Antitrust Law Daily Wrap Up, CONSUMER PROTECTION—C.D. Cal.: FTC wins default judgment against marketers of debt relief services, (Jul 13, 2016)

By Jeffrey May, J.D.

Marketers of mortgage and student loan relief services were ordered to pay more than $2 million for violating the FTC Act. The federal district court in Los Angeles entered a default judgment against Good Ebusiness, LLC, related companies, and a husband and wife who controlled those businesses. The default judgment also extended to Beverly Hills Tax Group, LLC, a relief defendant that received funds or assets that could be traced to the challenged business practices (FTC v. Good Ebusiness LLC, July 12, 2016, Wright, O.).

The FTC’s allegations that the defaulting defendants represented themselves as lawyers and made false and unsubstantiated claims regarding their ability to lower consumers’ mortgage and student loan payments were deemed meritorious. Because the defendants, as mortgage assistance relief (MARS) providers, were subject to the rules prohibiting unfair or deceptive acts or practices with respect to mortgage loans, their misrepresentations and inadequate disclosures violated MARS Regulation O for purposes of the default judgment.

The FTC also alleged sufficient facts to support a Telemarketing Sales Rule (TSR) claim. The rule applied to those defendants who offered to provide alterations to the payment of debt between customers and creditors in exchange for a fee. The FTC alleged that certain defendants required payment of upfront fees to provide the student debt relief services and falsely claimed that they were associated with the U.S. Department of Education in violation of the TSR.

The claims supported entry of the default judgment, in the court's view. Moreover, the defendants did not appear to dispute the allegations, and the default did not appear to be a result of excusable neglect.

Relief. The court ordered the defaulting defendants to pay $2,329,456. This amount represented the total paid by consumers as a result of the debt relief operations, less any refunds made.

In addition, the relief defendant, Beverly Hills Tax Group, was ordered to disgorge all funds in its accounts. The defendants and the relief defendant appeared to operate as a common enterprise, the court explained.

The default defendants also were prohibited from: (1) selling unsecured or secured debt relief products or services; (2) making material misrepresentations in connection with the sale of any products or service; and (3) making claims in connection with the sale of any products or services without possessing competent and reliable substantiation. The ban on selling debt relief products or services was appropriate because the defendants demonstrated an inability to engage in the debt relief business lawfully, and only a permanent ban would assure that the defendants would not similarly be able to take advantage of consumers in the future, according to the court. The "fencing-in relief" pertaining to the sale of other products and services was appropriate because the violations were particularly severe and because of the transferability of the false claims at issue to other products and services, the court explained.

The case is No. 2:16-cv-01048-ODW-JPR.

Attorneys: Eleanor Durham for the FTC.

Companies: Good Ebusiness LLC; Beverly Hills Tax Group, LLC

Cases: Advertising ConsumerProtection FederalTradeCommissionNews CaliforniaNews