CFPB announces consent orders against law firm and debt buyer

Yesterday, the Consumer Financial Protection Bureau (CFPB) announced that a New Jersey law firm and a debt buying company had agreed to pay the government a combined $2.5 million in settlements in response to the agency’s claims regarding the filing of “mass-produced” lawsuits against consumers.

The two orders proposed by the CFPB accuse Parsippany, a New Jersey law firm Pressler & Pressler LLP (Pressler & Pressler), its two main partners and New Century Financial Services of unfair litigation activities. A copy of Pressler & Pressler’s consent order can be found here. A copy of the New Century Financial Services Consent Order can be found here.

Pressler & Pressler is a law firm that collects consumer debt for creditors through legal action and other means. New Century Financial Services, also based in New Jersey, purchases and collects defaulted consumer debt and places accounts with Pressler & Pressler for collection.

In the CFPB press release announcing the action, CFPB Director Cordray said: “For years, Pressler & Pressler has filed one lawsuit after another to collect debts for New Century that were not verified and may not exist. Debt collectors who bring suits without regard to their validity are breaking the law and violating the public trust. We will continue to take steps to protect borrowers from abuse.

The press release also said that the CFPB found that to mass produce these lawsuits, Pressler & Pressler used an automated claims preparation system and non-lawyer support staff to determine which consumers to sue. Lawyers typically spent less than a few minutes, sometimes less than 30 seconds, reviewing each case before taking legal action. This process allowed the company to generate and file hundreds of thousands of lawsuits against consumers in New Jersey, New York and Pennsylvania between 2009 and 2014. The CFPB found that the respondents violated the Fair Debt Collection Practices Act and the Dodd-Frank Wall Street. Consumer Protection and Reform Act, which prohibits unfair and deceptive acts or practices in the consumer financial market. Specifically, the CFPB found that Pressler & Pressler, the firm’s named partners, and New Century Financial Services:

• False or meaningless consumer debt claims: The CFPB found that the company, named partners, and New Century filed lawsuits against consumers without sufficient merit. Neither the company nor New Century has reviewed the documents supporting the validity of the debts.
• Filed lawsuits based on unreliable or false information: Some consumers had previously disputed the validity or accuracy of the debts, but the company or New Century did not obtain or review the information to substantiate their claims. The company and New Century have also filed lawsuits and collected debts knowing that certain account portfolios being sued contained unreliable or false information.
• Consumers harassed with unsubstantiated legal filings: The CFPB found that the Company, the Named Partners and New Century filed collection lawsuits generated primarily by automated processes relying on summary data. The company won the vast majority of default lawsuits when consumers failed to defend themselves, even though neither Pressler & Pressler nor New Century had verified that the debts were actually owed.

The proposed consent orders require Pressler & Pressler, the firm’s named partners and New Century Financial Services to:

• Stop filing lawsuits with unsubstantiated claims: Pressler & Pressler, Named Partners, and New Century cannot sue or threaten to sue to collect debts unless they obtain and review specific account-level documents and information showing that the debt is accurate and enforceable.
• Ensure the accuracy of court documents: The firm, named partners and New Century may not use affidavits as evidence to collect debts unless they accurately describe the relevant facts, including that the person signing the affidavit has personal knowledge of the debt or, if not, reviewed the debt documentation. The company must also maintain an electronic record showing that it follows proper procedures.
• Pay civil penalties: The firm and named partners must pay a $1 million penalty to the CFPB Civil Penalty Fund. New Century must pay a fine of 1.5 million dollars.

InsideARM perspective

In August of last year, insideARM reported that the CFPB had filed an amicus brief in an FDCPA case against Pressler & Pressler. In this case, a U.S. District Court previously ruled that a debt collection law firm violated the Fair Debt Collection Practices Act (FDCPA) by filing a complaint without “meaningful attorney involvement.” In this brief, the CFPB argued that the facts of the case pressr were undisputed: “The law firm used a computer system to manage its records, an attorney at the firm performed an automated review of records for potential litigation, and computer records showed that the attorney spent 4 seconds reviewing the computer records for this particular file.” The position of the CFPB:

“By any conceivable standard, four seconds is not enough time to engage meaningfully and form a professional judgment on the appropriate action to take. For this reason, Pressler’s statement that an attorney did so was misleading and violated the FDCPA.”

December 28, 2015 insideARM reported on the CFPB settlement with the law firms of Frederick J. Hanna & Associates. the Hana the case contained allegations similar to those in the Pressler case.

Given the previous positions of the CFPB in the Hana case and their amicus brief in the above-mentioned case Presser case, it is hardly surprising to see this announcement and settlement of enforcement action.

insideARM has contacted Pressler & Pressler for comment. The company issued a press release, which is also published today on insideARM. The firm makes some excellent points:

“This settlement does not affect any laws or rules currently in place,” said Sheldon H. Pressler, managing partner. “Instead, the CFPB formed its own unique interpretation of federal and state law today and applied those interpretations retroactively to our past practices that were, at the time, consistent with federal and state law.”

“The CFPB is disconnected not only from the way financial services are conducted in a digital economy, but also from the standards by which the courts themselves have deemed it appropriate to practice law and to satisfy the rules of procedure as written. by the Court,” Pressler added. . “Furthermore, in two recent consent orders against much smaller law firms, serious affidavit offenses were cited, consumer restitution was granted, and judgments were overturned. We have had no such findings, no restitution has been granted and no judgment has been invalidated. Simply put, we settled down so we could continue our practice as a law firm. Small businesses paid a modest penalty for their conduct. We paid a much heavier penalty for conduct that resulted in no restitution or invalidation of judgments. We believe we were asked to pay this disproportionate penalty due to our financial success and perceived ability to pay.

“While the firm does not agree with the CFPB’s position, its leaders felt that entering into this agreement was the most prudent course of action to minimize disruption to practice and the financial impact on the business. Many of the practices required by the regulation have long been in place, so Pressler & Pressler is well positioned to continue to provide a level of compliance that exceeds industry expectations.

insideARM believes that the absence of any requirement for restitution or invalidation of judgments is quite significant. This should be seen as a positive for the law firm and the debt buyer.

The CFPB has not yet issued any rules concerning debt collection. There is no specific timetable for the publication of the proposed regulations. This consent order perpetuates a CFPB “regulation through enforcement” model, a practice that has been widely criticized by the ARM industry, as well as other industries subject to CFPB scrutiny.

However, manager Cordray defended the practice. In his prepared remarks For his March 9, 2016 speech to the Consumer Bankers Association, when discussing the CFPB’s enforcement procedures, Cordray noted, “These orders provide detailed guidance to compliance officers in the marketplace on how which they should consider similar practices in their own institutions……. Indeed, it would be a “compliance misconduct” for executives not to carefully consider the content of these orders on how to comply with the law and treat consumers fairly.

Collection law firms (and debt buyers) should review these latest consent orders and respond accordingly.