CFPB Continues to Take Action Against Consumer-related Entities, including  Law Firms

In recent years, banks, mortgage companies and lenders have served as targets for the Consumer Finance Protection Bureau (CFPB). The bureau actively promulgated multiple rules, re-interpreted case law and revised regulations to force these institutions to change their behavior and structures.

More recently, the CFPB also has targeted other segments of the financing world ranging from auto dealerships to student loans. The target list keeps growing.

On November 6, 2013, the CFPB began accepting complaints from borrowers encountering problems with payday loans, also known as cash advances or check loans. Now, consumers can submit payday loan complaints to the bureau about unexpected fees or interest, unauthorized or incorrect charges to their bank account, payments not being credited to their loan, problems contacting the lender, receiving a loan they did not apply for and not receiving money after they applied for a loan.

Recently, the CFPB published an advanced notice of proposed rule-making for its proposed update to the Fair Debt Collection Practices Act. The 90-day comment period began on November 6, 2013. While the bureau noted that it has not yet decided the precise scope and nature of rule-making it may conduct concerning debt collection, the full 114-page advanced notice goes into detail about what the bureau is looking for during the comment period.

The CFPB also announced that it would be releasing some 5,000 debt-collection complaints it has been receiving since July 2013.

The day following the November 6, 2013, announcement that the CFPB would regulate payday loans, the CFPB announced a proposed settlement with mortgage company Castle and Cook Mortgage, LLC for allegedly steering consumers into more expensive mortgages. The settlement is $13 million, with $9 million in restitution and $4 million in civil penalties. Enforcement is occurring throughout the country in multiple industries.

While the CFPB has publically taken stands against these financial institutions, one of the most common targets of the bureau has largely not received the media attention that it likely deserves: the lawyers.

The bureau has filed six lawsuits, as many as it has filed against the banking industry, against lawyers. Its first enforcement action was against the Gordon Law Firm in Los Angeles in July 2012. In June 2013, U.S. District Judge Percy Anderson of the Central District of California ordered Gordon to pay $11.4 million in damages.

While the case is still on appeal, it is a jolting realization for the potential liability of lawyers who specialize in debt collection. In the words of CFPB Director Richard Cordray,

“These wolves in sheep’s clothing take money from consumers who are already struggling to pay their bills, falsely promising them help while really making their problems worse.”

While the CFPB derives its power from the Dodd-Frank Act, it is interesting to note that the CFPB is taking these actions against lawyers despite the fact that Section 1027 of the act states that the agency  “may not exercise any supervisory or enforcement authority with respect to an activity engaged in by an attorney as part of the practice of law”.

In response to a challenge based on this limitation, a CFPB spokesman responded in an email that, “Nothing prevents the Bureau from exercising its authority with respect to a consumer financial product or service offered or that is provided outside of the scope of the attorney-client relationship.”

While the CFPB has netted hundreds of millions of dollars in fines and restitution from financial institutions such as JP Morgan, Chase Bank and Discovery, its actions against law firms and lawyers may have more of a deterring impact.

“A debt collector should not be able to avoid liability for unlawful debt collection practices simply by contracting with another company to do what the law does not allow it to do itself.” Janetos v. Fulton Friedman & Gullace, LLP, 825 F.3d 317, 325 (7th Cir. 2016) #law #debt

— LawsInTexas (@lawsintexasusa) September 2, 2019

Where entities are found to be part of a common enterprise, “each may be held liable for the deceptive acts and practices of the other.” FTC v. Nat’l Urological Grp., Inc.,645 F. Supp. 2d 1167, 1182 (N.D. Ga. 2008) #fraud #law

— LawsInTexas (@lawsintexasusa) September 2, 2019

CFPB Halts Alleged Nationwide Mortgage Loan Modification Scams

DEC 11, 2012

Operations Targeted Financially Distressed Consumers in Danger of Losing Their Homes

WASHINGTON, D.C. – The Consumer Financial Protection Bureau today announced actions to halt two alleged mortgage loan modification scams it believes ripped-off thousands of struggling homeowners across the country. In total, these operations took in more than $10 million by charging consumers for services that falsely promised to prevent foreclosures or renegotiate troubled mortgages.

“We are taking on schemes that prey on consumers who are struggling to pay their mortgages or facing foreclosure,” said CFPB Director Richard Cordray. “We are especially concerned with those who misrepresent government programs or websites to divert distressed homeowners from needed assistance.”

At the request of the CFPB, U.S. District Court Judges in the State of California have ordered a halt to both operations, the Gordon Law Firm and the National Legal Help Center, and frozen their assets while the CFPB moves forward with the cases. The case involving the National Legal Help Center was initially referred to the CFPB by the Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) and Treasury’s Office of Financial Stability, which have coordinated closely with the Bureau throughout the investigation.

“It is absolutely unacceptable for unscrupulous con artists to take advantage of our nation’s housing crisis by targeting homeowners looking for help from TARP’s Home Affordable Modification Program,” said Christy Romero, Special Inspector General for TARP (SIGTARP). “We thank the CFPB for protecting homeowners. SIGTARP will continue to stop these scams and educate homeowners that mortgage modifications through HAMP are free.”

The CFPB is targeting loan modification operations that attempt to disguise their false promises of relief for struggling homeowners with claims that they are performing legal work or are a law firm. The Bureau is also particularly concerned with schemes that attract victims with false claims that they are endorsed by or represent the government. These tactics are used by mortgage relief scams to attract victims, add credibility to their schemes, or exploit certain legal exemptions for the practice of law.

The CFPB complaints allege that the defendants in both cases violated the Dodd-Frank Act and Regulation O, formerly known as the Mortgage Assistance Relief Services Rule. These laws prohibit unfair, deceptive, or abusive acts or practices and protect distressed homeowners from mortgage relief scams.

Violations of the law alleged in the CFPB’s complaints in both cases include:

• Illegally charged large upfront fees: It is against the law for mortgage relief providers to charge fees before services are provided. However, the defendants in both cases collected fees early on, typically ranging between $1,000 and $4,500 from each distressed homeowner, for services that rarely if ever materialized.
• Deceptively claimed to be affiliated with government agencies and/or programs:Defendants in both cases used deceptive language and mailings with government logos, letterhead, and/or marks to mislead consumers into believing that their mortgage relief services were sponsored by or associated with government agencies or programs.
• Misrepresented that they would secure loan modifications for consumers: Defendants misled consumers that the defendants were experienced negotiators who would substantially reduce mortgage payments, and that defendants would identify legal violations by consumers’ banks or mortgage companies to use as leverage in loan modification negotiations. However, it appears that defendants failed to provide meaningful relief for consumers.
• Instructed consumers to stop paying their mortgages and stop contacting their lenders:Financially distressed consumers were told to avoid interactions with their lenders and to stop mortgage payments because the defendants would provide relief, potentially putting the consumers unknowingly at risk of losing their homes and/or ruining their credit scores.

The CFPB also alleges that, after pocketing thousands of dollars in illegal fees from one distressed homeowner after another, the defendants in both cases typically stopped returning consumers’ phone calls and emails. In the end, many consumers learned that the defendants had not contacted their lenders or obtained any meaningful relief for them. Ultimately, homeowners across the country lost thousands of dollars each and suffered significant economic injury, including losing their homes.

National Legal Help Center

The more recent of the two actions involves California residents Najia Jalan and Richard K. Nelson and their operation, National Legal Help Center, which appears to target consumers in all 50 states with false promises of mortgage relief. According to the CFPB, National Legal Help Center falsely claimed that they would provide legal representation for consumers even though the individual defendants are not attorneys and consumers received no actual legal representation.

Defendants falsely claimed that, for a fee, they could assist consumers in getting benefits from government-affiliated programs, including the recent nationwide mortgage servicing settlement between state attorneys general and the federal government, and the five largest mortgage servicers. Defendants also falsely claimed that they were associated with the Independent Foreclosure Review program overseen by the Office of the Comptroller of the Currency (OCC) and the Federal Reserve. In reality, the defendants were not affiliated with either of the programs or in a position to provide the promised benefits to consumers. In fact, on March 16, 2012, the OCC issued an alert on its website about this scam.

The CFPB lodged its complaint against National Legal Help Center and requested a temporary restraining order in the U.S. District Court for the Central District of California on December 3, 2012. The court granted the request the next day.

The full text of the National Legal Help Center complaint is available here: http://files.consumerfinance.gov/f/201212_cfpb_nlhc-complaint.pdf 
The full text of the Temporary Restraining Order (TRO) entered by the court against National Legal Help Center is available here:http://files.consumerfinance.gov/f/201212_cfpb_nlhc-tro.pdf 
The Bureau’s Memorandum in support of its application for the TRO against National Legal Help Center is available here: http://files.consumerfinance.gov/f/201212_cfpb_nlhc-tro-memo.pdf 

Gordon Law Firm

In July 2012, the CFPB also took similar action against California residents Chance Edward Gordon and Abraham Michael Pessar and their companies. The CFPB alleges they are responsible for operating a network of mortgage loan modification businesses that targeted consumers in over 25 states.

The defendants allegedly gained homeowners’ trust by using Gordon’s “law firm” status and led consumers to believe that a law firm was working with their banks and mortgage companies to modify mortgage loans or provide foreclosure relief, while the defendants typically failed to deliver relief.

The CFPB lodged its complaint against the Gordon Law Firm and requested a temporary restraining order in the U.S. District Court for the Central District of California on July 17, 2012. The court granted the request on the next day. On November 16, 2012, the Court entered a preliminary injunction order halting the defendants’ alleged unlawful conduct and freezing their assets while the case proceeds.

The full text of the Gordon Law Firm complaint is available here:http://files.consumerfinance.gov/f/201207_cfpb_enforcement-complaint-filed_gordon-law.pdf 
The full text of the Preliminary Injunction Order entered by the court against the Gordon Law Firm is available here: http://files.consumerfinance.gov/f/201212_cfpb_preliminary-injunction-order.pdf 

In connection with these actions, the CFPB has also received assistance from the State Bar of California and the U.S. Attorney’s Office in Los Angeles.

Today, the CFPB is also releasing mortgage tips on how to spot a scam and where consumers can find help. The consumer tips can be found here: http://www.consumerfinance.gov/blog/why-you-should-be-suspicious-of-government-logos

Consumers can alert the CFPB about potential scams by filing a complaint at www.consumerfinance.gov or by calling toll free: 1-855-411-2372. Consumers can also submit a Tell Your Story account of their experiences on the CFPB’s web site.

In December 2011, SIGTARP, the CFPB, and the U.S. Department of the Treasury established a task force to combat mortgage modification scams exploiting HAMP and to raise public awareness of the scams. The task force issued a Consumer Fraud Alert, which offers tips on how to identify and avoid mortgage modification scams. To view the Consumer Fraud Alert tip sheet, visit: www.SIGTARP.gov/documents/Consumer_Fraud_Alert.pdf .

Chance Gordon Seeks US Supreme Court Review in Gordon v. CFPB

December 1 2016

On November 17, 2016, the defendant in CFPB v. Chance Edward Gordon filed his appeal to the U.S. Supreme Court from a Ninth Circuit opinion affirming his liability for deceptive practices in connection with mortgage relief services.

The petition addresses the ratification of government action alleged to be ultra vires at the time the action was taken, as well as a subject-matter jurisdiction question regarding whether federal courts’ Article III jurisdiction exists when the federal official heading the agency and bringing the case does not have the proper authority at the time the case is litigated.

In his petition for a writ of certiorari, the defendant contends primarily that because CFPB Director Richard Cordray was not validly appointed as an Officer of the United States before his July 2013 confirmation by the Senate, Director Cordray’s post-confirmation ratification of the Bureau’s actions during the previous 18 months was invalid.

The defendant argues that Director Cordray was not properly appointed under the President’s recess appointment power, and, thus, Director Cordray was a “private citizen” who had no authority to initiate any pre-confirmation enforcement actions (including the federal court action against the defendant).

The defendant then argues that Director Cordray’s post-confirmation ratification – a four-sentence Federal Register notice – of all previous Bureau actions violated Article II of the Constitution. Specifically, he asserts that under FEC v. NRA Political Victory Fund, 513 U.S. 588 (1994), Director Cordray cannot be permitted to “retroactively affirm ultra vires acts without giving more than a momentary thought to their propriety.”

The defendant points to the Supreme Court’s decision in FEC v. NRA Political Victory Fund to identify a split among the federal courts of appeal on when ratification is permissible. In that case, the Supreme Court held that “the party ratifying should be able not merely to do the act ratified at the time the act was done, but also at the time the ratification was made.”

According to the petition, the Ninth Circuit’s decision here contradicted this holding because Director Cordray was not validly appointed at the time the Bureau initiated its lawsuit against him, and therefore Cordray would not have been “able to do the act ratified at the time the act was done.” Furthermore, the petition contends that the Ninth Circuit’s decision sharply splits from recent decisions by the D.C. Circuit (Intercollegiate Broadcasting System, Inc. v. Copyright Royalty Bd., 796 F.3d 111, 117 (D.C. Cir. 2015) and the Third Circuit (Advance Disposal Services East, Inc. v. NLRB, 820 F.3d 592 (3d Cir. 2016), which involved ratification only after additional analysis and not “blind[] affirm[ation]” by the ratifier.

Finally, the defendant argues that because Director Cordray’s initiation of a federal court action against him was ultra vires, the district court lacked subject matter jurisdiction. In other words, because “nobody in the Executive Branch possessed authority to enforce the Dodd-Frank Act’s new consumer protection laws,” the Bureau lacked executive standing and the district court, in turn, lacked subject matter jurisdiction. The petition asserts that this is a separation of powers issue, which, according to the filing, are “highlighted by the D.C. Circuit’s recent PHH decision.”

The CFPB’s brief in opposition is currently due on December 22, 2016, though this date can be automatically extended by the CFPB under Supreme Court Rules. Assuming the CFPB’s response deadline is extended, the defendant would then have approximately 10 days to file his Reply (approximately January 30, 2017).

The cert petition and all briefing would then be distributed to the Court for consideration by approximately early February 2017. The Court would then consider whether to grant certiorari and announce its decision about whether to hear the case by roughly the end of February 2017. If certiorari is granted, the Court will enter a briefing scheduling and set the case for oral argument.

If certiorari is denied, then the decision of the Ninth Circuit stands and, in accordance with the Ninth Circuit’s decision, the case would be remanded to the district court for further consideration of the proper scope of monetary relief.

Meanwhile in Fl. “The Struggle is Real” say these despicable foreclosure lawyers who were threatened with sanctions for reprehensible conduct and then the docket went silent – surprisingly after the $45k sanctions were on the table – who settled with whom? https://t.co/VOSmZOaZOX pic.twitter.com/5bfvwgyU7w

— LawsInTexas (@lawsintexasusa) September 25, 2020

Gordon v. Consumer Financial Protection Bureau

Petition for certiorari denied on June 26, 2017 by the US Supreme Court

Issues: (1) Whether a federal official may retroactively ratify an ultra vires government action when:

(a) no federal official was authorized to perform the act at the time it was initially undertaken;

(b) the purported ratification does not include an examination of any facts related to the act performed; or

(c) the ratification purports to encompass not only the initial act but also federal court rulings entered in response to the act; and

(2) whether federal courts possess subject-matter jurisdiction under Article III of the Constitution to hear a case filed at the behest of an individual who, from the time suit was filed until judgment was entered, lacked authority to vindicate the executive branch’s interest in seeing that the law is obeyed.