Antitrust Law Daily Wrap Up, CONSUMER PROTECTION—N.D. Ohio: Debt relief marketers ordered to pay $5.7 million in restitution, (Aug 27, 2013)

By Jeffrey May, J.D.

The federal district court in Cleveland has granted the FTC's unopposed motion for summary judgment in an action against marketers of “debt relief” services that operated in the United States and Canada (FTC v. E.M.A. Nationwide, Inc., August 26, 2013, Gwin, J.).

The FTC had alleged that the defendants cold-called thousands of “debt-saddled,” U.S. consumers, including those whose numbers were registered on the Do Not Call Registry, from their call center in Montreal. The defendants promised to substantially reduce consumers' payments; however, they apparently did not make good on their promises. Some of the defendants entered into settlements with the FTC. The FTC moved for summary judgment against two individual defendants and seven corporate defendants.

At the outset, the court denied the FTC's motion to admit certain consumer complaints about the defendants made to various government or non-profit organizations. While the complaining consumers might have made their best efforts to convey accurate information, the complaints did not have sufficient indicia of trustworthiness to merit admission, in the court’s view.

Even though the consumer complaints were excluded, the FTC offered sufficient evidence to establish that the two non-settling individual defendants and seven corporate defendants violated Section 5 of the FTC Act, the Telemarketing Sales Rule (TSR), and the Mortgage Assistance Relief Services Rule (MARS Rule).

With respect to the FTC Act, the agency satisfied its burden to show that there was no genuine issue of material fact as to whether the defendants made material representations likely to mislead customers. The defendants misrepresented that they would obtain for consumers: “debt settlements that will make consumers’ payments substantially more affordable”; “reductions in outstanding principal amounts that will substantially reduce the amount of debt the consumers owe”; and “mortgage loan modifications that will make consumers’ payments substantially more affordable.” The defendants “did little to nothing to actually assist their clients,” according to the court.

In addition, the FTC satisfied its burden to show that no genuine issue of material fact existed as to whether the defendants violated the TSR. In the course of telemarketing their services, the defendants misrepresented the total costs and material aspects of their services, as well as the amount of money that consumers would save with the services. They charged fees that were disproportionate to the value offered and called numbers on the National Do Not Call Registry. Records showed close to a thousand complaints of the defendants’ violations of the Do Not Call requirements, the court noted.

The defendants also were shown to have violated the MARS Rule, which prohibits entities offering mortgage relief from engaging in certain deceptive acts. The FTC alleged that the defendants told consumers not to contact their lenders and that they would “do all the talking.” Further, the defendants requested fees from consumers prior to any agreement between the consumer and the consumer's loan holder and misrepresented the results that consumers might enjoy. The defendants also failed to make necessary disclosures, including that their company was not associated with the government and that the consumer could refuse to pay the service provider if the lender’s offer was rejected

The individual defendants were held personally liable for the acts of the corporate defendants. They were personally liable for both injunctive relief and restitution. Of the $10,079,706.82 in payments collected by the defendants, $4,373,571.34 was returned to consumers. The court ordered restitution in an amount of $5,706,135.48—the difference between the payments and the refunds. The defendants also were permanently enjoined from working in the debt relief and mortgage assistance industries.

The case is No. 1:12-CV-2394.

Attorneys: Christopher D. Panek for FTC. Lawrence D. Pollack (Ulmer & Berne) for Nissim N. Ohayon.

Companies: E.M.A. Nationwide, Inc.

Cases: ConsumerProtection FederalTradeCommissionNews DistrictofColumbiaNews