On July 14, 2015, a federal judge in Atlanta denied a law firm's Motion to Dismiss a claim against it filed by the Consumer Financial Protection Bureau ("CFPB") for violations of the Fair Debt Collection Practices Act ("FDCPA") and the Consumer Financial Protection Act or the Dodd-Frank Act ("Dodd-Frank").
The CFPB filed suit against a Georgia-based firm, Frederick J. Hanna & Associates ("Hanna"), and its three principal partners for operating an alleged "debt collection lawsuit mill that uses illegal tactics to intimidate consumers into paying debts they may not owe." The CFPB claimed that the law firm produced hundreds of thousands of "shoddy, mass-produced credit-card collection lawsuits" on behalf of major banks. Hanna allegedly filed the lawsuits without performing even basic checks to determine whether the people they sued actually owed debts, and the suits frequently relied on deceptive court filings and faulty or unsubstantiated evidence. Between 2009 and 2013, the firm filed more than 350,000 debt collection lawsuits in Georgia alone, according to the CFPB, and collected millions of dollars each year. The CFPB is seeking compensation for consumers, a civil fine, and an injunction against the company and its partners.
The primary argument raised by Hanna in its Motion to Dismiss was Dodd-Frank expressly prohibits the CFPB from bringing enforcement actions "with respect to activity performed by a lawyer as part of the practice of law." Hanna argued that states and their respective bar associations have exclusive authority over regulation of the practice of law.
Dodd-Frank's practice of law exclusion states that "the Bureau may not exercise any supervisory or enforcement authority with respect to an activity engaged in by an attorney as part of the practice of law under the laws of a State in which the attorney is authorized to practice law." 12 U.S.C. § 5517(a)(1). However, the Court cited to an exception to the practice of law exclusion, which states that the preceding exception does not limit the CFPB from regulating "the offering or provision of a consumer financial product or service described in any subparagraph of section 5481(5) of this title. . . (B) that is otherwise offered or provided by the attorney in question with respect to any consumer who is not receiving legal advice or services from the attorney in connection with such financial product or service." 12 U.S.C. § 5517(e)(2).
The Court held that this exception "unambiguously includes the conduct at issue here and thus provides a carve-out for the Bureau to bring its CFPA claims." The Court also held that the practice of law exclusion does not apply to FDCPA claims. The Court found that this holding was consistent with the legislative purpose in enacting Dodd-Frank. Allowing the CFPB to enforce Dodd-Frank authority "over debt-collection attorneys engaged in litigation activity is fully consistent with [the Bureau's] purpose, as well as Congress's recognition of the debt collection litigation as activity covered under FDCPA, one of the chief statutes enforced by the Bureau via the CFPA."
This holding provides credence to the perception that the CFPB's philosophy is if it perceives a party to be in violation of a law that the CFPB enforces, it will pursue action irrespective of whether the party is explicitly included in or exempted from the Bureau's jurisdiction. More specifically, the significance of this holding cannot be overstated as it relates to lawyers in the debt-collection world. If you collect debts, you are almost as much under the CFPB's thumb as your clients.
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