| DEBRA A. VALENTINE General Counsel ROLANDO BERRELEZ Attorneys for Plaintiff UNITED STATES DISTRICT COURT
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 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 Eastern District of Kentucky 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," "closed-end credit," "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, which grants to consumers certain substantive rights in consumer credit transactions. 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 Granite Mortgage, LLC ("Granite"), is a for-profit, limited liability corporation organized, existing, and doing business under the laws of the State of Kentucky. Its principal place of business is at 644 B North Broadway, Lexington, Kentucky 40508. Granite transacts business in this district. 11. Defendant Able Loan Company ("Able"), is a for-profit partnership organized, existing, and doing business under the laws of the State of Kentucky. Its principal place of business is at 644 B North Broadway, Lexington, Kentucky 40508. Able transacts business in this district. 12. Stonington Properties ("Stonington") is a for-profit partnership organized, existing, and doing business under the laws of the State of Kentucky. Its principal place of business is at 644 B North Broadway, Lexington, Kentucky 40508. Stonington transacts business in this district. 13. Defendant Thomas M. Stoeckinger is a member and/or partner of Granite, Able, and Stonington. Individually or in concert with others, at all times material to this action, he has formulated, directed, controlled, supervised, and/or participated in the acts and practices of defendants Granite, Able, and Stonington, including the acts or practices set forth in this Complaint. He resides and transacts business in this district. 14. Defendant Steven J. Mischner is a member and/or partner of Granite, Able, and Stonington. Individually or in concert with others, at all times material to this action, he has formulated, directed, controlled, supervised, and/or participated in the acts and practices of defendants Granite, Able, and Stonington, including the acts or practices set forth in this Complaint. He resides and transacts business in this district. 15. Defendants Granite, Able, and Stonington 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 16. 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. 17. Defendants' HOEPA mortgage loans typically include, inter alia, interest rates of 14 to 24%. 18. 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. 19. 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) 20. In the course and conduct of offering and making HOEPA mortgage loans, defendants Granite, Able, and Stonington in numerous instances have violated, and continue to violate, the requirements of HOEPA and Regulation Z in the following and other respects by:
21. By failing to disclose, or accurately disclose, material credit information, as described in Paragraph 20 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 (Prohibited Loan Terms) 22. In the course and conduct of offering and making HOEPA mortgage loans, defendants Granite, Able, and Stonington in numerous instances have violated, and continue to violate, the requirements of HOEPA and Regulation Z by including a prohibited "prepayment penalty" provision, in violation of Section 129(c) of TILA, 15 U.S.C. § 1639(c), and Section 226.32(d)(6) of Regulation Z, 12 C.F.R. § 226.32(d)(6). 23. By including prohibited loan terms in HOEPA mortgage loan transactions, as described in Paragraph 22 above, defendants Granite, Able, and Stonington 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). Defendants Thomas Stoeckinger and Steven Mischner have directed or controlled the acts and practices of Granite, Able, or Stonington, and, therefore, 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 (Asset-Based Lending) 24. In the course and conduct of offering and making HOEPA mortgage loans, defendants Granite, Able, and Stonington have violated, and continue to violate, the requirements of HOEPA and Regulation Z by engaging in a pattern or practice of extending such credit to a consumer based on the consumer's collateral rather than considering the consumer's current and expected income, current obligations, and employment status to determine whether the consumer will be able to make the scheduled payments to repay the obligation, in violation of Section 129(h) of TILA, 15 U.S.C. § 1639(h), and Section 226.32(e)(1) of Regulation Z, 12 C.F.R. § 226.32(e)(1). 25. By engaging in a pattern or practice of making HOEPA mortgage loans without regard to the payment ability of consumers, as described in Paragraph 24 above, defendants Granite, Able, and Stonington 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). Defendants Thomas Stoeckinger and Steven Mischner have directed or controlled the acts and practices of Granite, Able, or Stonington, and, therefore, 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 TILA and FTC Act COUNT FOUR (TILA Disclosure Violations) 26. In the course and conduct of offering and making HOEPA mortgage loans and/or extending other consumer credit, defendants Granite, Able, and Stonington in numerous instances have violated, and continue to violate, the requirements of TILA and Regulation Z in the following and other respects by:
27. By failing to disclose, or accurately disclose, material credit information, as described in Paragraph 26 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 COUNT FIVE (Record-Keeping Violations) 28. In the course and conduct of offering and making HOEPA mortgage loans and/or extending other consumer credit, defendants Granite, Able, and Stonington 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 29. 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 30. 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, DEBRA A. VALENTINE ROLANDO BERRELEZ Dated: _______________________ |