On Friday of last week, the Consumer Financial Protection Bureau (CFPB) announced that it filed a lawsuit against Forster & Garbus, LLP, a collection law firm. The CFPB alleges that the firm misrepresents to consumers that attorneys are meaningfully involved in its communications and lawsuits.
The CFPB’s complaint alleges that the firm doesn’t do enough to verify account-level documentation when it proceeds to litigation on debt owed to its debt buyer clients. According to the complaint, the firm receives data needed to fill out its communications electronically from its creditor clients and, unless the consumer disputes the debt, does not otherwise verify the information or review supporting documentation. The firm relies on non-attorney staff and automated processes to prepare accounts for a suit and one of the firm’s partners reviews the information in the firm’s system to confirm the account is appropriate for a lawsuit. One issue alluded to in the complaint is the volume of litigation filed—more than 99,000 between 2014 and 2016—and that the firm’s partner generally approves more than 90% of the accounts. Those accounts that passed were signed by between one and five associate attorneys specifically tasked to reviewing and signing the complaints.
The suit seems to pay close attention to the alleged failure to review documentation, specifically when determining whether accounts related to purchased debt are suitable for legal process. One example is the review of warranties and disclaimers relating to debt sales to ensure that the debt is valid. According to the complaint, the firm only possessed original or supporting account documentation on a minority of its accounts.
Per the complaint, “Forster & Garbus is generally not sufficiently familiar with its clients’ contracts and practices to reasonably rely on the limited summary information that its clients provide.”
Foster & Garbus, through their counsel Joann Needleman of Clark Hill PLC, released a statement on the issue. According to the statement, the CFPB misstated the testimony of the firm’s attorneys taken during the course of the CFPB’s investigation. The firm also states that it has robust and sophisticated policies and procedures to ensure compliance with the many laws and regulations governing the industry, as well as the current legal interpretations of meaningful attorney involvement.
The statement notes how this suit goes against the CFPB’s recent direction of stopping regulation by enforcement. Director Kathleen Kraninger herself has stated on multiple occasions that the CFPB will lay down clear rules of the road for the industry, yet that does not seem to be the case here: “meaningful attorney involvement” is a doctrine that is far from clear.
Most notably, the term “meaningful attorney involvement” is not mentioned anywhere in the FDCPA but is specifically called out in the CFPB’s recent NPRM, which was meant to provide those clear rules of the road. The NPRM specifically requests comments on whether its meaningful attorney involvement provision is sufficiently clear for the industry, which indicates that there are questions and differing interpretations. This suit was filed one week after the NPRM was released, which means clarity has not yet been provided.
If all of this sounds familiar, that’s because it is. Just last year, Weltman, Weinberg & Reis (WWR)—another collection law firm—won a lawsuit filed by the CFPB, where both the jury and the judge found that the firm had sufficient meaningful attorney involvement in its procedures. Scott Weltman of WWR testified before the House Financial Services Committee earlier this year about his firm’s experience with the CFPB suit. During that same hearing, Director Kraninger indicated that enforcement actions should be used on the bad actors who have no intention of complying with laws and regulations, not on the companies that are putting forward a good faith effort to comply.
Seeing as the Bureau felt the need to provide clarity for, and seek comments about, meaningful attorney involvement in its NPRM, it seems a bit odd that it would file a lawsuit on the issue considering its loss against WWR and Director Kraninger’s indication that regulation by enforcement is no longer the name of the game.
Something worth mentioning is that there seems to be a difference in interpretation of the term “regulation by enforcement,” as was highlighted in the same Congressional hearing referenced above. The consumer side seems to think the phrase “ending regulation by enforcement” means ending enforcement actions altogether, while the industry side uses the phrase to identify enforcement actions in situations where there is no clear guidance for compliance on a certain activity and the regulator targets the lawful practices of a single company to establish retroactive rules through consent orders.