CFPB Settlement With Debt Collection Law Firm Suggests Heightened Standard for Attorney Involvement
February 3, 2023
Stroock Client Alert
By: Allen H. Denson, Rebecca Mandel
The Consumer Financial Protection Bureau (CFPB) has reached a settlement with a debt-collection law firm, Forster & Garbus, LLP, and the resulting order could signal major changes for all parties involved in collecting consumer accounts. According to the Bureau’s allegations, the firm frequently filed lawsuits on behalf of major financial institutions without meaningful attorney involvement, in violation of the Fair Debt Collection Practices Act (FDCPA) and Consumer Financial Protection Act (CFPA). The theory itself is not a novel one, as the Bureau has pursued a number of cases against law firms that file a high volume of collection actions.
The settlement itself, however, contains a number of novel requirements in its injunctive relief. It signals a new framework for how the Bureau expects collection firms, and the creditors standing behind consumer debt, will substantiate debt and document meaningful attorney involvement.
The order requires Forster & Garbus to have certain documents evidencing the debt before filing a lawsuit, including the name of the original creditor, evidence that the consumer approved the debt, the chain of title supporting sale of the debt, explanation of how the debt amount was calculated, among other documents. If the amount sought is higher than the charge-off balance or balance at the time of default, the firm must possess documentation that recovery of the higher amount is authorized by the agreement creating the debt and is permitted by law. The firm is also required to certify that an attorney reviewed the documents supporting the debt. Additionally, the firm must ensure that the attorneys create an electronic record that the attorney of record has accessed a consumer’s file; confirmed that the statute of limitations has not run out on the consumer’s debt; confirmed that the consumer’s debt was not discharged in bankruptcy; confirmed the consumer’s correct identity and current address to determine the appropriate venue for a collection suit and certified in writing that the initiation of the collection suit complies with the order. The firm is required to dismiss pending lawsuits against consumers if it does not show its compliance with the documentation requirements and attorney review requirements within 120 days of the court entering the order. Additionally, the order requires Forster & Garbus to pay a $100,000 civil penalty to the Bureau for the victims relief fund.
From the industry perspective, the settlement and resulting order demonstrate that the Bureau intends to further alter how the creditors and their collection firms collect past-due accounts, setting a new standard for the information that collection firms receive from their clients and how the firms ensure that meaningful attorney involvement occurs. We will continue to closely monitor the Bureau’s activity, as we expect these standards will now be passed to supervised entities through examinations.
February 3, 2023
Stroock Client Alert
By: Allen H. Denson, Rebecca Mandel
The Consumer Financial Protection Bureau (CFPB) has reached a settlement with a debt-collection law firm, Forster & Garbus, LLP, and the resulting order could signal major changes for all parties involved in collecting consumer accounts. According to the Bureau’s allegations, the firm frequently filed lawsuits on behalf of major financial institutions without meaningful attorney involvement, in violation of the Fair Debt Collection Practices Act (FDCPA) and Consumer Financial Protection Act (CFPA). The theory itself is not a novel one, as the Bureau has pursued a number of cases against law firms that file a high volume of collection actions.
The settlement itself, however, contains a number of novel requirements in its injunctive relief. It signals a new framework for how the Bureau expects collection firms, and the creditors standing behind consumer debt, will substantiate debt and document meaningful attorney involvement.
The order requires Forster & Garbus to have certain documents evidencing the debt before filing a lawsuit, including the name of the original creditor, evidence that the consumer approved the debt, the chain of title supporting sale of the debt, explanation of how the debt amount was calculated, among other documents. If the amount sought is higher than the charge-off balance or balance at the time of default, the firm must possess documentation that recovery of the higher amount is authorized by the agreement creating the debt and is permitted by law. The firm is also required to certify that an attorney reviewed the documents supporting the debt. Additionally, the firm must ensure that the attorneys create an electronic record that the attorney of record has accessed a consumer’s file; confirmed that the statute of limitations has not run out on the consumer’s debt; confirmed that the consumer’s debt was not discharged in bankruptcy; confirmed the consumer’s correct identity and current address to determine the appropriate venue for a collection suit and certified in writing that the initiation of the collection suit complies with the order. The firm is required to dismiss pending lawsuits against consumers if it does not show its compliance with the documentation requirements and attorney review requirements within 120 days of the court entering the order. Additionally, the order requires Forster & Garbus to pay a $100,000 civil penalty to the Bureau for the victims relief fund.
From the industry perspective, the settlement and resulting order demonstrate that the Bureau intends to further alter how the creditors and their collection firms collect past-due accounts, setting a new standard for the information that collection firms receive from their clients and how the firms ensure that meaningful attorney involvement occurs. We will continue to closely monitor the Bureau’s activity, as we expect these standards will now be passed to supervised entities through examinations.
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