By Sophia Huang
Editor’s Note: The Consumer Financial Protection Bureau’s final rule on debt collection practices released on October 30, 2020 no longer contains a safe harbor for debt collection attorneys who sue consumers with insufficient information.
In a 2015 enforcement action against Pressler & Pressler, a New Jersey-based debt collection law firm, the Consumer Financial Protection Bureau (CFPB) alleged that the firm’s attorneys spent as little as 30 seconds reviewing a case before filing a lawsuit against a consumer to collect a debt. Often, the firm’s reviews did not involve any original account documents that could verify the owner of the debt or the correct amount owed, such as billing statements from the original creditor.
Instead, the attorneys typically relied on summaries provided by their debt buyer clients. Because debt is often bought and resold from collector to debt buyer and so on, the law firm’s own debt collector clients may not have had access to account-level documents either. As a result, the information used to sue consumers to collect on debt could have been old, inaccurate, or both.
Pressler & Pressler’s approach to suing consumers allowed it to file hundreds of thousands of claims for alleged debts over the course of five years. Even though many of those claims were not supported by evidence that debt was actually owed, the firm and its debt collector and debt buyer clients won most of them by default when the consumers did not appear in court.
As part of a consent order with the CFPB, Pressler & Pressler agreed to stop filing lawsuits without reviewing original account-level documentation and to pay a civil penalty of $1 million.
In a similar 2014 action against Frederick J. Hanna & Associates, the CFPB alleged that the debt collection firm’s attorneys spent less than a minute reviewing each of the tens of thousands of cases it filed each year. Its clients, debt buyers, could not provide any basic account-level documents but the firm churned out lawsuits anyway without verifying the allegations. Ultimately, Frederick J. Hanna & Associates, much like Pressler & Pressler, agreed to stop filing suits without original account-level documentation.
The CFPB’s actions against the debt collection firms set a clear precedent and guide for debt collection attorneys: review original account documents and verify the details of a debt before suing the wrong person for the wrong amount.
However, the CFPB’s proposed rule on debt collection practices takes a giant step back from the Bureau’s own effective enforcement work by creating a vague and over-broad standard that collections attorneys could take advantage of.
Under the proposal, a collections attorney would qualify for a “safe harbor” from liability if before signing a lawsuit, the attorney conducts a review of unspecified “information supporting the submission” and have an unproven “belief” that their actions against consumers are allowed under the law.
Nowhere in the proposed rule does the CFPB explicitly require debt collectors to review original account documents. As a result, collection attorneys may argue that summaries received from debt buyers, like the ones relied on by Pressler & Pressler, would qualify under the CFPB’s broad language.
Similarly, without specific requirements about what type of review would be considered sufficient, collections attorneys may argue that reviewing “information” like account summaries for as little as 30 seconds before filing a lawsuit is sufficient, and would qualify them for a liability shield, while continuing to sue consumers without an adequate basis.
State courts are already flooded with debt collection lawsuits which consumers are losing by default at alarming rates. The new proposal, with its over-broad standard, could exacerbate this problem and further burden the court system by giving a free pass to debt collection lawsuit mills to churn out thousands of unsupported lawsuits against vulnerable people.
There is a lot wrong with the CFPB’s proposed debt collection rule, but this free pass for collections attorneys stands out as a danger to consumers. The Bureau should have stuck with its tried-and-true approach of requiring debt collection attorneys to verify debts with account-level documents before suing vulnerable people. Instead, the CFPB has proposed to turn its back on those protections and potentially open the door to a flood of additional collection lawsuits.
