Reliable Mortgage Corporation

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IN THE MATTER OF RELIABLE MORTGAGE CORPORATION, ET AL.

ORDER, ETC., IN REGARD TO ALLEGED VIOLATION OF Tile FEDERAL TRADE COMMISSION AND TRUTH IN LENDING ACTS Docket 8956. C07ltplainf., Mar. , 1974 Deci ion .Jan. , 1975 Order requiring a Los Angeles, Calif., loan company, among other things to ceas violating the Trth in Lending Act by failng to disclose to consumers, in connection with the extension of consumer credit, such information as require by Regulation Z of the said Act.

Complaint fig F. Appearances For the Commission: David G. Cameron and KendalllI MacVey. For the respondents: Alvin F. IIaward, Horowitz, Howard and Bloom Los Angeles, Calif.

COMPLAINT Pursuant to the provisions of the Federal Trade Commission Act and of the Truth in Lending Act and the implementing regulation promulgated thereunder, and by virtue of the authority vested in it by said Acts, the Federal Trade Commission having reason to believe that Reliable Mortgage Corporation, a corporation, and Edward Siegel individually and as an officer of said corporation, hereinafter sometimes referred to as respondents, have violated the provisions of said Acts and implementing regulation and it appearing to the Commission that a proceeding by it in respect thereof would be in the public interest, hereby issues its complaint stating its charges as follows: PARAGRAPH 1. Respondent Reliable Mortgage Corporation is a corporation organized, existing and doing business under and by virue of the laws of the State of California with its principal offce and place of business located at 320 N. Vermont Ave., Los Angeles, Calif. Respondent Edward Siegel is an individual and is the principal corporate offcer of Reliable Mortgage Corporation. He formulates directs and controls the policies, acts and practices of said corporation and his address is the same as that of the corporate respondent. PAR. 2. Respondents are now, and for many years have been engaged in the business of arranging loans secured by real property for a fee.

PAR. 3. In the ordinary course and conduct of their business as aforesaid, respondents regularly arange for the extension of consumer credit, as "arrange for the extension of credit" and "consumer credit" are defined in Section 226.2 of Regulation Z, the implementing regulation of the Trth in Lending Act, duly promulg-dated by the Board of Governors of the Federal Reserve System. PAR. 4. Subsequent to July 1 , 1969, respondents, in the ordinar coure and conduct of their business as aforesaid, have caused to be published, advertisements, as "advertisement" is defined in Section 226.2 of Regulation Z, which advertisements aided, promoted, or assisted, directly or indirectly, the extension of other than open end credit. Respondents, in certain of these advertisements, have stated the rate of a finance charge, as "finance charge" is defined in Section 226. of Regulation Z, and have not expressed said rate as an annual percentage rate, using the term "annual percentage rate " as "annual RgLiABLE MORTGAGg CORP.. ET AL.

Initial Decision percentage rate" is defined in Section 226.2 of Regulation Z, in violation of Section 226.1O(d)(I) of Regulation Z.

PAR. 5. By and through the acts and practices set forth above respondents have failed to comply with the requirements of Regulation , the implementing regulation of the Trth in Lending Act, duly promulgated by the Board of Governors of the Federal Reserve System. Pursuant to Section 103(q) of the Act, such failure to comply constitutes a violation of the Trth in Lending Act, and, pursuant to Section 108 thereof, respondents have violated the Federal Trade Commission Act.

INITIAL DECISION BY HARRY R. HINKES, ADMINISTRATIVE LAW JUDGE November 11 , 1974 PRELIMINARY STATEMENT In a complaint issued by the Federal Trade Commission on Mar. 5 1974, respondents Reliable Mortgage Corporation and Edward Siegel were charged with failing to comply with the requirements of Regulation Z, the implementing regulation of the Trth in Lending Act duly promulgated by the Board of Governors of the Federal Reserve System. Pursuant to Section 103(q) of that act, such failure to comply constitutes a violation of the Trth in Lending Act and pursuant to Section 108 thereof respondents were charged to have violated the Federal Trade Commmission Act. In their answer to the complaint respondents denied Paragraphs Four and Five of the complaint which charge a violation of law. In addition, as an aff"lTative defense respondents alleged that any order issued herein would injure the consuming public and interfere with competitive conditions. Respondents, however, made no answer to Pargraphs One, Two or Three of the complaint which establish the identity of the respondents and the nature of their business. Paragraphs One, Two and Three of the complaint are, therefore, deemed to have been admitted puruant to Section 3.12(b)(l)(ii) of the Rules of Prctice of the Fedeml Trade Commission.

On May 13, 1974, respondents were served by complaint counsel with a request for missions. Respondents did not respond to this request. Indeed, counsel for the respondents in a letter dated June 17, 1974 stated:

We will not reply to your request for admissions, and they will be automaticay admitted under the rules.

Indeed, Section 3.31 of the Commssion s Rules of Practice dealing with admissions states:

. .

EDERAL TRAm; COMMISSION DECISIONS Initial Decision 8'; F. (b) The matter is admitted unless within 10 days after the servce of the request. the pary to whom the request is directed serves upon the pary requesting the admission . . a sworn written answer or objection addressed to the lalter After unsuccessful attempts at settlement, complaint counsel filed a Motion for Summary Decision on Sept. 24, 1974, alleging that there was no genuine issues as to any material fact and that a decision should be rendered as a matter of law. Counsel for the respondent then withdrew from this proceeding and, with the consent of the respondents substituted the respondents in propra personal. Nevertheless, oral argument was set on complaint counsel's Motion for Summar Decision and respondents were advised of the date and place for said oral argument. By letter dated Oct. 7, 1974, respondents indicated their intention not to appear at oral argument. Oral argument was held on Oct. , 1974. Respondents did not appear nor were they represented. On the basis of the complaint, respondents' answer to the complaint and complaint counsel's request for admissions which went unanswered by respondents, I make the following:

FINDINGS OF FACT 1. Respondent Reliahle Mortgage Corporation is a corporation organized, existing and doing business under and by virue of the laws of the State of California with its principal offce and place of business located at 320 N. Vermont Ave., Los Angeles, Calif. Respondent Edward Siegel is an individual and is the principal corporate officer of Reliahle Mortg-dge Corporation. He formulates directs and controls the policies, acts and practices of said corporation and his address is the same as that of the corporate respondent. (Par. 1 of the Comp.

2. Respondents are now, and for many years have been, engaged in the business of arranging loans secured by real property for a fee. (Par. 2 of the Comp.

3. In the ordinar course and conduct of their business as aforesaid respondents regularly arranged for the extension of consumer credit as "arange for. the extension of credit" and "consumer credit" are defined in Section 226.2 of Regulation Z, the implementing regulation of the Trth in Lending Act, duly promulg-dated by the Board Governors of the Federal Reserve System. (Par. 3 of the Comp. 4. I respondents caused to be published an advertisement stating At Reliable Mortg-dge your loan will cost you a lot less. Our interest rate is 8-1/2 percent." The ad does not contain the words "annual percentage rate." (Comp. Counsel's unanswered request for admissions.

. . .

l\I'LdAnLI' lHUI'JuAuJ: vlJI'r. , J:J AL. Initial Decision 5. The above ad was published in the following newspapers on the dates indicated:

Los Angeles Times: Feb. 19, 20, 25, Mar. 4, 11, 18 and 25, 1973. Orange County Metro Group: Feb. 19 and 20, 1973. Santa Ana Register: Feb. 25, 26, 27, 28, Mar. 4, 11, 18 and 25, 1973. San Gabriel Valley Tribune: Feb. 19, 20, 25, Mar. 4, 11, 18, and 25 1973. (Comp. Counsel's unanswered request for admissions. 6. Respondents caused to be published an advertisement stating: A second trust deed loan for less than 10 per cent interest." The ad does not contain the words "Annual percentage rate." (Camp. Counsel' unanswered request for admissions.

7. The above ad was published in the following newspapers on the dates indicated:

Los Angeles Times: Apr. 8, 29, May 6, 13 , June 3 and 10, 1973. Santa Ana Register: Apr. 22, 29, May 13 and 20, 1973. Long Beach Independent: Apr. 8, 1973.

Los Angeles Sentinel: Apr. 12, 19, 26, May 3 and 10, 1973. (Comp. Counsel's unanswered request for admissions. COMMENT Section 226.10 of Regulation Z implementing the Trth in Lending Act states:

No advertisement to aid, promote or assist, diretly. or indirectly, any creit sae shall state (1) the rate of a finance charge unless it states the rate of that charge expressed as an "annual percentage rate" using that tenn It is clear that here respondents advertised a finance charge of 8-1/2 percent interest without specifying the annual percentage rate. Such ads were, therefore, violative of Regulation Z. Beauty-Style Modernizers, Ine. Docket No. 8898, June 11, 1974 (83 F. C. 1759). Some comment may be appropriate with respect to respondents affirmative defense. In it respondents allege that they ceased the advertisements to which the Commission had made objection even though they believed the Commssion s objections were unjustified and that the unfavorable publicity of this proceedig has injured the consuming public by discrediting the respondents although their interest charges were lower than others in competition with them. The Commission has held, however, that:

the fact that past unlwful practices have cea."ed or been suspended is no assurnce that they will not be resumed at some time in the futur, absent the deterrnt effect of a Commission order with the possibilty of heavy civil penalities for violation. (Koppe Co. Inc. 77 F. C. 1675. 168.

See, also Certified Building Products, Ine. Docket 8875, Oct. 5 1973 (83 C. 100), CCH Trade Regulation Rep. \120 506 and Zale Corption 78 F. C. 1195, 1240.

'i89- 799 0 - 76 - 3 ), Order 85 F.

I do not agree that compellng respondents to disclose their annual percentage rate would injure the puhlic by discrediting them. If indeed, respondents' annual percentage rate is lower than the rate charged by their competition it would appear advantageous to the respondent to advertise such annual percentage rate so that the consuming public may he able to compare the two easily. ORDER It is ordered That complaint counsel's Motion for Summar Decision , and the same hereby is grouted.

It is further ordered That respondents Reliable Mortgage Corporation, a corporation, its successors and assigns and its officers and Edward Siegel, individually and as an offcer of said corpration, and respondents' agents, representatives and employees, directly or through any corporate or other device, in connection with any advertisement to aid, promote, or assist, directly or indirectly, any extension of consumer credit as consumer credit" and advertisement" are defined in Regulation Z (12 C. R. !j226) of the Troth in Lending Act (Pub.L. 90-321, 15 D. C. 1601 et seq. forthwith cease and desist from:

Stating the rate of a finance charge unless said rate is expressed as an annual percentage rate, using the tenn "annual percentage rate as "finance charge" and "annual percentage rate" ar defined in Section 226.2 of Regulation Z, as prescribed by Section 226.10(d)(I) of Regulation Z.

2. Stating or utilizing any component of the annual percentage rate such as the rate of interest, when such component is stated or utilized more conspicuously than the annual percentage rate. 3. Failing, in any advertisement, to make all disclosures as required by Section 226.10 of Regulation Z and in the manner prescribed therein. It is further orded That respondent corpration, its successors and assigns, shall forthwith distribute a copy of this order to each of its operdting divisions.

It is further ordered That respondents notify the Commssion at least 30 days prior to any proposed change in the corporate respondent such as dissolution, assignment or sale resulting in the emergence of a successor corporation, the creation or dissolution of subsidiares or any other change in the corporation which may affect compliance obligations arsing out of the order.

FINAL ORDER The administrative law judge fied his initial decision in this matter Order on Nov. 11, 1974, finding respondents to have engaged in the acts and practices as alleged in the complaint and entering a cease-and-desist order against respondents. A copy of the initial decision and order was served on the respondents on Nov. 29, 1974. No appeal W3.' taken from the initial decision.

The Commission having now determined that the matter should not be placed on its own docket for review, and that the initial decision should become effective as provided in Section 3.51(a) of the Commission s Rules of Practice.

It is ordered That the initial decision and order contained therein shall become effective on Dec. 30, 1974.

It is further ordered That Reliable Mortgage Corporation, a corporation, and Edward Siegel, individually and as an officer of said corporation, shall within sixty (60) days after service of this order upon them, fie with the Commission a report in wrting, signed hy such respondents, setting forth in detail the manner and form of their compliance with the order to cease and desist.