Scammers, schemers, deceivers and cheaters are constantly taking advantage of Philly residents, and attorneys who work for the city want to fight back.
Rather than leaving it to victims to individually hire lawyers and take their chances in court, or hope for the state Attorney General to intervene, the Law Department is asking for authority to go after shady loan companies, Bitcoin scammers, take-the-money-and-run contractors and the like on consumers’ behalf.
“Certain fraudulent schemes or deceptive practices are happening over and over and over again,” City Solicitor Renee Garcia, Philly’s chief legal officer, told Billy Penn. “This was born out of an effort to get these bad actors that are acting in a predatory way against a whole group of residents.”
The department has sued companies in the past — for example, five years ago it won a $10 million settlement from Wells Fargo over the bank’s alleged targeting of Black and Latino neighborhoods with predatory, high-risk loans.
But under Pennsylvania law, the city doesn’t have clear standing to sue when it’s not a direct victim of misconduct, putting it at risk of having its claims thrown out by a state court.
A bill introduced by Councilmember Rue Landau on behalf of the Parker administration would make a host of deceptive and unfair practices illegal under city law, and give the Law Department power to investigate and file suits in the Court of Common Pleas.
“It’s one of those areas that hasn’t had enough safeguards here in Philadelphia,” said Landau, who for a decade worked as a legal aid attorney at Community Legal Services of Philadelphia. “Because our city is fighting extreme poverty and has other issues — housing, employment, family law, public benefits and other things — consumer protection often gets lost.”
Bad contractors and zombie loans
One predatory practice that legal aid attorneys constantly hear about involves contractors who skip out on jobs.
“I had a case recently where we were fighting foreclosure on a loan that a person had taken out to pay for drywall work in her home — drywall that didn’t even go down to the floor, or up to the ceiling, and that had holes left in it,” said Rachel Labush, an attorney at Community Legal Services. “They just picked up and left, and it wasn’t at all what she had contracted for.”
After the contractor disappeared, the homeowner stopped paying back the loan, Labush said. She didn’t hear back from the lender for 13 years, at which point the company said she owed three times the original loan amount and tried to foreclose on her home. The loan had an interest rate over 11%.
Using the state’s consumer protection law, Labush was able to argue the debt was invalid because of the substandard work, and she helped her client reduce what she owed. Given the frequency of such “zombie loan” cases, it would be helpful to have the city train its legal resources on repeat offenders, she said.
“We are seeing more and more of these old home repair and home equity loans come back to life after years of no contact, probably because of rising property values,” she said.
Garcia and other supporters of the proposed law also cited the example of MV Realty, a Florida real estate brokerage accused of deceiving homeowners in Philadelphia and 32 other states.
The firm gave microloans of a few hundred dollars to homeowners who signed 40-year contracts requiring them to use MV Realty as their agent if they decided to sell. Many homeowners didn’t realize the deals let the company take out a mortgage on their home, as a guarantee for any money due, and were shocked when they discovered the mortgages.
City lawyers started hearing about the loans in 2022 but didn’t have standing to sue, and arbitration clauses meant the homeowners themselves couldn’t take their complaints to court, said Benjamin Field, a chief deputy city solicitor in the Law Department.
Eventually the attorney generals of Pennsylvania and several other states went after the company, which then filed for bankruptcy.
“Local governments are often more aware of the frauds that are occurring within our county lines than some of the statewide actors that had the authority in Pennsylvania to address these things,” Field said. “If we had authority when we first learned about this, we could have stepped in sooner and there would have been hundreds of individuals who were marketed these loans who would not have gone through that process.”
Garcia and Labush cited a range of other deceptive practices the law could allow the city to combat. They include sales of homes and cars with hidden defects, abusive rent-to-own contracts, and various schemes that use wire transfers, automated billing, gift cards, or Bitcoin to steal from senior citizens, immigrants and others.
In some multi-level schemes, the scammers convince people to send money and then change tactics when the victims become suspicious, Labush said. “Someone else swoops in and says they’re with a government agency that’s going to help them and is investigating the prior scammer, and then they continue the scam,” she said. “It’s really bad.”
‘This is a public safety issue’
The Law Department has about 250 lawyers who mainly work on behalf of city agencies.
They vet contracts, pursue tax collection cases, handle Right to Know public information requests, craft legislation and regulations, work on labor deals, defend police officers, sue companies that do business with the city, and work to remove children from dangerous situations, among other duties, Garcia said.
That means the proposed consumer protection law would represent a new type of legal authority for the department — although it’s not without precedent.
Chicago, New York, San Francisco, and Washington, D.C. have for years had offices or departments that can investigate and sue predatory businesses on behalf of residents, and Baltimore recently amended its laws to give its attorneys broader consumer protection powers.
“We are one of the last big cities without such an ordinance,” Landau said.
Chicago got UberEats and Postmates to pay $10 million for overcharging restaurants and other violations during the pandemic, and New York just banned a group of car dealerships that sold defective vehicles, provided false information to lenders, and broke financial disclosure rules.
“The city is responsible for the well being and safety of our residents, and we really believe this is a public safety issue,” Garcia said. “This is keeping people’s bank accounts safe, it’s keeping people’s real estate safe, any wealth that they have accumulated in their family, keeping all of that safe and protected.”
Field noted that D.C. recently won a $750,000 settlement from a “cash in a flash” tax preparer accused of overcharging customers, with $550,000 of that going to affected residents. Landau has proposed a separate bill that would require tax preparers to disclose fees to consumers in advance and advise them of free alternatives.
If the consumer protection bill passes, the Law Department would still represent the city rather than individual consumers. But it could pursue compensatory damages and restitution for fraud victims, along with court injunctions to stop the predatory behavior, civil penalties, and attorney’s fees, Garcia said.
While New York and the other cities have built up large consumer protection divisions over time, Philadelphia would start out small, taking on perhaps one or two cases in the first year and growing from there, Garcia said.
“This is a revenue generating opportunity, too,” she said. “We can get money from these bad actors, which hopefully will get us more attorneys to do more work. We can make our own justification for building out our team, as the other cities have done.”
The bill has been assigned to City Council’s Committee on Commerce and Economic Development. A hearing on the measure has not yet been scheduled.
