United States: Do Statutes Of Limitation Apply To The CFPB After All?

Last Updated: July 27 2015
Article by David N. Anthony, Keith J. Barnett and Massie P. Cooper

On July 14, a federal judge in Atlanta denied Frederick J. Hanna & Associates' motion to dismiss in Consumer Financial Protection Bureau v. Frederick J. Hanna & Associates PC, which the CFPB filed against the law firm arising out of alleged violations of the Fair Debt Collection Practices Act and Consumer Financial Protection Act.

The CFPB alleges that between 2009 and 2013, Hanna filed about 350,000 debt collection lawsuits in Georgia that violated the FDCPA and CFPA. In the motion to dismiss, the law firm argued that the complaint failed to state a claim because the practice of law is expressly excluded from the CFPB's jurisdiction, the claims are barred by the Petition and Equal Protection Clauses, an alleged lack of "meaningful attorney involvement" is not a cognizable claim for relief under the FDCPA or CFPA, the complaint did not allege the law firm's alleged deceptive conduct with sufficient specificity and the claims were time-barred by the one-year statute of limitations set forth in the FDCPA.

The court rejected all of these arguments in denying the motion to dismiss.

The complaint alleges that the firm violated the FDCPA and CFPA when it delegated the following duties to nonattorney support staff:

  • determining whether consumers had sought relief in bankruptcy or whether their debts were barred by the applicable statute of limitations;
  • researching each consumer's date of initial contract and the date the consumer last made a payment;
  • determining the alleged principal owed, alleged interest owed and alleged attorneys' fees owed; and
  • drafting lawsuits on a mass scale for placement into mail buckets forwarded to attorneys.

The complaint also alleges that the firm's attorneys did not spend more than "one minute reviewing and signing the pleadings prepared by support staff"; that the firm sued people who did not owe the alleged debts or there was no written support for the debts or amounts owed; or that the law firm submitted affidavits from persons who lacked personal knowledge of the alleged debt.

Although the 70-page opinion thoroughly addresses reasons why the court rejected each of the law firm's arguments, the court's discussions concerning the practice of law exclusion, meaningful attorney involvement argument and statute of limitations are noteworthy.

CFPA's Practice of Law Exclusion

After stating that the FDCPA expressly applies to attorneys, the court acknowledged that the plain language of the CFPA 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." See 12 U.S.C. § 5517(a)(1).

The court noted, however, that an exception to that general rule supported the court's denial of the motion to dismiss. Specifically, the court stated that the CFPB has the authority to regulate conduct concerning "the offering or provision of a consumer financial product or service" and the CFPA expressly states that a "consumer financial product or service" includes consumer debt collection.

Because the complaint's allegations fell within the exception noted above and the debt collection practices were "not part of the attorney's law practice occurring exclusively within the scope of the attorney-client relationship," the CFPB alleged facts sufficient to state a claim. This rationale supports the CFPB's philosophy that it has the jurisdictional authority to pursue an enforcement action against any person or entity irrespective of any exemption if the bureau believes that the person or entity violated a law that it enforces.

Lack of "Meaningful Attorney Involvement" As a Potential Violation of the FDCPA

Hanna argued that the alleged lack of meaningful attorney involvement is not an FDCPA violation and is more akin to a complaint that a client would assert against an attorney to the state bar. As such, the states, not the CFPB or any federal agency, should address attorney conduct issues. The law firm also argued that the meaningful attorney involvement standard was limited to dunning letters and that there was no standard for filing complaints.

The court rejected those arguments and stated that the filing of a lawsuit in and of itself might imply to the least sophisticated consumer that the attorney signing the complaint first scrutinized the case and determined that it had legal merit. If, as the CFPB alleged, the law firm abdicated those responsibilities to nonattorneys, a prima facie claim might be stated under the FDCPA for providing a false impression that the communication is from an attorney.

CFPB’s Enforcement Actions Are Subject to a Statute of Limitations

Although the headlines concerning the case primarily focus on the fact that the court denied the motion to dismiss, Hanna may have achieved a victory for all persons and entities that the CFPB investigates for alleged violations of the federal consumer financial laws the bureau enforces.

In its prior enforcement actions, the CFPB has taken the position that the statute of limitations does not apply with respect to the enforcement actions because the bureau is not asserting a private right of action. No court had previously addressed this assertion by the CFPB as it has taken the position in connection with consent orders or situations where Director Richard Cordray was the trier of fact. The CFPB took the same position in its opposition to the motion to dismiss, while Hanna argued that the one-year statute of limitations for FDCPA claims applies.

After the court noted that neither party argued that the three-year statute of limitations set forth in the CFPA applied, the court held that the CFPB was subject to a statute of limitations, but the court could not determine whether the one-year or the three year limitation applied. The court nonetheless rejected the statute of limitations argument set forth in the motion to dismiss and stated that discovery will determine which of the alleged 350,000 violations are time-barred. Thus, although the attorney exclusion and attorney involvement issues apply to debt collection attorneys specifically, nonattorney debt collectors and other CFPB enforcement targets can point to this decision going forward as an example that rejects the bureau's argument that the statute of limitations does not apply to its enforcement actions.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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David N. Anthony
Keith J. Barnett
Massie P. Cooper
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