The Consumer Financial Protection Bureau today filed suit against two lawyers and two debt relief companies, alleging they charged thousands of consumers illegal advance fees and left some worse off financially.
One of the lawyers, Michael Levitis, also faces mail and wire fraud charges brought by the Manhattan U.S. Attorney’s office - the first-ever criminal charges stemming from a CFPB referral.
Brooklyn-based Levitis and his company, Mission Settlement Agency, as well as New Jersey lawyer Michael Lupolover and Premier Consulting Group, allegedly sold debt-relief services to consumers, promising to renegotiate or settle their debts, according to the complaint filed in U.S. District Court for the Southern District of New York.
But the CFPB said the defendants illegally paid themselves first, with Mission and Levitis collecting $1.1 million up-front fees; Lupolover allegedly taking in $112,000 and Premier collecting $188,000. The Federal Trade Commission’s Telemarketing Sales Rule makes it illegal for debt relief providers to collect fees until at least one successful result has been achieved for the consumer.
The Manhattan U.S. Attorney’s Office provided additional details, reporting that Mission had approximately 2,200 customers who paid a total of nearly $14 million for debt settlement services. Of these funds, Mission allegedly took more than $6.6 million in fees, while paying just $4.4 million to customers’ creditors.
“Mission did little or no meaningful work to negotiate reductions in debt for many of its customers, and the sort of result Mission was promising prospective customers was substantially more favorable than the results Mission typically achieved for prior customers,” according to the office’s press release. The indictment also names three employees, while two former employees pleaded guilty to fraud charges last month.
“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,” said CFPB Director Richard Cordray in a news release. “Consumers deserve better, and we are proud of this joint effort to crack down on unscrupulous behavior.”
The person who answered the phone at Levitis’ office declined to comment. According to the New York Post, Levitis in 2011 pleaded guilty to lying to FBI agents in connection with a bribery case involving New York State Senator Carl Kruger. Levitis was sentenced to probation and fined $15,000. He’s also known as an owner of the supper club and cabaret Rasputin in Brooklyn, which the feds today moved to seize, along with numerous bank accounts.
Levitis is represented by Jeffrey Lichtman, who said the indictment was not a surprise and that Levitis had been cooperating with prosecutors.
“We’ve tried repeatedly to meet with [prosecutors] and present evidence of rogue former employees who committed many of the frauds alleged in the indictment,” Lichtman said, adding that the employees left to start their own debt relief business. “Now, Michael Levitis is left to clean up the mess.”
Lupolover in an email said the CFPB suit “has nothing to do with the law offices of Michael Lupolover,” though the name and address listed in the complaint are identical to his.
In addition to violating the Telemarketing Sales Rule, the CFPB charged Levitis and Mission with violating the Consumer Financial Protection Act (Title X of the Dodd-Frank Act) by representing that Mission was affiliated with the government and did not charge advance fees.
What’s notable is that the complaint describes the acts as both deceptive and unfair, but omits the statute’s third element, abusive. While unfair and deceptive are familiar terms in consumer protection law, the term “abusive” is new to Dodd-Frank.
Among Republicans in Congress, it’s been the subject of much consternation. At a hearing last year, for example, U.S. Rep. Sean Duffy (R-Wis.) called it "a subjective standard with no bright line.”
The CFPB wants the court to force the defendants to disgorge their ill-gotten profits, award restitution to consumers and impose other civil money penalties.