| DEBRA A. VALENTINE General Counsel GERALD E. WRIGHT Attorney for Plaintiff UNITED STATES DISTRICT COURT FEDERAL TRADE COMMISSION, Case No. Plaintiff, the Federal Trade Commission ("Commission"), by its undersigned attorneys, alleges as follows: Jurisdiction and Venue 1. This is an action under Sections 5(a) and 13(b) of the Federal Trade Commission Act ("FTC Act"), 15 U.S.C. §§ 45(a) and 53(b), and Section 108(c) of the Truth in Lending Act ("TILA"), 15 U.S.C. § 1607(c), to obtain preliminary and permanent injunctive relief, rescission, restitution, reformation, disgorgement, and other equitable relief against defendants for engaging in acts or practices in violation of TILA, 15 U.S.C. §§ 1601-1666j, as amended, including, but not limited to, the Home Ownership and Equity Protection Act of 1994 ("HOEPA"), as amended, and TILA's implementing Regulation Z, 12 C.F.R. 226, as amended, and for unfair or deceptive acts or practices in violation of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a), as amended. 2. This Court has subject matter jurisdiction over this matter pursuant to 15 U.S.C. §§ 45(a), 53(b), and 1607(c), and 28 U.S.C. §§ 1331, 1337(a), and 1345. 3. Venue in the United States District Court for the District of Utah is proper under 28 U.S.C. § 1391(b) and (c) and 15 U.S.C. § 53(b). Definitions As used in this Complaint: 4. The terms "amount financed," "annual percentage rate," "consumer," "consumer credit," "consummation," "credit," "creditor," "dwelling," "finance charge," "mortgage," "open-end credit," "payment schedule," "points and fees," "residential mortgage transaction," "reverse mortgage transaction," "security interest," and "total of payments" are defined as set forth in Sections 103 and 128 of TILA, 15 U.S.C. §§ 1602 and 1638, and Sections 226.2, 226.4, 226.18, 226.22, 226.32, and 226.33 of Regulation Z, 12 C.F.R. §§ 226.2, 226.4, 226.18, 226.22, 226.32, and 226.33. 5. The term "HOEPA" means the Home Ownership and Equity Protection Act of 1994 which, inter alia, amended TILA by adding Section 129 of TILA, 15 U.S.C. § 1639, and is implemented by, inter alia, Sections 226.31 and 226.32 of Regulation Z, 12 C.F.R. §§ 226.31 and 226.32. HOEPA, which took effect on October 1, 1995, provides special protections for consumers who obtain high-rate or high-fee loans secured by their principal dwellings by requiring creditors to provide certain material information at least three days before the loan is consummated, prohibiting the use of certain loan terms, and barring specified practices. 6. The term "HOEPA mortgage loan" means a consumer credit transaction consummated on or after October 1, 1995, that is secured by the consumer's principal dwelling, other than a residential mortgage transaction, a reverse mortgage transaction or an open-end credit plan, in which: (1) the annual percentage rate at consummation of the transaction will exceed by more than 10 percentage points the yield on Treasury securities having comparable periods of maturity to the loan maturity as of the 15th day of the month immediately preceding the month in which the application for the extension of credit is received by the creditor; or (2) the total points and fees payable by the consumer at or before loan closing will exceed the greater of 8% of the total loan amount or $400 (adjusted annually by the Board of Governors of the Federal Reserve System ("FRB") on January 1 by the annual percentage change in the Consumer Price Index that was reported on June 1 of the preceding year), which is covered by HOEPA, pursuant to Section 129 of TILA, 15 U.S.C. § 1639, and Section 226.32 of Regulation Z, 12 C.F.R. § 226.32. As used herein, the "total loan amount" is calculated as described in Section 226.32(a)(1)(ii)-1 of the FRB Official Staff Commentary on Regulation Z, 12 C.F.R.§ 226.32(a)(1)(ii)-1, Supp. 1. 7. The term "Regulation Z" means the regulation the FRB promulgated to implement TILA and HOEPA, 12 C.F.R. 226, as amended. The term also includes the FRB Official Staff Commentary on Regulation Z, 12 C.F.R. 226, Supp.1, as amended. 8. The term "TILA" means the Truth in Lending Act, 15 U.S.C. §§ 1601-1666j, as amended. TILA, which took effect on July 1, 1969, is intended to promote the informed use of consumer credit by requiring creditors to disclose credit terms and costs, requiring additional disclosures for loans secured by consumers' homes, and permitting consumers to rescind certain transactions that involve their principal dwellings. Parties 9. Plaintiff, the Commission, is an independent agency of the United States Government created and 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 Section 5(a) of the FTC Act, 15 U.S.C. § 45(a), which prohibits unfair or deceptive acts or practices in or affecting commerce, and TILA. The Commission is authorized by Section 13(b) of the FTC Act, 15 U.S.C. § 53(b), and Section 108(c) of TILA, 15 U.S.C. § 1607(c), to initiate federal district court proceedings to enjoin violations of the FTC Act, TILA, HOEPA, and Regulation Z and to secure such equitable relief as may be appropriate in each case including, but not limited to, redress and disgorgement. 10. Defendant Capitol Mortgage Corporation ("Capitol"), is a for-profit corporation organized, existing, and doing business under the laws of the State of Utah. Its principal place of business is at 1104 North 1220 West, Provo, Utah 84604. Capitol transacts business in this district. 11. Defendant Thomas D. Lakey is the president and the principal shareholder of Capitol. Individually or in concert with others, at certain times material to this action, he/she has formulated, directed, controlled, supervised, and/or participated in the acts and practices of defendant Capitol, including the acts or practices set forth in this Complaint. He/she resides and transacts business in this district. 12. Defendants Lakey and Capitol are "creditors," as that term is defined in Section 103(f) of TILA, 15 U.S.C. § 1602(f), and Section 226.2(a)(17) of Regulation Z, 12 C.F.R. § 226.2(a)(17), and therefore are required to comply with applicable provisions of TILA, HOEPA, and Regulation Z. Defendants' Business 13. Since at least October 1, 1995, defendants have maintained a substantial course of trade in offering and extending credit to consumers and others including, but not limited to, HOEPA mortgage loans. 14. Defendant Capitol is a corporation engaged in business as a subprime lender. Subprime lending refers to the extension of credit to high risk borrowers. This practice is also commonly referred to as "B/C" or "nonconforming" credit. Defendants typically market HOEPA mortgage loans to, and write HOEPA loans for. individuals whose homes are in, or at risk of, foreclosure. 15. Defendants' HOEPA mortgage loans typically include, inter alia, interest rates of 18% or more, and up-front fees that include origination fees, discount fees and mortgage broker fees totaling 18% or more. 16. In the course of offering and extending credit to consumers, defendants have failed to provide material information required to be disclosed by HOEPA and TILA, included loan terms prohibited by HOEPA, and engaged in unfair or deceptive acts or practices. 17. At all times relevant to this Complaint, defendants have maintained a substantial course of trade in or affecting commerce, as "commerce" is defined in Section 4 of the FTC Act, 15 U.S.C. § 44. Violations of HOEPA and FTC Act COUNT ONE (HOEPA Disclosure Violations) 18. In the course and conduct of offering and making HOEPA mortgage loans, defendants Lakey and Capitol in numerous instances have violated, and continue to violate, the requirements of HOEPA and Regulation Z in the following and other respects by:
19. By failing to disclose, or accurately disclose, material credit information, as described in Paragraph 18 above, all defendants have engaged, and continue to engage, in deceptive acts or practices in violation of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a). COUNT TWO 20. In the course and conduct of offering and making HOEPA mortgage loans, defendants Lakey and Capitol in numerous instances have violated, and continue to violate, the requirements of HOEPA and Regulation Z by modifying, waiving or depriving consumers of the three-day waiting period between delivery of disclosures required by HOEPA and consummation of the transaction without receiving a dated written statement that describes a bona fide personal financial emergency, specifically modifies or waives the waiting period, and bears the signatures of all of the consumers entitled to the waiting period, in violation of Section 129(b)(3) of TILA, 15 U.S.C. § 1639(b)(3), and Section 226.31(c)(1)(iii) of Regulation Z, 12 C.F.R. § 226.31(c)(1)(iii). 21. By improperly modifying, waiving or depriving consumers of the three-day HOEPA waiting period, as described in Paragraph 20 above, all defendants have engaged, and continue to engage, in unfair acts or practices in violation of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a). COUNT THREE 22. In the course and conduct of offering and making HOEPA mortgage loans, defendants Lakey and Capitol in numerous instances have violated, and continue to violate, the requirements of HOEPA and Regulation Z in the following and other respects by:
23. By including prohibited loan terms in HOEPA mortgage loan transactions, as described in Paragraph 22 above, all defendants have engaged, and continue to engage, in unfair acts or practices in violation of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a). Violations of HOEPA 24. In the course and conduct of offering and making HOEPA mortgage loans, defendants Lakey and Capitol in numerous instances have violated, and continue to violate, the requirements of HOEPA and Regulation Z by selling or otherwise assigning such loans without furnishing the following notice to the purchaser or assignee: Notice: This is a mortgage subject to special rules under the federal Truth in Lending Act. Purchasers or assignees of this mortgage could be liable for all claims and defenses with respect to the mortgage that the borrower could assert against the creditor, in violation of Section 131(d)(4) of TILA, 15 U.S.C. § 1641(d)(4), and Section 226.32(e)(3) of Regulation Z, 12 C.F.R. § 226.32(e)(3). Violations of TILA and FTC Act 25. In the course and conduct of offering and making HOEPA mortgage loans and/or extending other consumer credit, defendants Lakey and Capitol in numerous instances have violated, and continue to violate, the requirements of TILA and Regulation Z in the following and other respects by:
26. By failing to disclose, or accurately disclose, material credit information, as described in Paragraph 28 above, all defendants have engaged, and continue to engage, in deceptive acts or practices in violation of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a). COUNT SIX 27. In the course and conduct of offering and making HOEPA mortgage loans and/or extending other consumer credit, defendants Lakey and Capitol in numerous instances have violated, and continue to violate, the requirements of TILA and Regulation Z in the following and other respects by:
28. By failing to disclose, or accurately disclose, material information relating to, or making misrepresentations regarding, the TILA right of rescission, as described in Paragraph 30 above, all defendants have engaged, and continue to engage, in deceptive acts or practices in violation of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a). Violations of TILA 29. In the course and conduct of offering and making HOEPA mortgage loans and/or extending other consumer credit, defendants Lakey and Capitol in numerous instances have violated, and continue to violate, the requirements of TILA and Regulation Z by failing to retain evidence of compliance with Regulation Z for two years after the date disclosures are required to be made or action is required to be taken, in violation of Section 226.25(a) of Regulation Z, 12 C.F.R. § 226.25(a). Injury 30. Consumers have suffered, and will continue to suffer, substantial injury as a result of defendants' violations of HOEPA, TILA, and Section 5(a) of the FTC Act, as set forth above. This Court's Power to Grant Relief 31. This Court has authority pursuant to Section 13(b) of the FTC Act, 15 U.S.C. § 53(b), Section 108(c) of TILA, 15 U.S.C. § 1607(c), and its own inherent equitable powers, to grant injunctive relief to prevent and remedy violations of any provision of law enforced by the Commission. Defendants' violations of HOEPA, TILA, and Section 5(a) of the FTC Act have injured consumers and, absent injunctive and other relief by this Court, are likely to continue to injure consumers and harm the public interest. Request for Relief WHEREFORE, plaintiff respectfully requests that this Court, as authorized by Sections 5(a) and 13(b) of the FTC Act, 15 U.S.C. §§ 45(a) and 53(b), Section 108(c) of TILA, 15 U.S.C. § 1607(c), and pursuant to its own inherent equitable powers:
Respectfully submitted, CARLIE CHRISTENSEN DEBRA A. VALENTINE DATED: |