CFPB Files Lawsuit Against Debt Collection Law Firm

Inside Subprime: April 3, 2019

By Aubrey Sitler

The federal consumer watchdog agency is going after a debt collection law firm in federal court for documents in its abusive debt collections investigation.

Debts, including payday loans and title loans that haven’t been paid in time, are often sold by creditors to law firms for debt collection. Borrowers that have their loans in collection are often subject to harassing phone calls by debt collectors.

The Consumer Financial Protection Bureau has filed a lawsuit in Manhattan federal court, seeking the law firm’s response to its ongoing inquiry into possible violations.

The bureau originally was investigating New York City-based law firm for its debt collections practices and whether they were abusive or unfair to borrowers. The CFPB said that the law firm potentially violated the Consumer Financial Protection Act, the Fair Debt Collection Practices Act and the Fair Credit Reporting Act.

The civil investigative demand, or CID, first dates back to June 2017, under former director Richard Cordray. A CID is an “investigative, administrative subpoena,” according to the bureau. The CFPB asked for a broad range of reports and documents from the firm, which collects delinquent debts and gives consumer data to credit agencies.

The law firm asked for limits on the documents sent to the bureau and a longer deadline in July 2017. Most of those demands were agreed to by the CFPB.

Now, the CFPB says the law firm has refused to turn over many more documents since 2017.

The firm said that those documents are privileged and it “would be breaking professional responsibility rules” by giving the CFPB access to them. The firm also told the CFPB it would be impossible to comb through the documents due to inaccessibility, and asked for the bureau to narrow its scope by a few years. The latter request was refused.

The CFPB alleges that those documents include telephone calls, correspondence with consumers, credit reporting disputes and contracts with creditors for services.

It’s the first contested lawsuit filed by the bureau under Director Kathleen Kraninger, which is notable for several reasons.

Under Kraninger and previous acting director Mick Mulvaney, the CFPB has questioned its own authority to carry out enforcement actions against other entities, particularly regarding violations of the Military Lending Act. No action was taken during Mulvaney’s tenure on the law firm’s case.

Because it’s the first suit filed under Kraninger since she took office just months ago, it remains to be seen whether this will be a pattern of action against other firms or an exception to the rule.

One law firm claims that this sets up a bad precedent for the CFPB to go after law firms and “infringe on professional obligations such as attorney-client privilege.” As law firm Ballard Spahr wrote about the recent legal action, “such entities [law firms] are generally exempt from the CFPB’s enforcement authority under … Dodd-Frank.”

For more information on scams, predatory lenders and payday loans, see our city and state financial guides including states and cities like California, the District of Columbia, FloridaIllinois, South CarolinaTexas and more.

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