The CFPB filed its first enforcement action in federal court on July 18 under seal. The suit against a Los Angeles-based law firm and its corporate affiliates for allegedly running a mortgage refinance scam was released to the public on July 23. The suit marks the first time the CFPB has taken action in federal court against a non-bank financial services provider.
The CFPB obtained a temporary restraining order appointing a receiver and freezing the assets of defendants Chance E. Gordon, The Gordon Law Firm, P.C., and certain subsidiaries of the law firm. The CFPB is also seeking damages in an unspecified amount, restitution and disagreement. The complaint accuses The Gordon Law Firm, P.C. of misleading clients regarding their eligibility for foreclosure relief, misrepresenting the companies’ affiliation with government entities, and failing to make disclosures required by law. According to the complaint, the law firm charged up-front fees ranging from $2,500 to $4,500 for evaluating the financial and legal situation of homeowners in default and then, if a lawsuit was not justified, promising a loan modification or other work-out through one of the law firm’s corporate subsidiaries. The complaint goes on to allege that the law firm provided “little, if any, meaningful assistance to modify homeowners’ mortgage loans or prevent foreclosure.” Gordon’s attorney, Gary Kurtz, has justified the fee, stating that Gordon offered homeowners a “custom legal product” to evaluate their financial situation. In the past, law firms have also been able to use retainer fees as a way to justify advances for legal fees in the financial services industry. This lawsuit and similar enforcement actions by other federal agencies suggest these exemptions may not prevent federal agencies from targeting law firms that provide financial services in the future.
The CFPB lawsuit mirrors similar actions taken by the Federal Trade Commission (FTC). The CFPB lawsuit was brought by two former FTC lawyers who have joined the CFPB and follows a similar form to many FTC lawsuits, including the form of the complaint, filing the action under seal in federal court, and seeking a temporary restraining order to freeze assets, appoint a receiver, and gain access to the physical business operations. Because both the FTC and now the CFPB have filed suits targeting loan modification scams, it appears that both the FTC and CFPB will independently bring enforcement actions in subject areas where their oversight overlaps.