Lawsuit from Legal Services Firm Challenges CFPB Investigative Authority

A lawsuit filed this week in federal court accuses the Consumer Financial Protection Bureau (CFPB) of grossly overreaching its authority. Connecticut bankruptcy attorney Kimberly Pisinski and her outsourced legal support services provider, Morgan Drexen Integrated Systems, are rejecting the CFPB’s “investigative demand” to hand over privileged and confidential communications as well as sensitive financial records of thousands of financially distressed consumers who are considering filing for bankruptcy.

According to Morgan Drexen, the CFPB is seeking thousands of personally identifiable documents of Pisinski’s bankruptcy clients. The sought-after information includes names, addresses, phone numbers, amount of debt owed, source(s) and amount of income, creditors (including banks, medical service providers and non-secured loans), and other financial obligations (including utilities, car insurance, rent, mortgage and child support).

The CFPB is also requesting details of when clients talked to their attorney, for how long, the medium of communication, all attorney notes, the amount paid for the attorney’s services, and the nature of the client’s engagement with the attorney – which itself is privileged information.

“At some point, this agency, which has expansive powers to write its own rules, needs to be reeled in,” said Pisinski. “Americans facing bankruptcy have enough to deal with without having the personal, privileged details of their financial troubles seized by the federal government for an unknown purpose.”

The CFPB disagrees with that assessment. ”We believe this work is within our authority and consistent with the ordinary course of a government investigation,” Moira Vahey, a CFPB spokeswoman, told The Wall Street Journal. “Our goal is to determine whether companies are complying with the law and seek appropriate remedies where that’s not the case.”

Morgan Drexen provides outsourced, third party support services to businesses nationwide, including attorneys. Many of these attorneys advise clients considering bankruptcy protection, and go on to prepare and file thousands of bankruptcy petitions every year.

The firm was informed by the CFPB that it was under investigation in 2012, and it cooperated. But in April of this year, the CFPB told Morgan Drexen that it faces an official legal action. The firm began preparing its suit and brought in one of its clients, Pisinksi, to serve as an additional plaintiff since many of the records were those of her clients.

In May, Morgan Drexen was fined $6.1 million by the state of Wisconsin for allegedly violating consumer protection laws regarding debt negotiation. The firm is fighting that action.

Interestingly, in its response to the announcement from state regulators, the Morgan Drexen accused the state of “siding with debt collectors instead of consumers,” since many consumers using the firm’s services were the target of debt collection actions.

The company has set up a web site (http://morgandrexenvscfpb.com/) so that interested parties can follow the case.