On November 16, a federal district judge in California entered a preliminary injunction in favor of the CFPB in the action it filed this past July against a law firm that offered mortgage assistance relief services to consumers. In its complaint, the CFPB alleged that the law firm and various individuals and companies duped consumers by falsely promising loan modifications in exchange for advance fees and, in reality, did little or nothing to help consumers.
The preliminary injunction is consistent with the order entered by the court on July 18 that granted a temporary restraining order in favor of the CFPB, froze the defendants’ assets, and appointed a temporary receiver. In the November 16 order, the defendants are enjoined from making various representations alleged to be false and misleading and/or in violation of Regulation O, the Mortgage Assistance Relief Services Rule and required to suspend use of their internet domain registrations. The order maintains the freeze of the defendants’ assets, prohibits any transfers of the defendants’ assets by financial institutions and other third parties that hold such assets, and directs the receiver to wind down the affairs of the defendants placed in receivership and marshal their assets and records.
We were surprised to see that in their response to the complaint and opposition to the injunction motion, the defendants did not raise any challenge to President Obama’s recess appointment of Director Cordray as part of their defense. When the complaint was filed, we speculated that because the charges against the defendants included making false and misleading representations that constituted “deceptive” acts or practices prohibited by Title X of Dodd-Frank, the case might provide a vehicle for such a challenge. Under Title X, it was necessary for the CFPB to have a director before it could exercise its authority to enforce the prohibition of ”unfair, deceptive or abusive” acts or practices (or bring any type of enforcement action against a non-bank).
While it looks unlikely that the California case will test the validity of Director Cordray’s appointment, a case challenging the appointment, State National Bank of Big Spring, Texas, et al. v. Geithner, et al., is still pending in D.C. federal district court. Also still pending is a case challenging President Obama’s recess appointment of three individuals to the National Labor Relations Board. We previously wrote about that case and two others because of their potential implications for Director Cordray’s appointment. The cases involve challenges to the NLRB’s authority to take various actions based on the alleged invalidity of the NLRB appointments. The pending case is Noel Canning v. National Labor Relations Board, pending before the U.S. Court of Appeals for the D.C. Circuit.