As we reported earlier this year, the CFPB was actively investigating a company called 3D Resorts-Bluegrass, LLC for possible violations of the Interstate Land Sales Full Disclosure Act (ILSA). While the CFPB did not publicly announce this investigation, which is the first involving potential ILSA violations, the investigation was disclosed in a proof of claim filed in the U.S. Bankruptcy Court for the Western District of Kentucky, Owensboro Division.
Recently, the CFPB moved forward with an administrative enforcement proceeding. On June 14, 2013, the CFPB filed a Notice of Charges against 3D Resorts. The docket for the proceeding can be found here. In the Notice of Charges, the CFPB asserts 19 counts for violations of ILSA and its implementing regulations covering alleged material misrepresentations in marketing materials related to the development and a failure to comply with ILSA registration and filing requirements.
The CFPB is seeking rescission of the purchase contracts and restitution to property owners for the purchase of lots in the development, injunctive relief, and civil monetary penalties. With respect to civil monetary penalties, the CFPB indicated in its Proof of Claim that it is authorized to seek penalties under both the Dodd-Frank Act and ILSA. Under Dodd-Frank, the CFPB may seek penalties up to $1 million per day for knowing violations of ILSA. By contrast, ILSA itself provides for more modest penalties of $1,000 per violation, with an annual maximum of $1 million.
This administrative proceeding follows on the heels of the CFPB’s amicus brief filed in a Second Circuit ILSA case. Additionally, we understand that the CFPB is working on new software that will take the ILSA-required project registration process online (this process is currently paper-based) and that this software will be released sometime this year. These activities suggest that the CFPB may be making ILSA more of a priority. This increased attention may be a positive development if it results in updated ILSA regulations and agency guidance, something many developers would welcome.
In May, Ballard Spahr held a webinar discussing current case law interpreting ILSA, the need for updated regulations, and the CFPB’s ILSA-related activities to date. The webinar recording and slides are available to clients and members of the financial services and real estate development industries by emailing firstname.lastname@example.org.