On July 29, 2014, another Section 1042 lawsuit was filed jointly by the Attorneys General of Florida and Connecticut in a Florida federal court.  The lawsuit alleges that four individuals and their four businesses formulated and participated in a mortgage rescue scam that deceived consumers into paying upfront fees to be included as plaintiffs in so-called “mass-joinder” lawsuits against their mortgage lenders or servicers.

In addition to asserting claims under their states’ unfair trade practices acts, the AGs allege in their amended complaint that the defendants’ conduct violated the federal Mortgage Assistance Relief Services Rule (MARS Rule).  The MARS Rule (also known as Regulation O) prohibits collection of upfront fees from consumers before obtaining a loan modification, prohibits misrepresenting to consumers the services and relief they would receive, and requires several disclosures aimed at protecting consumers.  The AGs assert their MARS Rule claim pursuant to Section 1097 of Dodd-Frank (12 USC Section 5538), which authorizes a state AG to bring civil actions on behalf of his or her state’s residents to enforce the MARS Rule.

The AGs also assert a claim under Section 1042 of Dodd-Frank, which authorizes a state AG to bring a civil action to enforce provisions of Dodd-Frank Title 10 or regulations issued under Title 10.  Dodd-Frank Section 1097 provides that a violation of the MARS Rule “shall be treated as a violation of a rule prohibiting unfair, deceptive, or abusive acts or practices under the Consumer Financial Protection Act of 2010.”

In invoking their Section 1042 enforcement authority, the AGs are seeking to enforce the
Dodd-Frank provision (Section 1036) prohibiting unfair, deceptive or abusive acts or practices (UDAAP).  (They assert that pursuant to Section 1097, a violation of the MARS Rule is a UDAAP under Dodd-Frank.)  By also bringing a Section 1042 claim, the AGs might be able to obtain remedies under Dodd-Frank that are not available under state law or the MARS Rule directly.  Alternatively, or in addition, they may view Section 1042 as an alternate way of challenging the defendants’ conduct should their MARS Rule or state law claims fail.

Contemporaneously with the filing of the original complaint, the court entered a temporary restraining order freezing certain of the defendants’ assets and appointing a receiver.  On
August 22, 2014, the court entered a preliminary injunction continuing such relief.

We have been following several other Section 1042 lawsuits filed by the AGs of Illinois, Mississippi and New York and by a New York regulator.