Alert December 11, 2012

CFPB Obtains Preliminary Injunction Against Another Mortgage Loan Modification Company

The United States District Court for the Central District of California granted the CFPB’s request for a temporary restraining order against a number of individuals alleged to have operated a fraudulent loan modification scheme in violation of federal consumer protection law. Upon referral from the Office of the Inspector General for the Troubled Asset Relief Program and the Department of Treasury’s Office of Financial Stability, the CFPB initiated an investigation and later charged several individuals and their company with numerous violations of the Consumer Financial Protection Act and violation of the Omnibus Appropriations Act and its implementing regulation, Regulation O, which generally prohibits unfair and deceptive acts or practices with respect to mortgage loans.

The mortgage loan modification company targeted distressed homeowners with promises of loan modifications. According to the CFPB, the individuals and their company violated the CFPA and Regulation O by collecting large upfront fees for modification services, misrepresenting their affiliation with government agencies, falsely claiming that they were providing legal representation, when, in fact, none of the individual defendants were attorneys, and instructing consumers to stop paying their mortgages. The Court granted the TRO, finding good cause that the individuals violated and were likely to continue violating the CFPA and Regulation O, and that the CFPB is likely to prevail on the merits. The TRO freezes the individuals and their company’s assets, disables the website and suspends the internet domain name registrations, and appoints a receiver to investigate the company’s operations. This, along with the CFPB’s previous TRO and subsequent preliminary injunction of a mortgage relief company (see November 27, 2012 Alert), continues the CFPB’s attention to combating and prosecuting fraudulent mortgage relief services; and illustrates the range of measures available to the CFPB in its efforts to combat fraud in diverse aspects of the consumer financial services sector.