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FTC, DFPI win MSJ against a fraudulent mortgage relief operation
On February 13, the FTC and California Department of Financial Protection (DFPI) announced that the U.S. District Court for the Central District of California granted their motion for summary judgment against several companies and owners that the agencies alleged were operating a fraudulent mortgage relief operation. As previously covered by InfoBytes, the FTC and DFPI filed a joint complaint against the defendants in September 2022 alleging that the defendants violated the FTC Act, the FTC’s Mortgage Assistance Relief Services Rule (the MARS Rule or Regulation O), the Telemarking Sales Rule, the Covid-19 Consumer Protection Act, and the California Consumer Financial Protection Law. In granting the motion for summary judgment, the court found the defendants violated all five laws. According to the motion, the defendants falsely represented that they could lower homeowners’ interest rates and reduce the principal balances, but, after taking the payment upfront, rarely delivered any agreed-upon services. The defendants also allegedly made misleading claims during telemarketing calls with homeowners regarding home foreclosure and mortgage payments, among other claims, including with homeowners with numbers on the national Do Not Call registry.
The court ordered the defendants to pay approximately $16 million in restitution and $3 million in civil penalties. Further, the court ordered that the defendants are subject to a (i) permanent ban on advertising, promoting, offering for sale, or selling, or assisting others in those acts, any debt relief product or service and all telemarketing; and (ii) prohibition against making misrepresentations or unsubstantiated claims regarding products or services.
DFPI orders online platform to cease offering crypto-related products
On December 21, the California Department of Financial Protection and Innovation (DFPI) announced it has ordered an online platform offering several crypto-related services and products to desist and refrain from violating the California Securities Law and the California Consumer Financial Protection Law. According to DFPI, the company, which is registered with the California Secretary of State, offers services including (i) a peer-to-peer loan brokering service in which it claims that loans are secured by borrowers’ crypto assets; (ii) an interest-bearing crypto asset account that promises a fixed annual percentage rate yield; and (iii) an interest-bearing fiat account that promises a fixed annual percentage interest rate return. DFPI maintained that the company engaged in unlicensed loan brokering by offering and providing brokering services for personal loans made from one consumer to another (known as peer-to-peer lending), and conducted the unregistered sale of securities, in which consumers’ assets were pooled together with the stated purpose of generating passive returns. DFPI claimed that the company was and is not registered to offer investment contracts or to operate in this capacity with any relevant authority. Finding that these peer-to-peer lending services and interest-bearing accounts violate state law, including a prohibition against engaging in unlawful acts or practices, DFPI ordered the company to stop offering the services and products in California.
FTC, DFPI shut down operation offering mortgage relief
On September 19, the FTC and the California Department of Financial Protection (DFPI) announced a lawsuit against several companies and owners for allegedly operating an illegal mortgage relief operation. (See also DFPI’s announcement here.) The filing marks the agencies’ first joint action, which alleges the defendants’ conduct violated the California Consumer Financial Protection Law, the FTC Act, the FTC’s Mortgage Assistance Relief Services Rule (the MARS Rule or Regulation O), the Telemarketing Sales Rule, and the Covid-19 Consumer Protection Act. The agencies claimed that the defendants preyed on distressed consumers with false promises of mortgage assistance relief. According to the complaint, the defendants made misleading claims during telemarketing calls to consumers, including those with numbers on the National Do Not Call Registry, as well as through text messages and in online ads. In certain cases, defendants represented they were affiliated with government agencies or were part of a Covid-19 pandemic assistance program. Among other things, defendants falsely claimed they were able to lower consumers’ interest rates or payments, and instructed consumers not to pay their mortgages, leading to late fees and significantly lower credit score. Defendants also allegedly told consumers not to communicate directly with their lenders, which caused consumers to miss default notices and face foreclosure. Additionally, defendants charged consumers illegal up-front fees ranging from $500 to $2,900 a month, and told consumers they were negotiating loan modifications that in most cases never happened.
The U.S. District Court for the Central District of California granted a restraining order temporarily shutting down the defendants’ operations. In freezing the defendants’ assets and ordering them to submit financial statements, the court noted that the agencies established a likelihood of success in showing that the defendants “have falsely, deceptively, and illegally marketed, advertised, and sold mortgage relief assistance services.”