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Big Win for DAs Going After Loan Company

SAN JOSE (CN) - A federal judge denied a nationwide loan administrator's request to stop two California district attorneys from enforcing fraud laws against it.

Loan Payment Administration and its corporate parent Nationwide Biweekly Administration sued district attorneys in Monterey and Marin counties in October 2014 after a Monterey deputy district attorney said their solicitation letters violated state law.

Nationwide runs a program called "Interest Minimizer," which claims to save customers tens of thousands of dollars in interest over the life of a loan.

The company, which acts as an intermediary between the borrower and mortgage servicer, has about 125,000 customers around the country and more than 10,000 in California, according U.S. District Judge Lucy Koh's March 17 order.

To attract customers, the company mails solicitation letters to borrowers.

But some customers don't realize those letters are coming from a third party, defendant Monterey County Deputy District Attorney John Hubanks said.

Hubanks also said Nationwide's letters do not disclose a fee for its Interest Minimizer program, and that Nationwide employees are trained to obscure the existence or amount of fees during phone calls.

Hubanks in July 2013 accused Nationwide of violating laws against using the name of a lender in a written solicitation for financial services without the lender's permission, and using a consumer's loan number or loan amount in solicitation for services without a consumer's permission. Hubanks also informed the Marin County District Attorney's Office of the company's practices.

Court documents describe a Nationwide letter received by a Monterey County homeowner in March 2013: The letter stated in large bold font "Loan Payment Change Request." To the right of the address window, in smaller nonbold font, it said "Nationwide Biweekly Administration is not affiliated with the lender."

The letter used the name of the homeowner's mortgage servicer and referred to the specific amount of the homeowner's loan several times. A disclaimer in what appears to be smaller font at the bottom specified that Nationwide is not affiliated with the lender it mentioned.

After receiving Hubanks' warning, Nationwide changed its solicitation letters to stop using actual customer loan information, according to court documents.

Then plaintiffs Nationwide Biweekly Administration, Loan Payment Administration and Daniel Lipsky sued Hubanks; the Monterey County District Attorney's Office; Andres Perez, a deputy district attorney of Marin; and the Marin County District Attorney's Office.

The plaintiffs argued, among other things, that their free speech rights were violated.

They claimed that Nationwide's "use of lenders' name in truthful, non-misleading offers to potential customers does not violate any valid state law."

But Judge Koh on Tuesday denied the plaintiffs' motion for a preliminary injunction.

"Nationwide has not shown that the public interest weighs in favor of granting an injunction," she wrote.

She found, among other things, that Nationwide did not show a likelihood of success on the merits of its First Amendment claim, and that "an injunction would prohibit local officials from enforcing statutes designed to protect consumers from the risk of fraud."

On March 18, Koh also denied Nationwide Biweekly Administration's request for a preliminary injunction stopping Jan Lynn Owen, commissioner of California's Department of Business Oversight, from enforcing a law that regulates proraters.

In October 2014, after a Monterey County deputy district attorney accused Nationwide of violating state laws, the Department of Business Oversight informed Nationwide that it was investigating "possible unlicensed business activity," according to the judge's order.

The next month Nationwide sued Owen, claiming, among other things, that enforcing the state's prorater law would violate the company's constitutional rights.

Koh denied the motion, ruling: "Enjoining enforcement of a statute that has the goal of 'protection of consumers' would not be in the public interest."

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