STEVEN REED
United States Attorney

CANDACE HILL
Assistant United States Attorney
510 West Broadway, 10th Floor
Louisville, Kentucky 40202
(502) 582-5911

Attorneys for the United States

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF KENTUCKY

UNITED STATES OF AMERICA, Plaintiff,

v.

ACTION LOAN COMPANY, INC., a Kentucky corporation, and GUS GOLDSMITH, individually and as an officer of the corporation, Defendants.

Civil No.3:00CV-511-H

COMPLAINT FOR CIVIL PENALTIES, INJUNCTIVE AND OTHER RELIEF

Plaintiff, the United States of America, acting upon notification and authorization to the Attorney General by the Federal Trade Commission ("Commission") and the Secretary of the Department of Housing and Urban Development ("HUD"), for its complaint alleges that:

1. Plaintiff brings this action under Sections 5(a)(1), 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)(1), 45(m)(1)(A), 49, 53(b), 56(a), and 57b, as amended, the Equal Credit Opportunity Act ("ECOA"), 15 U.S.C.  1691-1691(f), as amended, the Fair Credit Reporting Act ("FCRA"), 15 U.S.C.  1681-1681u, as amended, the Truth in Lending Act (TILA"), 15 U.S.C. 1601-1666j, as amended, the Commission's Trade Regulation Rule Concerning Credit Practices ("Credit Practices Rule"), 16 C.F.R. Part 444, and the Real Estate Settlement Procedures Act of 1974 ("RESPA"), 12 U.S.C.  2607, to obtain monetary civil penalties for defendants' violations of the ECOA and Federal Reserve Board Regulation B, 12 C.F.R.  202 ("Regulation B"), FCRA, and the Credit Practices Rule, to obtain redress for violations of TILA, to obtain redress for violations of RESPA and the Department of Housing and Urban Development's Regulation X, 24 C.F.R.  3500.14 ("Regulation X"), and injunctive and other relief.

JURISDICTION AND VENUE

2. This court has jurisdiction over this action under 28 U.S.C.  1331, 1337(a), 1345, and 1355 and under 15 U.S.C.  45(a)(1), 45(m)(1)(A), 49, 53(b), 56(a) , 57b, 1607(c), 1691c, and 1681p, and under 12 U.S.C.  2614.

3. Venue in the Western District of Kentucky is proper under 15 U.S.C.  53(b) and under 28 U.S.C.  1391(c), and 1395(a) and under 12 U.S.C.  2614.

DEFINITIONS

4. As used in this Complaint:

a. the Equal Credit Opportunity Act or ECOA refers to 15 U.S.C.  1691-1691f, as amended;
 
b. "Regulation B" refers to the Federal Reserve Board Regulation B, 12 C.F.R.  202, as amended;
 
c. the terms "adverse action," "applicant," "application," "credit," "consumer credit," and "creditor" are defined as provided in Regulation B, 12 C.F.R.  202.2;
 
d. the Fair Credit Reporting Act or FCRA refers to 15 U.S.C.  1681-1681u, as amended;
 
e. the terms "consumer," "consumer report," and "consumer reporting agency" are defined as provided in Sections 603(c), (d), and (f) respectively of the FCRA, 15 U.S.C. 1681a(c), (d), and (f).
 
f. the terms "lender," "creditor," "household goods," and "obligation" are defined as provided in the Credit Practices Rule, 16 C.F.R.  444.1. 
 
g. the Truth in Lending Act or TILA refers to 15 U.S.C. 1601-1666j, as amended;
 
h. "Regulation Z" refers to the Federal Reserve Board Regulation Z, 12 C.F.R.  226, as amended;
 
i. the terms "amount financed," "annual percentage rate" ("APR"), "consumer credit," "creditor," and "finance charge," 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.
 
j. the Real Estate Settlement Procedures Act or RESPA refers to 12 U.S.C. 2607 et. seq;
 
k. "Regulation X" refers to the Department of Housing and Urban Development Regulation X, 24 C.F.R.  3500, as amended;
 
l. the terms "federally related mortgage loan," "thing of value," "settlement services," and "person" are defined as provided in RESPA, 12 U.S.C. 2602 and Regulation X, 24 C.F.R.  3500.2.

DEFENDANTS

5. Defendant Action Loan Company is a Kentucky corporation, with its office and principal place of business located at 143 West Market Street, Louisville, KY 40202. The company transacts business in Kentucky and Indiana. Defendant Action Loan Company is engaged primarily in the business of making loans secured by real or personal property to consumers and, in a large number of cases, engages in subprime lending. As a subprime lender, Defendant Action Loan Company has approved and funded loans to borrowers who are considered to be greater credit risks, sometimes as a result of flawed credit histories and/or debt-to-income ratios that are higher than those deemed acceptable in the "A credit" or "conforming" mortgage market. Defendant Action Loan Company charges these borrowers higher interest rates than are typically available to borrowers in the "A credit" or "conforming" mortgage market. Defendant Action Loan Company transacts or has transacted business in this district.

6. Defendant Gus A. Goldsmith is engaged primarily in the business of making loans secured by real or personal property to consumers and, in a large number of cases, engages in subprime lending. In addition, Defendant Gus A. Goldsmith is the president and sole officer of Action Loan Company. Individually, or in concert with others, he formulates, directs, and controls the acts and practices of the corporate defendant, including the acts and practices alleged in this complaint. His principal place of business is the same as that of the corporate defendant.

7. At all times material herein, defendants Action Loan Company and Gus Goldsmith have been "creditors" as that term is defined by Section 444.1(f) of the Credit Practices Rule, 16 C.F.R. 444.1(f) and are, therefore, subject to the requirements of the Credit Practices Rule, 16 C.F.R.  444.

8. At all times material herein, defendants Action Loan Company and Gus Goldsmith have been "creditors" as that term is defined by Section 702(e) of the ECOA, 15 U.S.C.  1691a(e), and are, therefore, subject to the requirements of the ECOA and Regulation B.

9. At all times material herein, defendants Action Loan Company and Gus Goldsmith have been "creditors" as that term is defined by Section 103(f) of the TILA, 15 U.S.C. 1602(f), and are, therefore, subject to the requirements of the TILA and Regulation Z.

10. At all times material herein, defendants Action Loan Company and Gus Goldsmith have been "persons" as that term is defined by Section 3(5) of RESPA, 12 U.S.C. 2602(5), and are, therefore, subject to the requirements of the RESPA and Regulation X.

DEFENDANT'S COURSE OF BUSINESS

11. At all times material herein, defendants have maintained a course of trade in or affecting commerce, as "commerce" is defined in Section 4 of the FTC Act, 15 U.S.C.  44, by providing loans to consumers.

VIOLATIONS OF THE CREDIT PRACTICES RULE

12. The Credit Practices Rule, promulgated by the Commission under Section 18 of the FTC Act, 15 U.S.C.  57a, became effective on March 1, 1985, and has since that date remained in full force and effect.

FIRST COUNT

13. On numerous occasions, in connection with the extension of credit to consumers in or affecting commerce, defendants have taken obligations from consumers that constitute or contain a non-possessory security interest in household goods (other than a purchase money security interest) in violation of the Credit Practices Rule, 16 C.F.R.  444.2(a)(4).

SECOND COUNT

14. On numerous occasions, in connection with the extension of credit to consumers in or affecting commerce, defendants have taken obligations from consumers that constitute or contain an executory waiver or limitation of exemption from attachment, execution, or other process on real or personal property held, owned by, or due to the consumer, where such waiver or limitation did not apply solely to property subject to a security interest executed in connection with the obligation, in violation of the Credit Practices Rule, 16 C.F.R.  444.2(a)(2).

VIOLATIONS OF THE ECOA AND REGULATION B

THIRD COUNT

15. On numerous occasions, when defendants have taken adverse action on an application, defendants have:

a. failed to provide the applicant with written notification of the action taken;
 
b. failed to provide the applicant with the specific, principal reason(s) for adverse action or to disclose the applicant's right to a written statement of the reasons for the adverse action; and
 
c. failed to provide a statement of the provisions of Section 701(a) of the act and the name and address of the federal agency that administers compliance with respect to the creditor, in violation of Section 701(d) of the ECOA, 15 U.S.C.  1691(d), and Sections 202.9(a) and (b) of Regulation B, 12 C.F.R.  202.9(a) and (b).

16. Pursuant to Section 704(c) of the ECOA, 15 U.S.C.  1691c(c), defendants' violations of the ECOA are deemed to be violations of the FTC Act and are enforceable as such by plaintiff under that Act.

VIOLATIONS OF THE FAIR CREDIT REPORTING ACT

FOURTH COUNT

17. On numerous occasions, when a consumer has been denied credit, either in whole or in part because of information contained in a consumer report from a consumer reporting agency, defendants have failed to provide required information to the consumer, including the name, address, and telephone number of the consumer reporting agency that furnished the report, and a notice that the consumer may obtain a free copy of his or her report and may dispute the accuracy or completeness of any information in the report with the consumer reporting agency, in violation of Section 615(a) of the FCRA, 15 U.S.C.  1681m(a).

18. Pursuant to Section 621 of the FCRA, 15 U.S.C.  1681s, defendants' violations of the FCRA constitute unfair or deceptive acts or practices in commerce, in violation of Section 5(a) of the FTC Act, 15 U.S.C.  45(a).

VIOLATIONS OF THE TRUTH IN LENDING ACT

FIFTH COUNT

19. Defendants, in the course and conduct of their business, have, on numerous occasions, offered and sold to consumers a combination of credit-life insurance and accident and health insurance in connection with an extension of credit.

20. Section 226.4 of Regulation Z, 12 C.F.R.  226.4, requires that premiums for credit insurance be included in the finance charge disclosed to consumers unless the following conditions are met:

a. the insurance coverage is not required by the creditor and this fact is disclosed in writing;
 
b. the premium for the initial term of insurance is disclosed; and
 
c. the consumer signs or initials an affirmative written request for the insurance after receiving the above specified disclosures.

These disclosures must be made clearly and conspicuously in writing in a form that the consumer may keep. Section 226.17 of Regulation Z, 12 C.F.R.  226.17.

21. Respondents have failed to meet the conditions set forth in Section 226.4 of Regulation Z for excluding the premiums from the finance charge and have wrongfully included the premiums for the insurance in the amount financed disclosed to the consumer.

22. Defendants' aforesaid acts and practices violate Sections 106, 107, and 128 of the TILA, 15 U.S.C.  1605, 1606, and 1638, as amended, respectively, and Sections 226.4, 226.4(d), 226.22 and 226.18(b), (d) and (e) of Regulation Z, 12 C.F.R.  226.4, 226.4(d), 226.22 and 226.18(b), (d) and (e), respectively, and constitute unfair and deceptive acts or practices in violation of Section 5(a) of the FTC Act, 15 U.S.C.  45(a).

VIOLATIONS OF THE FEDERAL TRADE COMMISSION ACT

SIXTH COUNT

23. On numerous occasions, defendants have represented, expressly or by implication, that consumers purchased only credit life insurance in connection with their loans.

24. In truth and in fact, consumers did not purchase only credit-life insurance in connection with their loans. In many instances, consumers also purchased accident and health insurance in connection with their loans. Therefore, defendants' representation, as alleged in Paragraph 23, was, and is, false or misleading.

25. Defendants' practices constitute deceptive acts or practices in or affecting commerce in violation of Section 5(a) of the Federal Trade Commission Act, 15 U.S.C.  45(a).

VIOLATIONS OF THE REAL ESTATE SETTLEMENT PROCEDURES ACT OF 1974

SEVENTH COUNT

26. On numerous occasions defendants accepted a fee, kickback, or thing of value pursuant to an agreement or understanding that business incident to or a part of a real estate settlement service involving federally related mortgage loans would be referred to a person in violation of Section 8(a) of the Real Estate Settlement Procedures Act of 1974, 12 U.S.C.  2607(a).

EIGHTH COUNT

27. On numerous occasions defendants accepted a portion, split, or percentage of a charge or charges made or received for the rendering of real estate settlement services in connection with transactions involving federally related mortgage loans other than for services actually performed in violation of Section 8(b) of the Real Estate Settlement Procedures Act of 1974, 12 U.S.C.  2607(b).

CIVIL PENALTIES AND INJUNCTION

28. Defendants have violated the Credit Practices Rule, ECOA, and Regulation B, as described above, with knowledge as set forth in Section 5(m)(1)(A) of the FTC Act, 15 U.S.C.  45(m)(1)(A).

29. Each instance, during the five years preceding the filing of this complaint in which defendants have violated the Credit Practices Rule, ECOA, and Regulation B, as described above, constitutes a separate violation for which plaintiff seeks monetary civil penalties.

30. Section 5(m)(1)(A) of the FTC Act, 15 U.S.C.  45(m)(1)(a), authorizes the Court to award monetary civil penalties of not more than $10,000 for each such violation of the Credit Practices Rule, ECOA, and Regulation B that occurs prior to November 20, 1996. Section 4 of the Federal Civil Penalties Inflation Adjustment Act of 1990, 28 U.S.C.  2461, as amended, authorizes the Court to award monetary civil penalties of not more than $11,000 for each such violation of the Credit Practices Rule, ECOA, and Regulation B that occurs on or after November 20, 1996.

31. Each instance in which defendant violated the FCRA since September 30, 1997, the date that the amended FCRA went into effect providing for civil penalties for violations of the law, constitutes a separate violation of the FCRA for which plaintiff seeks monetary civil penalties under Section 621 of the FCRA, 15 U.S.C.1681s.

32. Section 621 authorizes the Court to award civil penalties of not more than $2,500 for each knowing violation of the FCRA which constitutes a pattern or practice of violations occurring after September 30, 1997.

33. Under Section 13(b) of the FTC Act, 15 U.S.C.  53(b), this Court is authorized to issue a permanent injunction prohibiting defendants from violating the Credit Practices Rule, ECOA, Regulation B, TILA, Regulation Z, and FCRA, as well as ancillary equitable relief.

34. Under Section 8(d)(4) of the RESPA, 12 U.S.C.  2607(d)(4), this Court is authorized to issue a permanent injunction prohibiting defendants from violating the RESPA and Regulation X, as well as ancillary equitable relief.

CONSUMER INJURY

35. Consumers have suffered, and will continue to suffer, substantial injury as a result of defendants' violations of the FTC Act, ECOA, Regulation B, FCRA, TILA, Regulation Z, the Commission's Credit Practices Rule, RESPA, and Regulation X, as set forth above.

THIS COURT'S POWER TO GRANT RELIEF

36. This Court has authority pursuant to  13(b) of the FTC Act, 15 U.S.C.  53(b), 621 of the FCRA, 15 U.S.C.  1681s,  108(c) of the TILA, 15 U.S.C.  1607(c),  8(d)(4) of the RESPA, 12 U.S.C.  2607(d)(4), and its own inherent equitable powers, to grant injunctive and other ancillary equitable relief to prevent and remedy violations of any provision of law enforced by the FTC and/or by HUD. Section 5(m)(1)(A) of the FTC Act, 15 U.S.C.  45(m)(1)(A),  704 (c) of the ECOA, 15 U.S.C.  1691c(c), and  621(a)(2) of the FCRA, 15 U.S.C.  1681s(a)(2) empower this Court to impose a civil monetary penalty for violations of the Credit Practices Rule, ECOA and FCRA. Defendants' violations of  5(a) of the FTC Act, TILA, ECOA, FCRA, the Credit Practices Rule, and the RESPA 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 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), 19, 53b and 57b,  108(c) of the TILA, 15 U.S.C.  1607(c),  704(c) of the ECOA, 15 U.S.C. 1691c(c),  621 of the FCRA, 15 U.S.C. 1681s,  8(d)(4) of the RESPA, 12 U.S.C. 2607(d)(4), and pursuant to this Court's own equity powers:

1. Enter judgment against defendants and in favor of plaintiff for each violation alleged in this complaint;
 
2. Permanently enjoin and restrain defendants from violating  5(a) of the FTC Act, Credit Practices Rule, ECOA, Regulation B, FCRA, TILA, Regulation Z, RESPA and Regulation X;
 
3. Award plaintiff monetary civil penalties for each violation of the Credit Practices Rule, ECOA, Regulation B, and FCRA, as alleged in this Complaint;
 
4. Find the defendants jointly and severally liable for redress to all borrowers who were injured as a result of defendants' violations of  5(a) of the FTC Act, TILA, Regulation Z, ECOA, FCRA, the Credit Practices Rule, RESPA, and Regulation X;
 
5. Provide equitable ancillary relief in the form of restitution of unlawfully obtained monies to the borrowers who were injured as a result of the defendants' violations of TILA, Regulation Z, RESPA and Regulation X; and
 
6. Award such other relief as may be just and proper.

DATED:

Respectfully submitted,

BILL LANN LEE
Assistant Attorney General
Civil Rights Division
U.S. Department of Justice

STEVEN REED
United States Attorney
Western District of Kentucky

BY:________________________
Assistant United States Attorney
510 West Broadway, 10th Floor
Louisville, Kentucky 40202
(502) 582-5911
______________________________
JOAN A. MAGAGNA, Chief
JON M. SEWARD, Deputy Chief
VALERIE R. O'BRIAN, Attorney
Housing and Civil Enforcement Section
Civil Rights Division
U.S. Department of Justice
P.O. Box 65998
Washington, D.C. 20035
(202) 514-4713

FEDERAL TRADE COMMISSION

DAVID MEDINE
Associate Director for Financial Practices

PEGGY TWOHIG
Assistant Director for Financial Practices

ROLANDO BERRELEZ
MICHELLE CHUA
Attorneys
Bureau of Consumer Protection
Federal Trade Commission
Washington, D.C. 20580
(202) 326-3248

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

GAIL W. LASTER
General Counsel
JOHN P. KENNEDY
Associate General Counsel
PETER S. RACE
Assistant General Counsel
REX TAYLOR
Special Counsel for the Department
Department of Housing and Urban Development
Washington, D.C. 20410