The CFPB announced that on December 3, 2012, it filed a second action in the U.S. District Court for the Central District of California seeking to shut down an alleged mortgage modification scam. Filed against National Legal Help Center and other defendants, the latest action charges the defendants with violations of the Consumer Financial Protection Act of 2010 (CFPA) (meaning Title X of Dodd-Frank) and Regulation O, the Mortgage Assistance Relief Services Rule. Among the CFPB’s allegations is that the defendants falsely promised loan modifications in exchange for advance fees but did little or nothing to help consumers. The CFPB’s complaint alleges that the false and misleading representations made by the defendants constitute “deceptive” acts or practices prohibited by the CFPA and that the defendants’ violations of Reg O are per se “unfair, deceptive or abusive” acts or practices prohibited by the CFPA. On December 4, the court granted the CFPB’s request for a temporary restraining order with an asset freeze and the appointment of a receiver. 

Last month, in a case involving similar allegations against the Gordon Law Firm and various other defendants, the CFPB obtained a preliminary injunction that continued the asset freeze and receivership that was part of the temporary restraining order previously obtained by the CFPB. It has surprised us that the defendants in the Gordon Law Firm case have not yet raised 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 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).   We will be following the developments in the new case against National Legal Help Center to see if the defendants include a challenge to the Cordray appointment in their defense.