CFPB Debt Collection Rule Sets Up Long Fight for Attorneys

Debt collection attorneys won federal regulators’ assent of their call to refrain from a new provision in a rule outlining lawyers’ responsibilities in collection litigation. But the gain could prove to be a long-term pain for attorneys.

The Consumer Financial Protection Bureau’s final debt collection rule, released Oct. 30, didn’t include a “meaningful attorney involvement” safe harbor, which lists legal steps attorneys must meaningfully undertake before they can legally pursue debtors. The provision, which was included in the original proposal, would have shielded attorneys from CFPB enforcement actions and private litigation if they followed procedures for pleadings, written motions, and other documents in preparing debt collection cases.

The provision was withdrawn amid strong opposition from both the debt collection industry and consumer advocates. Collections attorneys said that the CFPB doesn’t have the authority to make assessments of attorneys’ work under the Fair Debt Collection Practices Act.

But a CFPB standard would probably help collection firms avoid future agency scrutiny and enforcement actions, said Joann Needleman, the leader of Clark Hill PLC’s Consumer Financial Services Regulatory & Compliance Group.

“You might have won that battle, but you might have lost the long-term war,” she said.

The provision’s safe harbor would’ve allowed lawyers to more easily kill the meaningful attorney involvement standard with a single lawsuit.

The lack of a uniform standard will drive the CFPB to pursue enforcement on a case-by-case by basis. That could mean that appellate courts and possibly the Supreme Court decide what constitutes meaningful attorney involvement, according to Eamonn Moran, a former CFPB regulatory attorney.

Hit and Miss

The FDCPA prohibits collectors from making false, deceptive, or misleading claims in debt collection. Many consumers’ lawsuits stem from collection demands that use an attorney’s name or law firm letterhead but allegedly lack attorneys’ “meaningful involvement.”

The CFPB’s proposed rule would have deemed a lawyer to be “meaningfully involved” in a debt collection lawsuit if the attorney drafts or reviews the pleading, motion, or other papers. Attorneys must also personally review the supporting documentation, among other requirements.

The bureau has entered into at least two settlements with debt collection law firms over claims that they misrepresented their involvement in preparing documents, like validating debts and making sure claims are merited under existing law, according to review of CFPB enforcement actions.

It has also filed litigation in at least three cases where the law firm declined to settle.

The bureau’s suit against the Ohio law firm Weltman Weinberg & Reis was dismissed in July 2018 after a federal judge ruled that the firm was meaningfully involved.

The CFPB brought similar actions under the current CFPB Director Kathy Kraninger, a Trump appointee. The bureau sued New York firm Forster & Garbus LLP in May 2019, alleging the firm didn’t properly review account files and improperly relied on non-attorney support staff in filing debt collection lawsuits.

Universal Opposition

The CFPB proposed its debt collection rules with the meaningful attorney involvement standard the same month it sued Forster & Garbus.

The response from both debt collection attorneys and consumer advocates was almost universally negative, according to a discussion in the Oct. 30 final rule.

Debt collection attorneys said that only state courts and bar associations had the authority to police lawyers’ conduct, despite some language in the FDCPA regarding false statements by attorneys. The National Creditors Bar Association and the American Bar Association led the industry’s opposition.

Consumer advocates said that the CFPB’s proposed language made it too easy for attorneys to avoid being held accountable for improper conduct.

“It was so vague as to be a meaningless requirement in exchange for a safe harbor,” said April Kuenhoff, an attorney with the National Consumer Law Center who specializes on debt collection issues.

Standing Down

The CFPB decided not to finalize the attorney standards and safe harbor language mostly because of the widespread opposition, according to the final rule.

The industry would rather fight out meaningful attorney involvement claims in court disputes over debt collections.

“We applaud the CFPB for listening and recognizing that an agency under the power of the executive branch should not attempt to regulate the practice of creditors’ rights law,” Liz Terry, executive director of the National Creditors Bar Association Executive, said.

But the bureau says in the rule that it will continue to bring enforcement actions under its reading of meaningful attorney involvement, and that it will monitor litigation developments on a case-by-case basis.

“It’s going to develop case by case. It could lead to circuit splits,” said Moran, of counsel at Morgan Lewis & Bockius LLP.

The process would be resolved significantly faster if the CFPB had kept the standards in the rule, Needleman said.

“If it had remained in there, the bar associations would have had a clear path to challenge it, and I think they would’ve won,” she said.