CFPB Sues California Law Firm Over Alleged Debt-Relief Scam

The Consumer Financial Protection Bureau has taken its first civil action, suing and effectively stopping business at a Los Angeles law firm that charged homeowners for loan modifications that allegedly never happened.

The CFPB says that lawyer Chance Gordon, his law firm and two subsidiary companies preyed on financially distressed borrowers by promising to reduce their monthly mortgage payment in exchange for fees of $2,500 to $4,500. Then Gordon and his law firm provided "little, if any, meaningful assistance to modify homeowners' mortgage loans or prevent foreclosure," according to the 29-page complaint the agency filed in the U.S. District Court for the Central District of California on July 18.

The court also granted the CFPB's request to issue a temporary restraining order against the Gordon Law Firm, and appointed a receiver to take possession of the law firm and its affiliates. The companies will be operating on a reduced scale pending a U.S. District Court ruling, according to a recorded message at the law firm's main phone number. It was not accepting voicemails, and Gordon could not immediately be reached for further comment.

Gordon is the latest lawyer to come under scrutiny for offering debt-modification services, which regulators and consumer advocates say are often scams. The Federal Trade Commission has banned mortgage assistance relief companies — mortgage brokers, lead generators and affiliated marketing companies — from collecting "advance fees" from homeowners for debt-relief services. But some lawyers have appeared to get around the ban by charging customers "retainer fees" upfront while offering mortgage modification services.

This spring, the Litigation Compliance Law Center, another Los Angeles firm, offered to pay finders' fees to mortgage brokers for recruiting homeowner customers, who would pay a $5,000 upfront "retainer" to affiliated attorneys.

The CFPB joins several other regulators that are increasingly targeting lawyers for debt-relief scams. The State Bar of California alone has revoked the licenses of 18 lawyers since 2009 over charges related to loan modification wrongdoing. Meanwhile, the Federal Trade Commission has brought 36 actions against companies under the Mortgage Assistance Relief Services rule, which bans debt-relief firms from charging homeowners before they have received written offers for a loan modification that they deem acceptable from their lender or mortgage servicer.

Rulemaking authority under the Mars rule was transferred last July to the CFPB, which took a year to launch its first enforcement action.

Kent Markus, the CFPB's assistant director for enforcement, said in a statement that the Gordon Law Firm had been "unlawfully preying on vulnerable homeowners in multiple states," and that by taking action the CFPB can "prevent further harm to consumers and lawfully gather additional evidence and data as the case moves forward."

The agency's representatives would not comment on whether the CFPB plans future actions against other law firms.