The Federal Trade Commission is proposing a ban on companies being able to charge consumers upfront for loan modification services.

In its notice of proposed rulemaking, the agency said it has already brought 28 cases against companies fraudulently offering loan modification services that charge consumers a fee and don't deliver and that state and federal law enforcement agencies have brought hundreds more.

The rule would not allow a loan modification company to be compensated until it had a documented offer from a mortgage lender or servicer. It also bars providers from advising consumers to stop communicating with their lender or servicer.

Furthermore the rule would stop modification providers from misleading consumers about the likelihood of getting the results they want and how long it will take; their affiliation with public or private entities, payment and other existing mortgage obligations; and refund and cancellation policies.

It also requires consumers to be told the loan modification firm is a for-profit business that provides its services in exchange for a fee, what that fee is, and that there is no guarantee of success. There is a 45-day comment period for the rule, which ends on March 29, 2010. Some states, most notably California, already ban upfront fees for loan modification services.

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