| DEBRA A. VALENTINE General Counsel SANDRA M. WILMORE Attorneys for Plaintiff UNITED STATES DISTRICT COURT FEDERAL TRADE COMMISSION, Plaintiff, v. CAPITAL CITY MORTGAGE CORP., a Maryland corporation, and COMPLAINT FOR PERMANENT INJUNCTION Plaintiff, the Federal Trade Commission ("Commission"), by its undersigned attorneys, alleges as follows: JURISDICTION AND VENUE 1. This is an action under §§ 5(a), 5(m)(1)(A), 9, 13(b), 16(a), and 19 of the Federal Trade Commission Act ("FTC Act"), 15 U.S.C. §§ 45(a), 45(m)(1)(A), 49, 53(b), 56(a), and 57b, § 108(c) of the Truth in Lending Act ("TILA"), 15 U.S.C. § 1607(c), § 814(a) of the Fair Debt Collection Practices Act ("FDCPA"), 15 U.S.C. § 1692l(a), and § 704(c) of the Equal Credit Opportunity Act ("ECOA"), 15 U.S.C. § 1691c(c), to secure permanent injunctive relief and other equitable relief, including rescission, restitution, and disgorgement, against defendants for engaging in unfair or deceptive acts or practices in violation of § 5(a) of the FTC Act, as amended, 15 U.S.C. § 45(a), and acts or practices in violation of the TILA, 15 U.S.C. §§ 1601-1666j, and its implementing Regulation Z, 12 C.F.R. § 226, and the FDCPA, 15 U.S.C. § 1692, and to obtain a monetary civil penalty for violations of the ECOA, 15 U.S.C. § 1691, and its implementing Regulation B, 12 C.F.R. § 202. 2. This Court has subject matter jurisdiction over this matter pursuant to 28 U.S.C. §§ 1331, 1337(a), 1345, and 1355, and 15 U.S.C. §§ 45(a), 45(m)(1)(A), 49, 53(b), 56(a), 57b, 1607(c), 1692l(a), and 1691c(c). 3. Venue is proper in the United States District Court for the District of Columbia under 28 U.S.C. § 1391(b) and (c), 1395(a), and 15 U.S.C. § 53(b). DEFINITIONS 4. As used in reference to the TILA, the terms "advertisement," "amount financed," "annual percentage rate" ("APR"), "closed-end credit," "consumer," "consumer credit," "creditor," "dwelling," "finance charge," "payment schedule," "security interest," and/or "total of payments" are defined in §§ 103 and 128 of the TILA, 15 U.S.C. §§ 1602 and 1638, and §§ 226.2, 226.4, and 226.18 of Regulation Z, 12 C.F.R. §§ 226.2, 226.4, and 226.18. As used in reference to the FDCPA, the terms "creditor," "debt," and "debt collector" are defined in § 803 of the FDCPA, 15 U.S.C. § 1692a. As used in reference to the ECOA, the terms "adverse action," "applicant," "application," and "creditor" are defined in § 702 of the ECOA, 15 U.S.C. § 1691a, and Regulation B, 12 C.F.R. § 202.2. 5. "Loan instrument" means the legal obligations between defendants and a borrower that are created in extending credit. 6. "Monthly payment" means a monthly or other periodic payment a borrower must make under the loan instrument to repay the loan principal, pay interest on the principal, and, if necessary, fund escrow accounts for insurance and/or real estate taxes. 7. "Overdue balance" means the sum a borrower must pay under the loan instrument to bring current a loan. 8. "Arrears" means a sum which, pursuant to the loan instrument, is owed by a borrower but not claimed due by defendants until the loan is paid off or foreclosed upon. 9. "Service fees" means fees for late payments, inspections, courier services, appraisals, legal services, reinstatement, penalties for "no insurance," and other penalties and fees which a borrower must pay when billed by defendants. 10. "Advances" means expenses that defendants incurred which a borrower must pay when billed by defendants. 11. "Pay-off amount" means the sum a borrower must pay under the loan instrument completely to extinguish a loan. 12. "Loan payments" incorporates by reference the "monthly payment," "overdue balance," "arrears," "service fees," "advances," "pay-off amount," "annual percentage rate," "finance charge," "amount financed," "total of payments," and/or "payment schedule." 13. "Loan terms" means the terms of a loan instrument, including, but not limited to, the duration of the loan in years, the interest rate, whether the loan is amortizing or interest-only, the terms of default, the requirements for reinstatement, the monthly payment, and the amounts of service fees. THE PARTIES 14. The Commission is an independent agency of the United States Government given statutory authority and responsibility by the FTC Act, as amended, 15 U.S.C. §§ 41-58. The Commission is charged, inter alia, with enforcing § 5(a) of the FTC Act, 15 U.S.C. § 45(a), which prohibits unfair or deceptive acts or practices in or affecting commerce, the TILA, 15 U.S.C. §§ 1601-1666j, which grants to consumers certain substantive rights in credit transactions, the FDCPA, 15 U.S.C. § 1692, which prohibits certain debt collection practices, and the ECOA, 15 U.S.C. § 1691, which prohibits certain forms of discrimination in credit transactions. The Commission is authorized by § 13(b) of the FTC Act, 15 U.S.C. § 53(b), the TILA, 15 U.S.C. §§ 1601-1666j, and the FDCPA, 15 U.S.C. § 1692, respectively, to initiate court proceedings to enjoin violations of the FTC Act, the TILA and Regulation Z, and the FDCPA and to secure such equitable relief as may be appropriate in each case. The Commission also is authorized by the FTC Act, 15 U.S.C. § 45(m)(1)(A), and the ECOA, 15 U.S.C. § 1691c(c), to initiate court proceedings to obtain a civil penalty for violations of the ECOA if the Attorney General does not file within 45 days of the Commission's referral the Commission's complaint alleging violations of the ECOA and Regulation B. 15. Defendant Capital City Mortgage Corp. ("Capital City") is a for-profit corporation organized, existing, and doing business under the laws of the State of Maryland. Its principal place of business is at 1223 11th Street, N.W., Washington, D.C. 20001. Capital City transacts business in this District. 16. Defendant Thomas K. Nash ("Nash") is an individual who transacts business in this District. He is President and sole shareholder of Capital City, and directs, supervises, controls, formulates, and participates in the acts or practices of defendant Capital City, including those acts or practices complained of herein. Nash's principal place of business is the same as Capital City's. DEFENDANTS' BUSINESS 17. Defendants maintain a substantial course of trade in offering and extending credit to consumers and others, including, but not limited to: (1) consumer credit transactions in which defendants acquire or retain a security interest in a borrower's dwelling and (2) business credit transactions in which defendants sometimes acquire a security interest in an applicant's dwelling or other real property. 18. In many instances, defendants' borrowers are minority and/or elderly persons living on fixed or low incomes in Washington, D.C., Maryland, and Virginia, who borrow primarily for personal, family, or household purposes. 19. Defendants find borrowers by word-of-mouth, advertisements, and other solicitations. They often qualify borrowers for loans not on creditworthiness but on equity in property. They fund the loans using their own monies and monies from other sources and service all the loans, including, but not limited to, monitoring all payments, maintaining books of account, taking action to collect on loans in default, and selling or transferring the loans to others. In connection with offering and extending credit, each defendant has been the creditor on a number of loans. 20. In offering credit, defendants routinely have represented to prospective borrowers material facts about loan terms, including, but not limited to: the term of the loan in years; the terms of default; whether it is an amortizing loan or an interest-only balloon loan; the interest rate; the monthly payment; that borrowers will have access to records of their loan accounts, including that an annual escrow accounting will be provided; and that as long as a borrower complies with the terms of the loan, defendants will not take title to the property securing the loan. 21. After extending credit, defendants do not provide borrowers with coupon books or payment books setting out the amounts and due dates of loan payments. Instead, defendants routinely have sent borrowers monthly or periodic statements ("monthly statements") purporting to represent the loan payment due under the loan instrument. 22. Defendants' finance charges on their loans include, but are not limited to, interest rates that generally have ranged between 20 and 24 percent for loans secured by home equity and between 9 and 12 percent for purchase money loans. In many instances, defendants' loans are interest-only balloon loans rather than amortizing loans. 23. In the course and conduct of offering and extending credit and throughout the duration of their loans, defendants have engaged in acts or practices having the result that a number of borrowers were overcharged on their loans, were defaulted, and often had title to their homes or other property impaired or completely lost title to their homes or other property and their equity therein, and of which the following are illustrative:
24. Defendants often have foreclosed upon properties securing their loans. After foreclosing, defendants have bought the foreclosed-upon property at the foreclosure auction at which they were the only bidder, for a price substantially less than appraised value. Defendants then resold the property, and the foreclosed-upon borrower did not receive the surplus from the resale. 25. Defendants' course of trade is in or affecting commerce, as "commerce" is defined in § 4 of the FTC Act, 15 U.S.C. § 44. VIOLATIONS OF SECTION FIVE OF THE FTC ACT COUNT I 26. In the course and conduct of offering and extending credit, defendants have represented, expressly or by implication, that the terms on which credit was granted would be the same terms on which credit was offered. 27. In truth and in fact, in a number of instances, because of practices such as those described in Paragraphs 17 through 23, above, the terms on which credit was granted were not the same terms on which credit was offered. Therefore, the representation set forth in Paragraph 26, above, was, and is, false and misleading. COUNT II 28. In the course and conduct of offering and extending credit and throughout the duration of their loans, defendants have represented, expressly or by implication, that loan payments comply with and are accurate under the loan instrument. 29. In truth and in fact, in a number of instances, because of practices such as those described in Paragraphs 17 through 23, above, defendants' representations of loan payments do not comply with or are not accurate under the loan instrument. Therefore, the representations set forth in Paragraph 28, above, were, and are, false and misleading. COUNT III 30. In the course and conduct of offering and extending credit and throughout the duration of their loans, defendants have represented, expressly or by implication, that they possessed and relied on a reasonable basis substantiating their representations that loan payments comply with and are accurate under the loan instrument. 31. In truth and in fact, in a number of instances, defendants did not possess and rely on a reasonable basis substantiating their representations that loan payments comply with and are accurate under the loan instrument. Therefore, the representations set forth in Paragraph 30, above, were, and are, false and misleading. COUNT IV 32. In the course and conduct of offering and extending credit and throughout the duration of their loans, defendants have represented, expressly or by implication, that they will maintain and provide to borrowers accurate records of borrower accounts. 33. In truth and in fact, in a number of instances, defendants did not maintain and provide to borrowers accurate records of borrower accounts. Therefore, the representations set forth in Paragraph 32, above, were, and are, false and misleading. COUNT V 34. In the course and conduct of offering and extending credit and throughout the duration of their loans, defendants have represented, expressly or by implication, that they will not give notice of an intent to take or take title to a secured property from a borrower while the borrower was complying with the loan instrument. 35. In truth and in fact, in a number of instances, defendants have given notice of an intent to take or have taken title to a secured property from a borrower while the borrower was complying with the loan instrument. Therefore, the representations set forth in Paragraph 34, above, were, and are, false and misleading. COUNT VI 36. In the course and conduct of offering and extending credit, defendants in a number of instances: (a) failed to disburse loan proceeds to borrowers; and (b) required borrowers either to pay monies not due under their loan instrument or by operation of law, or suffer impairment or clouding of title to the home or other property securing their loan and/or lose title to their home or other property and the equity therein. 37. Defendants' acts and practices set forth in Paragraph 36, above, have caused substantial injury to consumers which is not reasonably avoidable by consumers themselves and not outweighed by countervailing benefits to consumers or to competition. 38. By engaging in the acts or practice set forth in Paragraphs 26, 28, 30, 32, 34, and 36, above, defendants have engaged in unfair or deceptive acts or practices in violation of §§ 5(a) and (n) of the FTC Act, 15 U.S.C. §§ 45(a) and (n). VIOLATIONS OF THE TRUTH IN LENDING ACT 39. Defendants are "creditors" as that term is defined in § 103 of the TILA, 15 U.S.C. § 1602, and § 226.2(a)(17) of Regulation Z, 12 C.F.R. § 226.2(a)(17), and therefore are required to comply with the applicable provisions of the TILA and Regulation Z. COUNT VII 40. In the course and conduct of offering and extending credit, defendants in many instances violated the requirements of the TILA and Regulation Z in the following and other respects:
41. Pursuant to § 108(c) of the TILA, 15 U.S.C. § 1607(c), every violation of the TILA and Regulation Z constitutes a violation of the FTC Act. 42. Therefore, by engaging in the violations of the TILA and Regulation Z set forth in Paragraph 40, above, defendants also have engaged in unfair or deceptive acts or practices in violation of § 5(a) of the FTC Act, 15 U.S.C. § 45(a). VIOLATIONS OF THE FAIR DEBT COLLECTION PRACTICES ACT 43. In the course and conduct of offering and extending credit, Nash, as creditor, occasionally has endorsed a loan in default over to Capital City for collection. 44. In the course and conduct of offering and extending credit, Eric Sanne, Capital City's general counsel, has sent to Capital City borrowers debt collection letters that identified him as an attorney but not as a Capital City employee. 45. Capital City and Nash, as the person controlling the acts and practices of Capital City, are both "debt collectors" as these terms are defined in § 803 of the FDCPA, 15 U.S.C. § 1692a, and therefore are required to comply with the applicable provisions of the FDCPA. COUNT VIII 46. Defendants in many instances violated the requirements of the FDCPA, in the following and other respects: (a) by making false and misleading representations such as those alleged in Paragraphs 23 and 44, above, in violation of § 807 of the FDCPA, 15 U.S.C. § 1692e; and (b) by engaging in unfair or unconscionable debt collection practices such as those alleged in Paragraph 23, above, in violation of § 808 of the FDCPA, 15 U.S.C. 1692f. 47. Pursuant to § 814(a) of the FDCPA, 15 U.S.C. § 1692l(a), every violation of the FDCPA constitutes a violation of the FTC Act. 48. Therefore, by engaging in the violations of the FDCPA set forth in Paragraph 46, above, defendants also have engaged in unfair or deceptive acts or practices in violation of § 5(a) of the FTC Act, 15 U.S.C. § 45(a). VIOLATIONS OF THE EQUAL CREDIT OPPORTUNITY ACT49. Defendants are "creditors" as that term is defined by § 702(e) of the ECOA, 15 U.S.C. § 1691a(e), and § 202.2(l) of Regulation B, 12 C.F.R. § 202.2(l), and therefore are required to comply with the applicable provisions of the ECOA and Regulation B, 12 C.F.R. § 202. COUNT IX 50. In the course and conduct of offering and extending credit, defendants in many instances violated the requirements of the ECOA and Regulation B in the following and other respects:
51. Pursuant to § 704(c) of the ECOA, 15 U.S.C. § 1691c(c), every violation of the ECOA and Regulation B constitutes a violation of the FTC Act. 52. Therefore, by engaging in the violations of the ECOA and Regulation B set forth in Paragraph 50, above, defendants also have engaged in unfair or deceptive acts or practices in violation of § 5(a) of the FTC Act, 15 U.S.C. § 45(a). CIVIL PENALTY 53. Defendants have violated the ECOA and Regulation B, as described in Paragraph 50, above, with knowledge as set forth in § 5(m)(1)(A) of the FTC Act, 15 U.S.C. § 45(m)(1)(A). 54. Each application, during the five years preceding the filing of this complaint, with respect to which defendants have violated the ECOA and Regulation B in one or more of the ways described above constitutes a separate violation for which plaintiff seeks a monetary civil penalty. 55. Section 5(m)(1)(A) of the FTC Act, 15 U.S.C. § 45(m)(1)(A), authorizes this Court to award a monetary civil penalty of not more than $11,000 for each such violation of the ECOA and Regulation B. CONSUMER INJURY 56. Borrowers have suffered, and will continue to suffer, substantial injury as a result of defendants' violations of § 5(a) of the FTC Act, the TILA, the FDCPA, and the ECOA, as set forth above. THIS COURT'S POWER TO GRANT RELIEF 57. This Court has authority pursuant to § 13(b) of the FTC Act, 15 U.S.C. § 53(b), § 108(c) of the TILA, 15 U.S.C. § 1607(c), § 814(a) of the FDCPA, 15 U.S.C. § 1692l(a), and its own inherent equitable powers, to grant injunctive relief to prevent and remedy violations of any provision of law enforced by the FTC. Section 5(m)(1)(A) of the FTC Act, 15 U.S.C. § 45(m)(1)(A), and § 704(c) of the ECOA, 15 U.S.C. § 1691c(c), empower this Court to impose a civil monetary penalty for violations of the ECOA and Regulation B. Defendants' violations of § 5(a) of the FTC Act, the TILA, the FDCPA, and the ECOA have, in fact, injured borrowers and, absent injunctive and other relief by this Court, are likely to continue to injure borrowers and harm the public interest. PRAYER FOR RELIEF WHEREFORE, plaintiff respectfully requests that this Court, as authorized by §§ 5(a), 5(m)(1)(A), 9, 13(b), and 19 of the FTC Act, 15 U.S.C. §§ 45(a), 45(m)(1)(A), 49, 53(b), and 57b, §108(c) of the TILA, 15 U.S.C. § 1607(c), § 814(a) of the FDCPA, 15 U.S.C. § 1692l(a), and § 704(c) of the ECOA, 15 U.S.C. § 1691c(c), and pursuant to its own inherent equitable powers:
Respectfully submitted, DEBRA A. VALENTINE ________________________ __________________________ __________________________ Federal Trade Commission Dated: ___________ |