According to the FTC, CFF did not offer
any such loan - the loan CFF falsely advertised is actually an
adjustable rate mortgage, where the principal balance would increase if
consumers made payments at the advertised rates. Even these minimum
payment amounts may increase by 7.5 percent each year. On June 1, 2004,
a U.S. district court judge entered a stipulated preliminary injunction
barring the defendants' illegal business practices.
The FTC's complaint alleges that the
defendants have sent ads via spam and direct mail promoting "FIXED
PAYMENT" loans with rates such as 3.5 percent and 2.95 percent. The
defendants' Web site also allegedly advertised a "web special" of "3.5%
Fixed Payment" loans. Some of the defendants' advertisements include
comparisons of consumers' "existing payment" to a "new loan payment,"
calculating the "existing" amount using public records of consumers'
current loan amounts. These ads also include a calculation of "annual
cash savings."
The FTC charges that the loans CFF advertises are actually adjustable
rate mortgages featuring four payment options, including an
interest-only payment option and a lower minimum payment option where
unpaid interest is deferred. According to the FTC, the minimum payment
amount for the first year of the loan has been, at certain points, the
amount that would be due if the consumer truly had a 3.5 percent or 2.95
percent 30-year loan, although the actual interest rate is in fact
considerably higher and varies monthly. Each month any unpaid interest
is added to the principal of the loan, so that the principal balance
increases rather than decreases for periods during the course of the
loan. According to the FTC, even the minimum payment amount is subject
to increase annually.
The FTC further alleges that, in numerous instances, CFF had consumers
sign applications for loans that were not actually offered or available.
CFF also has provided consumers with disclosure statements that
allegedly misrepresent the annual percentage rate (APR) and the payment
schedule for the loan. In addition, the FTC charges that CFF misled
consumers during the course of refinancing, including regarding
prepayment penalties and fees associated with refinancing for a second
time through CFF.
The FTC alleges that the defendants violated the FTC Act by deceptively
claiming that they offered: (1) a fixed interest rate or fixed payment
loan; (2) a loan in which payment of the minimum amount specified covers
both interest and principal; (3) a loan with a specific payment
schedule, interest rate, and/or APR; and (4) a loan with no prepayment
penalty or with a prepayment penalty that would not apply if the loan
was subsequently refinanced through CFF. The FTC complaint also alleges
that defendants misrepresented the “annual cash savings” that consumers
would receive if they refinanced through CFF. In addition, the FTC
alleges that the defendants failed to disclose or to disclose adequately
that monthly payment of the specified amount would result in negative
amortization and cause an increase in the total debt for periods during
the course of the loan.
The FTC further alleges that the defendants violated the advertising
requirements of the Truth-in-Lending Act and its implementing Regulation
Z by: (1) advertising credit terms other than the terms that actually
are or will be arranged or offered by the creditor; (2) stating a rate
of finance charge without clearly and conspicuously disclosing the APR
or the fact that the APR may increase after consummation; (3)
advertising a “payment rate” without making other required disclosures;
and (4) failing to disclose the terms of repayment or the APR when
required to do so.
The FTC's complaint names as defendants
Chase Financial Funding, Inc.; James F. Berry; Suzanne Admire; and
Jeremy Alexander. The Commission has asked the Court to bar the
defendants permanently from engaging in deceptive lending practices, and
to award relief, including consumer redress and disgorgement of the
defendants' ill-gotten gains.
The Commission vote authorizing staff to file the complaint was 5-0. The
complaint was filed in the U.S. District Court for the Central District
of California on May 12, 2004.
Due to a separate trademark action brought by private parties against
CFF and Mr. Berry, CFF is now doing business under the name "Choice
Financial Funding."
NOTE: The Commission files a complaint when it has “reason to believe”
that the law has been or is being violated, and it appears to the
Commission that a proceeding is in the public interest. The complaint is
not a finding or ruling that the defendant has actually violated the
law. The case will be decided by the court.
Copies of the Commission's complaint are available from the FTC's Web
site at http://www.ftc.gov and also from the FTC's Consumer Response
Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580.
The FTC works for the consumer to prevent fraudulent, deceptive, and
unfair business practices in the marketplace and to provide information
to help consumers spot, stop, and avoid them. To file a complaint in
English or Spanish (bilingual counselors are available to take
complaints), or to get free information on any of 150 consumer topics,
call toll-free, 1-877-FTC-HELP (1-877-382-4357), or use the complaint
form at http://www.ftc.gov. The FTC enters Internet, telemarketing,
identity theft, and other fraud-related complaints into Consumer
Sentinel, a secure, online database available to hundreds of civil and
criminal law enforcement agencies in the U.S. and abroad.
MEDIA CONTACT:
Jen Schwartzman
Office of Public Affairs
202-326-2674
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