On November 4, 2019, the U.S. District Court for the Western District of Wisconsin ordered two former mortgage relief providers and their principals to pay $21.7 million in restitution and $37.3 million in civil penalties for violations of Regulation O, 12 C.F.R. part 1015, better known as the Mortgage Assistance Relief Services Rule (MARS Rule). The Bureau alleged the parties misrepresented services to consumers, failing to make required disclosures, and illegally collecting advanced fees. The court issued a permanent injunction banning the defendants from engaging in certain mortgage assistance relief and debt relief activities.
In this case, the court found that the defendants deceived customers into purchasing a service “they could have received for free and for which they received no readily measurable benefit.” The final judgment followed two post-trial orders and additional briefings by the parties on the issues of damages and injunctive relief.
The court held that restitution is appropriate, despite defendants’ assertion that there is new, contrary authority on the issue. It explained that, unlike the cases cited by the defendant, the CFPB here satisfied its burden of proof for both collecting advanced fees and making misrepresentations. The court also rejected defendants’ contention that awarding disgorgement as a deterrent is punitive under SEC v. Kokesh explaining that Kokesh’s limited holding “has no bearing on what counts as punitive damages under the CFPA” which expressly allows for disgorgement. Regardless, the court declined to order any money be disgorged to the government to “avoid any risk that disgorgement may be deemed punitive.”
In determining the amount of civil penalties, the court considered both party’s suggestions on the number of violations and the number of days that defendants engaged in each violation. The court agreed with defendants’ approach in calculating the number of violations based on the general category of each count of misconduct, reasoning that the CFPB’s approach would result in excessive and duplicative penalties. It did not agree entirely with either party’s date calculation. The court also considered the mitigating factors required under 12 U.S.C. §5565(c)(3) but found that defendants’ lack of good faith, the gravity of the violations, and the effect on consumers weighed heavily against the defendants.
The court held individual defendants responsible for different percentages of the maximum penalty with respect to defendants’ liability, level of knowledge, and duration of misconduct. The court permitted defendants to apply their restitution payments towards the civil penalty obligations if the CFPB is not able to return the money to consumers within a year, with any remainder reverting to defendants.