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CFPB announces consent orders with debt collection law firm, two law firm partners, debt buyer

Posted in CFPB Enforcement, Debt Collection

The CFPB announced that it has entered into two consent orders involving debt collection litigation practices. A debt collection law firm and two of its partners are the subject of one consent order and a debt buyer is the subject of the other consent order.  The consent orders recite that the conduct of the law firm, named partners and debt buyer violated the FDCPA prohibition against using false or misleading representations in connection with the collection of a debt and also constituted deceptive and unfair acts or practices in violation of the CFPA.  In addition to imposing new requirements for future collection activities, the consent orders require the law firm and named partners to pay a total civil money penalty of $1 million and the debt buyer to pay a civil money penalty of $1.5 million.

According to the consent order with the law firm and named partners, the law firm specialized in debt collection and the named partners each had “managerial responsibility for the Firm and materially participated in the conduct of its debt-collection litigation practices.”   The consent order states that:

  • Most accounts were placed with the law firm for collection through an electronic system that provided the law firm with either an Excel spreadsheet or text file containing specific data in summary form regarding each account but no supporting documentation.
  • Once a decision was made to initiate litigation on an account, a group of non-attorney support staff generated a complaint and summons from template forms previously approved by the firm’s attorneys using the summary data and the results of a “pre-filing claim review.”  The summons and complaint would then be reviewed by an attorney who “generally spent less than a few minutes, sometimes less than 30 seconds” on the review.
  • The attorney who reviewed each summons and complaint prior to filing did not have access to sufficient documentation to confirm the validity of the summary data provided by the client nor did any other firm employee generally review sufficient “Original Account-Level Documentation” before filing suit.  The law firm, “in many cases,” did not obtain such documentation and relied only on summary data.  “Original Account-Level Documentation” is defined as any documentation that an original creditor or its agent (such as a servicer) provided to the consumer about a debt or a complete transactional debt history created by an original creditor or its agent.
  • The majority of lawsuits were filed by the firm on behalf of debt buyers “who often could not support their collection activities with basic documents, such as the original contracts underlying the alleged debts, documentation of the consumer’s alleged obligation, or the chain of title evidencing that the debt buyer actually owned the debt and thus had standing to sue the consumer.”  The law firm did not independently investigate or verify support for the lawsuits, such as when a lawsuit was challenged by a consumer but the law firm continued to seek collection without first obtaining Original Account-Level Documentation and where the law firm had knowledge or reason to believe that a specific debt portfolio might contain unreliable data but continued to represent that consumers owed the claimed amounts without obtaining Original Account-Level Documentation.

The consent order with the debt buyer states that collection complaints filed on the debt buyer’s behalf by the law firms it retained (which included the law firm that is the subject of the other consent order) were signed by attorneys who had not reviewed Original Account-Level Documentation prior to filing the lawsuits or preparing pleadings.  It also states that the debt buyer did not “in all cases” provide its law firms with “account-level documents” before filing suit or require its law firms to review such documents before filing suit.  In addition, before filing suit, the debt buyer “did not always” provide a law firm “with the documents evidencing the full chain of title showing that [the debt buyer] actually owned the debt and thus had standing to sue the consumer.”  The consent order with the debt buyer includes statements similar to those in the other consent order regarding the law firms’ failure to independently  investigate or verify support for the lawsuits in instances where they had information that the facts alleged were unsupported.

In addition to requiring payment of civil money penalties, the terms of the consent orders include the following:

  • The law firm, named partners and debt buyer are prohibited from threating or initiating a collection lawsuit without having the following documentation in their possession: Original Account-Level Documentation that provides certain specified information about an account, a chronological listing of the names of all prior owners of the debt and the date of each transfer of ownership, a certified or otherwise properly authenticated copy of each bill of sale or other documents evidencing the transfer of the debt at the time of charge-off to each successive owner, and a document signed by the consumer evidencing the opening of the account forming the basis for the debt or Original Account-Level Documentation reflecting a purchase, payment or other actual use of the account by the consumer.
  • The debt buyer is prohibited from submitting an account to a law firm for collection unless it has provided the foregoing documentation.
  • The law firm and named partners are prohibited from or initiating a collection lawsuit without following certain procedures, reviewing the foregoing documentation and confirming certain information, such as that the statute of limitations has not run and the debt was not discharged in bankruptcy or subject to a pending bankruptcy.  In addition, the attorney whose name appears on the complaint must certify that that initiation of the lawsuit complies with the terms of the consent order with the law firm and partners.
  • The law firm, named partners and debt buyer are  prohibited from filing affidavits that contain false information as described in the consent orders.
  • The law firm, named partners and debt buyer are prohibited from using any pre-judgment litigation discovery device to seek or obtain information, such as asset discovery, intended to be used for post-judgment collection.

We note that the prohibition on pre-judgment litigation discovery does not appear to have been included in prior CFPB consent orders and represents an extension of the CFPB’s authority to restrict practices that should be left to the procedural rules of the court in question.