FTC Joins California DFPI to Obtain Asset Freeze Against Mortgage Relief Activity | Venable LLP
Last week, the Federal Trade Commission again turned its attention to the mortgage relief industry. In its latest enforcement action, the FTC has partnered with the California Department of Financial Protection and Innovation (DFPI) for the first time.
On September 12, 2022, the agencies jointly filed a lawsuit in the U.S. District Court for the Central District of California against several companies suspected of operating a mortgage repair scam. Two days later, the court issued a temporary restraining order (TRO) appointing a receiver and freezing the defendants’ assets until the parties could be heard on whether to issue a preliminary injunction.
Defendants consist of various corporations doing business as Home Matters USA, Academy Home Services, Atlantic Pacific Service Group and Golden Home Services America, and two individual defendants who own the companies.
The FTC and DFPI allege that, since at least June 2018, the defendants have deceptively marketed and sold mortgage assistance services to consumers. Specifically, the agencies allege that the defendants told consumers that in exchange for upfront payments, they would negotiate with consumer mortgage companies to reduce interest rates and/or principal amounts in order to make the payments. more affordable mortgages. According to the complaint, however, the defendants often provided none of the advertised services and simply pocketed millions of dollars paid by consumers.
The agencies say the defendants have used telemarketing calls, text messages and online advertising to “go after financially distressed homeowners” by claiming they can reduce consumers’ mortgage payments within three months. They also accuse the defendants of falsely telling consumers that they were associated with government mortgage relief programs, including federal COVID-19 relief programs. According to the complaint, the defendants would charge between $500 and $2,900 per month before obtaining a change in consumer mortgage payment terms.
The FTC and DFPI argue that consumers suffered numerous harms as a result of the defendants’ conduct:
- They argue that consumers were duped into paying for mortgage relief services based on misleading representations, including claims that defendants “regularly beat the system” and “don’t get beaten by the system,” but that the defendants often failed to provide a significant benefit. to consumers.
- Beyond the payments made for the services, the agencies say that in many cases the defendants ordered consumers not to pay their mortgage or to contact their mortgage lender while using the service, which, according to the agencies, led many consumers to face late fees. and lower credit ratings.
- Finally, they allege that consumers were required to sign cease and desist letters to be sent to their mortgage lenders, which required the lenders to contact the defendants rather than the consumers. Thus, the agencies allege that some consumers ended up in foreclosure after not receiving notice of missing or default payments, despite consumers continuing payments to defendants.
The FTC and DFPI allege that the defendants’ conduct violates the Federal Trade Commission Act, the Mortgage Assistance Relief Services (MARS) Rule, the Telemarketing Sales Rule, the COVID-19 Consumer Protection Act and the California Consumer Financial Protection Law.
After seeking and obtaining a TRO and asset freeze, the agencies are now seeking a preliminary and ultimately permanent injunction, refunds and restitutions, and monetary penalties. The preliminary injunction hearing is set for September 28, 2022. The Commission voted unanimously 5-0 to bring this action.
In the wake of the AMG Capital decision, the FTC announced its intention to partner with state consumer protection authorities to provide the FTC with the ability of states to obtain monetary relief when the FTC may not be able to do so, and this case continues this trend. Here, the FTC leveraged that authority to obtain an asset freeze, a procedure that has been used less by the FTC since. AMG Capital.
Given soaring inflation and growing economic hardship that many Americans are facing, the FTC’s return to the mortgage relief business is no surprise, and we may continue to see more of it. the FTC’s share in this area.