The Consumer Financial Protection Bureau (CFPB) announced that it had entered
into two consent orders regarding litigation debt collection practices.
The first consent order included a $1 million fine against a debt collection
law firm and two of its partners. The second consent order included a
$1.5 million fine against a debt buyer. In addition to imposing these
hefty 7-figure fines, the consent orders introduce new requirements/restrictions
on future activities by debt collectors.
The consent orders state that the law firm, its two partners, and the debt
buyer all acted in violation of the Fair Debt Collection Practices Act’s
(FDCPA) ban on false or deceptive or misleading representations connected
with debt collection, and such actions amounted to deceptive and unfair
practices, which also violated the Consumer Financial Protection Act (CFPA).
Specifically, the law firm in question conducted debt-collection litigation
and its partners had “managerial responsibility for the firm and
materially participated” in the debt collection practices. The consent
order against the firm and its partners states that the following conduct
was performed by the firm:
- The majority of the accounts under the umbrella of the law firm and its
partners were placed under an electronic debt collection system. This
system consisted of only an Excel spreadsheet or a text file that summed
up the data for each account. However, there was no supporting documentation
for the underlying accounts.
- After the decision had been made to pursue litigation regarding a particular
account, the summons and complaint were generated by non-attorney support
staff using a pre-approved template. Only then, would the attorney review
the summons and complaint, generally spending “less that a few minutes”
on the review and “sometimes less than 30 seconds.”
- When reviewing the complaint and summons, the attorney did not have access
to enough documentation to prove the data, but instead relied on a summary
provided by the client. The firm did not require its attorneys to review
a complete transactional debt history created by the original creditor
before initiating the litigation—and in most cases, the firm did
not even have access to this information.
- Among the lawsuits originated, the majority consisted of those filed by
debt purchasers who did not document their collection activities. The
law firm did not require its clients to provide original contracts involving
the declared debts, documentation of obligation on the part of the consumer,
or evidence of the chain of title proving the debt buyer possessed the
debt and thus had “standing to sue the consumer.”
- Additionally important, was that the law firm failed to investigate independently
and thus could not provide documentary support for the underlying lawsuits
even when challenged by a debtor/borrower. In short, the company could
not provide proper justification and/or evidence for the lawsuits and
even so, continued to pursue the litigation.
In regards the consent order issued against the debt buyer, the CFPB found
that the debt buyer had not always provided its own law firm with proper
documentation necessary to file suit, nor did it require its law firms
to review its documentation in advance of litigation. The complaints against
the debt buyer are similar to those against the law firm and its partners,
including the failure to independently investigate or obtain documentary
support prior to filing lawsuits.
In addition to the financial penalties for CFPB and FDCPA violations, the
consent order includes the following:
- The law firm, its partners, and the debt buyer cannot threaten or initiate
litigation without having possession of Original Account-Level Documentation.
Such documentation must include specific account information such as a
chronological record of prior debt owners, the date of each sale and transfer
of ownership, a certified bill of sale or other qualified document, and
a document signed by the consumer that proves the opening of the account
for the purpose of forming debt.
- Unless it has provided preceding documentation, debt buyers cannot submit
an account for collection by a law firm.
- Without abiding by specific procedural measures, neither the law firm nor
its partners are permitted to initiate a lawsuit. Among these necessary
procedures include: reviewing documentation to certify certain information,
such as that the statute of limitations is not expired, and that the debt
was not discharged in bankruptcy or subject to a pending bankruptcy. Additionally
important is the demand that the attorney whose name appears on the complaint
must certify that the filing of the lawsuit complies with the terms of
the consent order.
- If affidavits contain false information, the law firm and its partners
are prohibited from using such false information.
- The law firm, its partners, and the debt buyer are banned from using any
“pre-judgment litigation discovery” device to obtain information
for the purpose of post-judgment collection.
The CFPB is taking an unforgiving and punitive stance against debt collectors
in an effort to ensure litigation is not threatened or initiated without
the proper documentation. Any lender who loans to consumers, or anyone
who buys consumer debts, is now forewarned that they must maintain proper
documentation of the debt or else waive their opportunity to obtain a
judgment if the debt goes into default. Without first reviewing and authenticating
specific evidence regarding the existence and ownership of the debt, law
firms cannot initiate the case and creditors will never see their day in court.
Contact Geraci Law Firm at (949) 298-8050 today, for more information.