Debt-Collection Lawyers Chafe
At Consumer Bureau Oversight
Retail attorney association backs bill to exempt certain activity from lawsuits.
Thus far, no lawyer or firm has sued to challenge the rule. "We're not there yet," Needleman said, adding that funding is also an obstacle to bringing a suit. The retail-collection lawyers are holding a public symposium on debt collection in Washington on October 15, followed by a conference from October 16 to 19.
OTHER FORMS OF SUPERVISION
Most lawyers will be exempt from direct agency supervision because they fall below the $10 million debt collection threshold, but that doesn't mean they're off the hook. Lawyers can still be hit with CFPB enforcement actions, and must also contend with increasingly nervous clients who answer to the CFPB as well.
The CFPB has made it clear that it will hold creditors responsible for anything a service provider — including outside counsel — does, said Christopher Willis, a Ballard Spahr partner who represents debt-collection lawyers. The result: Debt-collection lawyers "are being subjected to constant audits by their clients…over even the most minute details," he said.
In part, the clients' skittishness may stem from the robo-signing scandal, when numerous small law firms came under fire for faking foreclosure documents. Banks have paid almost $35 billion since 2012 to settle state and federal charges involving foreclosure abuses. (The CFPB, however, excluded foreclosures in defining the activities of attorneys subject to agency supervision.)
Still, Willis said that "the memory of that kind of law firm behavior may have carried over" to color the current scrutiny of debt-collection lawyers. Smaller firms are having an especially difficult time coping with the audit demands, he added.
But not all problems are directly CFPB-related. Debt-collection lawyers are hoping to get legislative relief from private suits brought under the Fair Debt Collection Practices Act, which protects consumers from abusive debt collectors. In recent years, it's been widely used to sue lawyers and other debt collectors for technical violations of the statute, such as describing a debt in court papers as "money loaned" rather than "credit card debt."
According to litigant data aggregator WebRecon, there were 11,495 such suits filed in 2012. The statute allows plaintiffs to recover $1,000 in damages, plus actual damages and attorney fees.
The proposed legislation is not a total exemption, the collection lawyers said, since it would only apply to litigation activities that fall under the supervision of the court. "Congress recognized that attorneys cannot be regulated, and they knew it in 1977 when the [Fair Debt Collection Practices Act] was enacted," according to the group. "Punishment of attorneys for conduct in the courtroom will deny creditors their right to full access to the court system."
Contact Jenna Greene at firstname.lastname@example.org.