On April 25, 2016 the Consumer Financial Protection Bureau (CFPB) issued its latest consent order against a law firm that specializes in consumer debt collection. The April 25 order is against Pressler & Pressler, a New Jersey law firm. A similar consent order was issued on December 28, 2015 against Frederick J. Hanna & Associates, a Georgia law firm. In both orders, the CFPB highlighted what it deems to be unfair and deceptive practices undertaken by the firms to collect consumer debts.
The focus in both of the consent orders is on the collection activity the law firms performed on behalf of their clients who purchase defaulted consumer debts. The CFPB claimed in both situations that the debt purchasers and the law firms attempted to collect debts without first making a sufficient review of loan documents and account statements to confirm that the debts were actually owed. This failure to review, in the estimation of the CFPB, led the law firms to attempt collection of debts that were not owed. In response, the CFPB assessed a $3.1 penalty against the Hanna firm and a $1 million penalty against the Pressler firm.
During the review periods, both the Hanna and Pressler law firms initiated litigation on thousands of consumer accounts each month. Both firms relied heavily on staff to review account data and to perform the necessary scrubs to eliminate bankrupt or deceased accounts and to confirm consumer addresses. The CFPB asserted in both enforcement actions that the firms’ attorneys were not meaningfully involved in reviewing accounts before initiating litigation. The CFPB found this lack of meaningful attorney involvement to violate both the Fair Debt Collection Practices Act and the Dodd Frank Act.
Both of the consent orders specify the activities which must be undertaken by the firms’ attorneys to demonstrate that they are meaningfully involved in the cases they file. The firms must:
- Have in their possession, before sending a demand letter or making a collection call, a charge-off statement, and if the case is based on a breach of contract, either account statements from the creditor indicating actual use of the account or a copy of the account/loan agreement signed by the consumer. If the account is owned by a debt buyer, the attorney must also have evidence of the chain of title to the account.
- Before filing suit, the attorney of record for the case must log into the consumer’s account in the firm’s case management system, creating a record showing the attorney’s review of the account. In addition to reviewing the account level documentation, the attorney must also confirm that the case is being filed within the statute of limitations, that the consumer has not filed bankruptcy, that the consumer’s address has been confirmed using a historically reliable and accurate source, and that the case is being filed in a proper venue.
Additionally, both consent orders prohibit the attorneys’ use of any affidavits supplied by their clients which the attorney knows or should know may be defective. Examples of defective affidavits include those in which the affiant falsely claims personal knowledge of the character, amount, or legal status of a debt; those in which the affiant falsely claims to have performed account level document review; and those affidavits which were not actually executed in the presence of a notary.
As with the Hanna order, the Pressler consent order is only binding on the Pressler law firm. It contains guidance, however, for all law firms who collect consumer debt. Aspects of this consent order will also likely appear in the debt collection rules expected soon from the CFPB.
The Pressler consent order confirms two key directives from the CFPB’s consent order in the Hanna case. First, collection law firms must be familiar with their clients’ processes for executing affidavits. Second, they must be able to demonstrate that their attorneys are actually involved in the review of documents used in support of litigation.
Both orders also require that attorneys retain final approval and ultimate oversight of all processes followed by their staff. Attorneys must also have final approval for all letter and pleading templates used by the firm in prosecuting their cases. While attorneys do not have to personally perform every step involved in the prosecution of their cases, these two consent orders make it clear that they must be involved in the key decisions arising in their cases.