Major Lenders Sued Over Spam

White sued Aegis Lending Corp., Quicken Loans Inc., American Home Equity Corp., Stateside Mortgage Inc., Northstar Financial and National Fidelity Funding in one of the first civil suits brought under California’s CAN SPAM act by an Internet service provider.

The CAN SPAM act prohibits sending certain types of commercial e-mails containing header information that is false or misleading or containing a subject line that is likely to mislead a recipient about a material fact regarding the contents or subject matter of the message. A misleading subject line can be determined if the person has actual knowledge or such knowledge can be fairly implied on the bases of objective circumstances.

White noticed last October that her e-mail service had received thousands of messages in only a few weeks touting real estate financing. The subject lines clearly intended that someone open the e-mail by informing that their loan was pre-approved — a deception in e-mail that the CAN SPAM act is squarely aimed at preventing, she said in court documents. The text made statements such as, “We tried to contact you awhile ago about your low interest mortgage rate. You have been selected for our lowest rate in years.”

Other e-mails allegedly contained the following language “The truth is you can get a second mortgage at rates never before offered in the past. We offer a variety of solutions for refinancing your mortgage regardless of your credit or needs. It’s simple, just visit our secure site … Fill out the Instant Quote Form for up to 5 quotes from interested lenders.”

White filled out a form on one of the websites mentioned in the e-mail messages, using the name “Bruce Wolf” and providing a telephone number hooked up to an answering machine. She used the answering machine to record the messages left by the lenders. The Web form stated the recipient was authorizing “USA Lenders Network to send your loan request to multiple qualified brokers.”

USA Lenders Network has been identified as Optin Global, Rick Yang, Vision Media and Peonie Pui Ting Chen in a federal lawsuit filed by the FTC. They reportedly violated state and federal laws by sending e-mail messages advertising mortgage loans and other products, according to CNET News.com.

Within several days, “Wolf” got calls from several lenders including Aegis, American Home Equity Corporation, Quicken, Stateside Mortgage, Northstar and National Fidelity Funding. White noted in court documents that none of the mortgage brokers said they had purchased the name and number from a lead generator. All of companies acted as though they were the company to whom “Wolf” had sent his request.

White noted the large number of mortgage brokers calling based on a single SPAM response “indicating just how prevalent the use of SPAM is in the industry and how little effort the mortgage brokers take to prevent participating in SPAM.”

She also alleged fraud under California Business and Professions Code § 17529.5(a) that prohibits advertising in a commercial e-mail advertisement either sent from California or sent to a California electronic mail address if the e-mail advertisement contains or is accompanied by misrepresented or forged header information and/or has a subject line that a person knows would be likely to mislead a recipient about a material fact regarding the contents or subject matter of the message.

White said in court documents that the ads appeared to be coming from actual mortgage companies as they guaranteed credit worthiness and a low fixed rate, not from a spammer trying to get sales leads. ASIS alleged in the lawsuit that the defendants knew it was unlawful for spammers to send spam e-mail.

White said her company suffered “egregious injury” by a “group of conspirators” who intended to use her ISP to gain information about prospective clients and then to sell them mortgages. ASIS has had to add software, hardware, staff and network bandwidth to fight the spam, at considerable cost, she said in the lawsuit.

The defendants responded in court documents that they did not initiate the electronic messages and therefore cannot be held liable under the CAN SPAM act. ASIS countered that the mortgage brokers had actual knowledge of the spammers’ actions and alleged a joint venture and common enterprise between the brokers and the spammers.

CNET News.com reported that ASIS has asked for $1 million in statutory damages, $1 million in liquidated damages and aggravated damages of $3 million.

A federal court judge has ruled that to hold the mortgage defendants liable under the Can-Spam Act, ASIS has to prove that they paid or induced the spammer defendants to initiate commercial e-mail messages and that the mortgage defendants acted either with actual knowledge or by consciously avoiding knowing that the spammer defendants’ acts were illegal.

This set of facts could be proved consistent with the existing allegations in the complaint, the judge wrote in denying Aegis’ motion to dismiss ASIS’ Can Spam claim. However, the judge did grant Aegis’ motion to dismiss the claim of fraud and the claim under California Business and Professions Code §17529.5(a).

A hearing on the defendants’ motion for summary judgment was held this week.

“We are unable to comment on pending litigation, as you might expect,” an Aegis spokeswoman responded via e-mail. “Broadly speaking, Aegis Mortgage Corporation has a formal policy in place, ensuring that we do not use leads generated through spam or from spammers. Our policy and its details are incorporated into agreements with our vendors, and we use our own very best efforts to avoid receiving and using such leads,” she wrote.

The other defendants either declined to comment or did not provide a response.

Lisa D. Burden is a legal analyst for MortgageDaily.com and holds a law degree from the University of Maryland. She is currently a freelance journalist who previously wrote for Institutional Investor publications and the Baltimore Daily Record.

e-mail Lisa at: burdenlisa@yahoo.com