Updated at 3:00 p.m.
The Consumer Financial Protection Bureau has filed its first ever civil enforcement action in federal court, charging a Los Angeles law firm of duping distressed homeowners into paying high upfront fees with false promises of a loan modification.
The complaint (PDF), which was filed July 18 and unsealed July 23 in U.S. District Court for the Central District of California, accuses Chance Gordon and his firm, The Gordon Law Firm, of charging thousands of dollars in advance fees and then doing "little or nothing to assist consumers." The agency secured an ex parte temporary restraining order against the firm at the time it filed the complaint.
July has been a big month for the bureau, which celebrated its one-year anniversary on July 21. On the same day agency lawyers filed the complaint against Gordon under seal, they announced a $210 million settlement with Capital One Bank on charges of deceptive marketing.
Kent Markus, assistant director for enforcement, said in a written statement that: “Based on the results of our initial investigation, the court has halted a loan modification scheme that we believe has been unlawfully preying on vulnerable homeowners in multiple states. This action allows us to prevent further harm to consumers and lawfully gather additional evidence and data as the case moves forward.”
Gordon's attorney, Woodland Hills, Calif., lawyer Gary Kurtz, said in an interview today that he and his client think that the bureau's enforcement action is "inappropriate and unwarranted." Kurtz said that they are concerned that a temporary receiver brought in as part of the temporary restraining order isn't processing work that the firm had in its pipeline efficiently or, in some cases, at all, putting clients at risk.
Gordon's "position has been and will continue to be that everything he has done is lawful within the limits and scope of the appropriate statutes and regulations," Kurtz said. "This is an inappropriate action that he intends to defend and see to a successful resolution." Kurtz said that Gordon's database indicated that of the 2,000 clients his firm served in recent years, "there's a statistically insignificant amount of unsatisfied people, many of whom were probably in situations where they could not be helped."
According to the complaint, Gordon, his firm and affiliated businesses began advertising mortgage assistance relief services in early 2010, if not before, through direct mail, phone calls and online marketing.
The advertising targeted financially distressed homeowners, the bureau alleged, and used language and images to falsely imply that the company was affiliated or even a part of the U.S. Department of Housing and Urban Development or some other government entity.
Consumers who did respond were promised that Gordon or the affiliated companies could lower their mortgage interest rates or payments, according to the complaint. In some cases, the bureau accused the defendants of telling consumers to stop communicating with their lender or even stop making payments, without telling them that if they did, they could be at risk of damaging their credit rating or losing their home.
Gordon and the other defendants charged advance fees ranging from $2,500 to $4,500, according to the complaint. Once the fees were paid, the bureau alleged, the defendants not only failed to follow through on their promises of mortgage assistance, but in many cases stopped communicating with consumers and made it difficult to secure a refund. Besides a permanent injunction, the bureau is seeking refunds, restitution and other relief for affected consumers.
Jonathan Pompan, a counsel at Venable in Washington and a consumer financial products specialist, said that the lawsuit is "a wake-up call that the CFPB will take aggressive approaches to bringing enforcement actions."
"A temporary restraining order, asset freeze and temporary receiver is the most significant immediate relief the bureau can obtain and when it's ex parte it does so without notice," Pompan said. Compared to how the Capital One action was handled, he said, this case was "the equivalent of a nuclear bomb."