecting consumers financial and health records in the past two years. However, he still contends that a comprehensive privacy law that applies to all online merchants is needed.
Legislation across the board is the right way to go, he said. One reason is that people want it very much. Its still true that somewhere between 88% and 92% of people quizzed say that their concern about a secure environment online is very high on their list maybe even at top of the list. We think the online marketplace is a great pro-consumer development. But we also think it wont reach its full potential until the sellers address buyers concern about their products.
Mr. Pitofsky said that he felt part of the problem is in the vast array of disclosures and the way they are posted on Web sites. Though some sites have very clear notices that are easy to find, others are difficult to locate or understand.
Any law should probably not try to define too narrowly what constitutes a clear and conspicuous notice, he said.
As for his own future, Mr. Pitofsky refused to say whether he would stay on as a commissioner if President Bush nominates a chairman to succeed him.
My term runs out the end of September, he said. As to if I will do anything before that, I will wait and see what approach the White House takes to nominating a successor.