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Alternative Investment

CFPB Settles With “Debt Collection Mill” – Financial Services

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On January 11, the CFPB and a debt-collection law firm it sued
in 2019 for illegal debt-collection practices reached settlement. The CFPB included in its
initial complaint against the defendant allegations that the law
firm falsely represented to consumers that attorneys were actively
engaged in overseeing and filing lawsuits, while in a two year
period, such law firm employed less than a dozen attorneys and
filed more than 99,000 debt-collection lawsuits with minimal
supporting documentation. The CFPB alleged this was a violation of
the CFPA and FDCPA, which prohibits collecting debts by using
false, deceptive, or misleading representations. If the proposed settlement order is entered by the
court, it would require that the law firm to:

  • Possess certain specific documentation before filing a
    debt-collection suit, including name of the original creditor,
    evidence that the consumer authorized the debt, chain of title of
    the debt, and calculation of the debt;

  • Certify that an attorney whose name is on the debt-collection
    suit actually reviewed the supporting documentation and confirmed
    that the complaint reflects that documentation;

  • Dismiss any pending suit against a consumer that does not
    comply with the new requirements within 120 days of the settlement
    order being entered; and

  • Pay $100,000 in penalties to the CFPB, which would be deposited
    in the CFPB’s victims relief fund.

Prior to the CFPB filing suit, the law firm’s clients,
including large and well-known financial institutions, placed more
than 130,000 accounts with the firm for collection.

Putting it into Practice: This settlement
further highlights the CFPB’s efforts to investigate and
eliminate harmful debt collection practices that contravene
consumers rights, as we have previously reported (see blog post here). Not going unnoticed was CFPB Director
Chopra’s contemporaneous statement that the CFPB will be
scrutinizing the large financial institutions that employ such debt
collection servicers. State legislatures and regulators are also
currently focused on enhancing protections for consumers (see blog
post here and here), and debt collectors are likely to face
an increase in state-level inquiries going-forward.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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