On April 25, the Consumer Financial Protection Bureau ("CFPB") entered into a Consent Order with a New Jersey debt collection law firm, Pressler & Pressler, LLP, and two of its managing partners, Sheldon H. Pressler, and Gerard J. Felt (collectively "the Firm").[1]
The Firm agreed to pay a civil penalty of $1 million dollars in addition to adhering to the provisions contained within the Order. This Order raises questions about whether there is or should be a limit to the federal regulation of attorney practice and litigation strategy. The CFPB appears to be asserting authority over attorney debt collectors beyond governing communication with consumers. It is entering the realm of professional judgment, controlling what the attorney is allowed to seek in discovery and what documents the attorney must review before filing a complaint. That may be entirely appropriate given its broad mandate, but the position of state entities presently governing attorney conduct have not been widely heard. The Firm filed more than 500,000 lawsuits against consumers between 2009 and 2014. It is considered a debt collector under the Federal Debt Collection Practices Act ("FDCPA"). The Bureau found that the Firm violated the FDCPA and the Consumer Financial Protection Act ("CFPA") by relying on summaries received from clients upon referral instead of Original Account-Level Documentation and failing to investigate or verify that the facts contained in the suits were true or whether the debt buyer it represented had standing to pursue the claim resulting in harassment of the consumers and improper court actions. The Order specifies the Firm must ensure that it has original documentation, a chain of debt ownership, certified bills of sale evidencing transfers of ownership and a signed contract or other original documentation reflecting use by the consumer prior to filing an action. It must ensure all affidavits are accurate and based on personal knowledge of the affiant. The attorney who signs the Complaint in the suit must have an electronic record of logging in to the Firm's case management system and accessing the consumer's file. Additionally, an attorney employed by the Firm must review the documentation, conduct a thorough analysis of the facts and law related to the case, and must certify in writing that the initiation of the lawsuit complies with the Consent Order. The Firm is further prohibited from using pre-judgment litigation discovery devices to seek or obtain information intended to be used for post-judgment collection. This is the first time that limitations on pre-judgment discovery have been included in a CFPB consent order. The extent and method of pre-judgment discovery in New Jersey state court is governed by New Jersey Rule of Civil Procedure 4:10. The Office of Attorney Ethics, a division of the judiciary, governs the ethical practice of law in New Jersey. It remains to be seen how far the CFPB can go in seeking control of litigation practices and attorney oversight which are traditionally within the realm of the state judiciary. The limitation on pre-judgment discovery is nebulous, as often the content of pre- and post-judgment discovery overlap. This has the potential to have a chilling effect on the discovery requested by the Firm in the initial pre-judgment discovery phase, and could impact the litigation choices of the attorneys. The CFPB is authorized to regulate and investigate the practices of debt collectors, which includes law firms engaged in volume collections practice under these facts. The Dodd-Frank Act provides the CFPB with rule-making and enforcement authority to prevent unfair, deceptive, or abusive acts or practices in connection with any transaction with a consumer for a financial product or service. The CFPB's budget is not tied to the regular federal appropriations process, and it has enjoyed broad investigative authority with few restrictions. Director Richard Cordray has implied that he would use the agency's enforcement authority rather than the rule-making authority to define the standards of what constitutes "abusive acts". Using the enforcement authority may limit the visibility of the actions and the opportunity for non-parties affected by the actions to have their voices heard, as opposed to the rule-making authority, which invites public comment. As the CFPB delves deeper into attorney regulation we may learn the answers to some presently lingering questions. We don't yet know if there is a difference in what the CFPB can demand from non-law firm and law firm debt collectors. We don't know what may happen if a conflict arises between the state rules of procedure and a consent order. To what extent is it appropriate to constrain or limit an attorney's professional judgment? Are we ok with this as long as it protects the consumer? What other government agencies can regulate attorney practice and under what auspices could they control litigation strategy? As these issues play out in enforcement actions, administrative hearings, and in federal appeals, the state bodies that control attorney practice should remain vigilant to ensure they are actively informing the agency and the courts of their position so as not to inadvertently cede more authority over attorney oversight than is appropriate to non-attorney federal regulators. [1] The CFPB issued a concurrent Order with the Firm's debt buyer client, New Century. New Century will pay a civil penalty of $1.5 million dollars.