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 purchasing company had agreed to pay the government a combined $2.5 million in settlements in response to the agency’s assertions regarding the filing of “mass-produced” lawsuits against consumers.

The CFPB’s two proposed orders accuse Parsippany, New Jersey law firm Pressler & Pressler LLP (Pressler & Pressler), its two principal partners, and New Century Financial Services of unfair litigation activities. A copy of the Pressler & Pressler 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 consumers’ debts for creditors through lawsuits and other means. New Century Financial Services, also based in New Jersey, buys and collects defaulted consumer debts and placed accounts to Pressler & Pressler for collection.

In the CFPB Press Release announcing the action, CFPB Director Cordray commented, “For years, Pressler & Pressler churned out one lawsuit after another to collect debts for New Century that were not verified and might not exist. Debt collectors that file lawsuits with no regard for their validity break the law and violate the public trust. We will continue to take action to protect borrowers from abuse.”

The press release also indicated that the CFPB found that to mass-produce these lawsuits, Pressler & Pressler used an automated claim-preparation system and non-attorney support staff to determine which consumers to sue. Attorneys generally spent less than a few minutes, sometimes less than 30 seconds, reviewing each case before initiating a lawsuit. This process allowed the firm 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 Reform and Consumer Protection Act, which prohibits unfair and deceptive acts or practices in the consumer financial marketplace. Specifically, the CFPB found that Pressler & Pressler, the firm’s named partners, and New Century Financial Services:

• Made false or empty allegations about consumer debts: The CFPB found that the firm, the named partners, and New Century filed lawsuits against consumers without sufficient basis. Neither the firm nor New Century reviewed documents supporting the validity of debts.
• Filed lawsuits based on unreliable or false information: Some consumers had previously challenged the validity or accuracy of the debts, but the firm or New Century did not obtain or review information to justify their claims. The firm and New Century also filed suits and collected debt knowing that some account portfolios targeted for lawsuits contained unreliable or false information.
• Harassed consumers with unsubstantiated court filings: The CFPB found that the firm, the named partners, and New Century filed collection suits generated mainly by automated processes that relied on summary data. The firm won the vast majority of the lawsuits by default when consumers did not defend themselves, even though neither Pressler & Pressler nor New Century had verified that the debts were actually owed.

The proposed Consent Orders require that Pressler & Pressler, the firm’s named partners, and New Century Financial Services must:

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

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 that 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 that brief the CFPB argued that the facts in the Pressler case were undisputed:  “The law firm utilized a computer system to manage its files, a lawyer in the firm conducted an automated review of files for potential litigation, and computer records showed that the attorney spent 4 seconds reviewing the computer records for this particular file.”  The CFPB’s positon:

“Under any conceivable standard, four seconds is not enough to become meaningfully involved and form a professional judgment about the appropriate action to take. For that reason, Pressler’s representation that an attorney had done so was deceptive and violated the FDCPA.”

On December 28, 2015 insideARM reported on the CFPB settlement with the Law Offices of Frederick J. Hanna & Associates. The Hanna case contained similar allegations to those in the Pressler case.

In light of the CFPB’s prior positions in the Hanna case and their amicus brief in the aforementioned Pressler case it is hardly surprising to see this announcement and settlement of the enforcement action.

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

“This settlement is not about laws or rules that are currently in place,” said Sheldon H. Pressler, managing partner. “Instead, the CFPB has 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, in accordance with federal and state laws.”

“The CFPB is out of touch not only with how financial services are conducted in a digital economy, but also the standards by which the courts themselves have deemed appropriate to practice law and satisfy the Rules of Court as written by the Court,” added Pressler. “Further, in two recent consent orders against much smaller law firms, serious affidavit offenses were cited, consumer restitution was awarded and judgments were invalidated. We had no such findings, no restitution was awarded and no judgments were invalidated. Simply put, we settled so we can move on with our law firm practice. The smaller firms paid a modest penalty for their conduct. We paid a much larger penalty for conduct that resulted in no restitution and no 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 disagrees with the CFPB’s position, its leaders felt that reaching this agreement was the most prudent course of action to minimize disruption to the practice and the financial impact to the business. Many of the practices required by the settlement have long been in place, so Pressler & Pressler is well-positioned to continue providing a level of compliance that exceeds industry expectations.”

insideARM believes the lack of any requirement of restitution or invalidation of judgments is quite significant. That has to be viewed as a positive for the law firm and the debt buyer.

The CFPB has not yet issued any rules regarding debt collection. There is no clear timeline on when proposed regulations will be issued. This Consent Order continues a pattern of CFPB “rulemaking through enforcement proceedings,” a practice that has been widely criticized by the ARM industry, as well as other industries subject to CFPB review.

However, Director Cordray has defended the practice. In his prepared remarks for his March 9, 2016 speech to the Consumer Bankers Association, when discussing the CFPB enforcement proceedings Cordray noted, “These orders provide detailed guidance for compliance officers across the marketplace about how they should regard similar practices at their own institutions……. Indeed, it would be ‘compliance malpractice’ for executives not to take careful bearings from the contents of these orders about how to comply with the law and treat consumers fairly.”

Collection law firms (and debt buyers) need to be studying these latest Consent Orders and react accordingly.