Consumer Finance Insights
May 14, 2018

FTC Obtains Preliminary Injunction Against Mortgage Relief Operation

On May 8, the Federal Trade Commission (“FTC”) announced that the U.S. District Court for the Central District of California granted its request to preliminarily enjoin affiliated California-based debt relief companies from continuing operations, and to freeze their assets.

In its complaint, the FTC alleged that the companies violated Section 5(a) of the Federal Trade Commission Act, 15 U.S.C. § 45(a), by deceiving consumers and falsely promising they could help consumers avoid foreclosure and lower mortgage payments.  The FTC alleged that the companies would sell consumers their loan modification services by telling consumers they had a “99% success rate” and guaranteeing results regardless of the consumers’ individual situations.  The companies would tell consumers that they had been confirmed for loan modifications and direct the consumers to pay them several thousands of dollars in “closing costs,” when in fact the companies had not yet obtained any relief for them.  The FTC alleged that this conduct also violated Regulation O, 12 C.F.R. Part 1015, which prohibits any mortgage relief service provider from requesting or receiving any fee until the consumer has executed a written agreement with its loan holder or servicer that incorporates the offer that the provider obtained on the consumer’s behalf.

The FTC also alleged that the companies encouraged consumers to intentionally default on their mortgage payments in order to meet default requirements for the modification programs, and told consumers not to communicate with their lenders.  The FTC alleged that in many instances, the companies failed to obtain loan modifications for consumers who enrolled in their programs.

The Court’s temporary restraining order noted that there was good cause to believe the defendants had violated the FTC Act, and good cause to believe that immediate and irreparable damage to the Court’s ability to grant effective final relief for consumers, including restitution and disgorgement, would occur if it did not grant the temporary restraining order.