CFPB Now Regulating Potholes

The Consumer Financial Protection Bureau (CFPB) is now regulating potholes in Tennessee.

In a consent order signed by Director Richard Cordray on May 1, the CFPB has lowered the regulatory boom on a defunct Florida land development company and four individuals involved in its management for failing to maintain roads in a Tennessee real estate development seven years after they sold their last lot.

To date, the independent and unaccountable agency established by the 2010 Dodd-Frank Act has limited its regulatory reach to areas that are arguably within the financial sector—banks, credit card companies, payday lenders, prepaid debit cards.

It has also played a behind-the-scenes role in Operation Choke Point, the Obama administration’s effort to destroy certain industries of which it does not approve—payday lending, firearms manufacturers and dealers, and tobacco wholesalers.

This foray into the potholes and backroads of Tennessee is a new area of regulatory control, even for the CFPB. But, as American Banker reported, Congress granted the CFPB the authority to do so in an obscure passage of the Consumer Financial Protection Act of 2010, known more commonly as the Dodd-Frank Act:

As strange as it may seem that an agency meant to protect consumers from financial harm is now also protecting them from potholes, it is an obscure part of the CFPB’s authority.

The Dodd-Frank Act transferred authority to enforce a number of rules from the Department of Housing and Urban Development to the CFPB, including one that sets restrictions on how a registered development must be marketed and reported. The CFPB order said that Florida-based International Land Consultants and four individuals “made misrepresentations to consumers” about the roads in a Tennessee development called Hawks Bluff.

Hawks Bluff is a development located in tiny Van Buren County, Tennessee (population less than 6,000) consisting of approximately 750 lots ranging in size from 1.5 to 15 acres. International Land Sales Consultants began the project in 2004, and sold the last lot in 2008.

According to the CFPB consent order, “[f]rom roughly 2004 through 2008, Respondents [International Land Consultants, Inc., Rocco L. Toscano, Joseph E. Mazzucco, James Vincent, and James Tague] engaged in the growth, marketing, and sale of lots in the Development. Lots ranged in size from one to five acres and were priced from about $20,000 to $8o,ooo.”

“In marketing and selling lots at Hawks Bluff,” the CFPB stated in the consent order, “Respondents made material misrepresentations about the roadways in Property Reports registered with the Department of Housing and Urban Development (collectively, Property Reports), dated November 2, 2004, March 25, 2005, December 15, 2005, and April 21, 2006. The Property Reports were distributed to purchasers and prospective purchasers.”

They also “made material misrepresentations about the roadways in a Florida Public Offering Statement dated October 6, 2006. The Florida Public Offering Statement was distributed to purchasers and prospective purchasers.”

The case against the developers rests on the details of an agreement with Van Buren County on the maintenance of roads that never came to fruition.

Hugh Hale, a realtor in Spencer, Tennessee who lists several Hawks Bluff properties and also has served on the Van Buren County Planning Commission, tells Breitbart News the roads in the development were originally built according to the planning commission’s specs, but that “was to get the project started.”

Sources tell Breitbart News the developers had an informal agreement with the then-Mayor of Van Buren County that the county would take over the maintenance of the roads within one year after the last lot was sold, but that deal was apparently never finalized. When a new Mayor was elected, the agreement went by the wayside.

Though the developers sold the last lot in 2008, two years before the CFPB even existed, the agency insisted that the problem was not a local dispute to be handled in the Tennessee courts, but a matter of national importance.

“The Property Reports and Florida Public Offering Statement,” the CFPB consent decree stated, “represented that all roadways in the Development had been completed and were built to county standards for approved private status. The Property Reports represented that the roads would be maintained by the seller until they were dedicated to and accepted by Van Buren County, Tennessee. But ILC has not maintained the roads, and the roads have not been accepted by Van Buren County.”

For the CFPB, it was a clear cut case.

“The Respondents falsely represented to purchasers and prospective purchasers that the roads in the Development would be maintained by the seller until they were accepted by Van Buren County,” the consent decree concluded.

News that CFPB has once again expanded its regulatory authority alarmed industry experts around the country.

“If anyone doubts the expansive reach of the CFPB, look no further than the Consent Order which was entered Friday against International Land Consultants, Inc. and certain individuals,” attorney Caren Enloe wrote at the Consumer Financial Services law blog.

“I would think there would be a higher and better use of their [CFPB’s] resources,” Enloe told Breitbart News in an exclusive interview.”

With the passage of the Dodd-Frank Act in 2010, the newly created CFPB  “took over some of the supervisory role of HUD, including the interstate land act. It’s one of those that kind of slipped through,” Enloe told Breitbart News.
“That’s what everybody wants to know,” Enloe said when asked by Breitbart News where CFPB’s regulatory authority ends.

“Congress is trying to look at ways to put limits on the agency. There is pending legislation to turn it into a commission. With 5 commissioners, like the FCC or the FTC, it gives Congress a little more say,” Enloe concluded.

At least one real estate investor agrees with Enloe that the CFPB should have better and higher uses of their resources than regulating potholes in Tennessee.

“Really? That’s what they’re going to spend their time doing?” Mark LePera, a Fort Myers, Florida real estate investor who is considering purchasing lots in Hawks Bluff, tells Breitbart News.

“You want to see some potholes? Go to Philadelphia, where I’m from. Go fill those potholes.” LePera says.

As for Hawks Bluff, “it’s in the middle of nowhere,” LePera says.

International Land Consultants is no longer an active corporation. Sources tell Breitbart News the four named individuals involved in the development will spend roughly $200,000 for the independent road and to fix the roads to CFPB’s requirements.

Breitbart News asked Crossville, Tennessee attorney Kenneth Chadwell, who represents Toscano in the CFPB matter, for comment on the case but has not received a response.

Sources tell Breitbart News the four defendants faced at least $500,000 in legal fees if they chose to fight the allegations and were not certain of ultimately prevailing. In contrast, CFPB has, in effect, virtually unlimited financial and legal resources at its disposal and was apparently prepared to use them all in their case against the developers.