In collaboration with state AG offices and the Federal Trade Commission, the Consumer Financial Protection Bureau continues to ramp up its investigations and enforcement actions as part of the new “Operation Mis-Modification.”

The CFPB, the Federal Trade Commission and fifteen states announced a sweep of lawsuits against what they characterize as “foreclosure relief scammers.”  The CFPB filed three lawsuits against individuals and companies – all law firms or associated with law firms – seeking compensation for victims, civil fines and injunctions.     

The FTC filed six lawsuits.  Notably and consistent with Director Cordray’s prior statements that the CFPB was collaborating with state AG offices, the state AGs announced their intent to file 32 lawsuits.

At present, it remains unclear whether any of the state AG lawsuits will rely upon Section 1042 of Dodd-Frank which, as we have previously reported, permits a state AG to bring a civil action for violation of the Dodd-Frank prohibition of unfair, deceptive or abusive acts or practices (“UDAAP”).

The CFPB alleges that the defendants used deceptive marketing to persuade thousands of consumers to pay them more than $25 million for services it falsely promised would prevent foreclosure or renegotiate mortgage.  The root of the CFPB’s allegations is that these companies:

• Charged consumers with advance fees before obtaining a loan modification – in violation of Regulation O – formerly known as the Mortgage Assistance Relief Services Rule;
• Misrepresented in marketing materials the likelihood they would help a consumer save substantial sums in mortgage payments;
• Tricked borrowers into thinking that they would receive legal representation even though many borrowers never spoke with an attorney or had their case reviewed by one; and
• Misled consumers to believe they were eligible for a loan modification or they would receive relief within a few short months when the defendants had not contacted the consumers’ lenders or requested or obtained any meaningful relief for them.

The CFPB’s complaints are available here:

• http://www.consumerfinance.gov/f/201407_cfpb_complaint_clausen-cobb.pdf
• http://www.consumerfinance.gov/f/201407_cfpb_complaint_cfpb-v-tmlg-et-al.pdf
• http://www.consumerfinance.gov/f/201407_cfpb_complaint_hoffman-law-group-et-al.pdf

The FTC’s complaints are available here:

• http://www.ftc.gov/system/files/documents/cases/140723danielsoncmpt.pdf
• http://www.ftc.gov/system/files/documents/cases/140723fmccmpt.pdf
• http://www.ftc.gov/system/files/documents/cases/140723lanierlawcmpt.pdf
• http://www.ftc.gov/system/files/documents/cases/140723mortgagereliefcmpt.pdf
• http://www.ftc.gov/system/files/documents/cases/140723homereliefcmpt.pdf
• http://www.ftc.gov/system/files/documents/cases/140723cdcapitalcmpt.pdf

The CFPB’s foreclosure relief scam lawsuits are similar to the lawsuit the Bureau filed against Morgan Drexen, a nationwide debt-settlement company, for charging consumers fees for debt-relief services before it actually came to an agreement settling or altering the terms of the debt.  In the Morgan Drexen matter, the California district court rejected its motion to dismiss based on a challenged to the CFPB’s constitutionality and the Ninth Circuit dismissed the appeal for lack of jurisdiction.  That case remains active.

The FTC lawsuits also charge the defendants for violating Regulation O, as well as the FTC Act.  In each case, the FTC has sought an order freezing the defendants’ assets pending the outcome of the litigation.

If you and your company are the subject of a foreclosure relief investigation or are named defendants in a lawsuit, it is critical that your matter is navigated correctly and aggressively by an experienced CFPB, FTC and State Attorneys General Investigations and Defense Lawyer, from the start. 

Information conveyed in this article is provided for informational purposes only and does not constitute, nor should it be relied upon, as legal advice. No person should act or rely on any information in this article without seeking the advice of an attorney.