Recently, the FTC and California Department of Financial Protection (DFPI) sued several companies and owners for allegedly operating an illegal mortgage relief operation. This action alleges that the defendants’ conduct violated the California Consumer Financial Protection Law (CCFPL), the FTC Act, the FTC’s Mortgage Assistance Relief Services Rule (the MARS Rule or Regulation O), the Telemarketing Sales Rule, and the Covid-19 Consumer Protection Act.

The complaint alleges that through multiple entities the defendants targeted distressed homeowners through telemarketing calls, text messages, and online advertisements with deceptive claims guaranteeing substantially lower mortgage payments and promises to stave off foreclosure actions in exchange for large upfront monthly payments. The allegations also included false claims of affiliation with government mortgage relief programs, including federal COVID-19 relief programs. Consumers were defrauded of an estimated $6.3 million, according to the complaint. Regulators claimed that the defendants failed to provide the advertised services and, instead, pocketed millions of dollars paid by consumers resulting in lost payments, substantial interest charges and penalties, damaged credit and, in drastic cases, foreclosure proceedings.

The U.S. District Court for the Central District of California has issued a temporary restraining order halting the scheme, freezing assets and directing the appointment of a receiver to assist with taking over the defendants’ businesses and administer any potential recovery to the victims.

Putting It Into Practice: This action marks the first joint FTC and DFPI action that relies in part on the enforcement powers of the CCFPL. The action also shows the FTC’s alternative path to restitution post-AMG, where the Supreme Court eliminated the FTC’s ability to seek equitable monetary relief (we discussed the Court’s in previous blog posts here and here). Coordinated actions between the FTC and states are likely to continue to avoid constitutional and statutory limits on the FTC’s authority under Section 13(b) of the FTC Act. Companies regulated by the DFPI can expect such coordinated actions to increase in the future.