$2.5 Million CFPB Action Ratchets Pressure on Debt Collection Suits

By Chris Bruce

April 25 — A law firm and a debt buyer will pay $2.5 million to resolve federal administrative claims of illegal collection and litigation practices in an accord likely to put more scrutiny on debt collection lawsuits.

At issue is New Century Financial Services of Whippany, N.J., which buys and collects defaulted consumer debt, then hands off the accounts to the law firm Pressler & Pressler of Parsippany, N.J., for collection.

The Consumer Financial Protection Bureau (CFPB) alleged violation of the Fair Debt Collection Practices Act (FDCPA), and other laws. According to the CFPB, lawsuits filed by Pressler & Pressler on behalf of New Century sought to collect debts without determining whether the debts were valid.

Pressler & Pressler and New Century also filed lawsuits and collected debt knowing that some account portfolios included false or unreliable information, the CFPB said.

The law firm agreed to pay $1 million, while New Century agreed to pay $1.5 million. Neither admitted nor denied the CFPB's substantive claims.

“For years, Pressler & Pressler churned out one lawsuit after another to collect debts for New Century that were not verified and might not exist,” CFPB Director Richard Cordray said in a statement. “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.”

Jeffrey Esposito, director of operations for New Century, April 25 declined to comment on the agreement with the CFPB.

Pressler & Pressler did not immediately respond to a request for comment April 25.

Automation, Non-Attorneys

The action announced April 25 likely means more scrutiny of lawsuits to collect debt, and whether those suits have a solid basis.

It also may focus more attention on the use of automation by debt collection law firms, and the role of non-attorneys in debt collection lawsuits.

According to the CFPB, Pressler & Pressler's debt collection practice relies in large part on a non-attorney support staff, along with a proprietary system that automates some of the work of preparing new lawsuits. Attorneys who sign the actual complaints may have minimal involvement, the CFPB said.

“The signing attorney generally spent less than a few minutes, sometimes less than 30 seconds, reviewing each summons and complaint before approving the filings and directing that a lawsuit be initiated,” the consent agreement with Pressler & Pressler said.

Third Circuit Case

Similar questions have been raised in a separate matter now before the U.S. Court of Appeals for the Third Circuit. There, Pressler & Pressler's practices are also under scrutiny of the CFPB and the Federal Trade Commission (FTC).

At issue is a 2014 district court ruling that said lawyers at the firm violated the FDCPA by signing, filing and serving a state-court complaint against a consumer without “meaningful” attorney review (127 BBD, 7/2/14).

Pressler & Pressler appealed to the Third Circuit, where the CFPB and the FTC in August 2015 filed a joint friend-of-the-court brief.

The CFPB and the FTC disagreed with the firm, saying the FDCPA requires an attorney who lends his name to a debt collection effort to “be meaningfully involved in the case to avoid misleading the consumer about his role” (158 BBD, 8/17/15).

The Third Circuit heard argument in November. The docket shows no action since that time.

Trade Group Watching

Pressler & Pressler has support in that case from a host of trade groups, including the National Creditors Bar Association (NARCA).

NARCA filed a brief backing the law firm. It said the district court wrongly applied the FDCPA, and failed to account for advances in technology and law practice.

“The dearth of authority on whether the FDCPA governs the contents of a Complaint has left substantial uncertainty as to whether the congressional intent and the purpose of the FDCPA can be broadly construed to regulate activities that constitute the practice of law and whether the doctrine of ‘meaningful involvement' is being interpreted properly to account for the growing reliance on technological advancements in litigation generally and debt collection specifically,” the NARCA brief said.

NARCA Executive Director Mark J. Dobosz April 25 said his group is looking closely at the accord with Pressler & Pressler and New Century.

“The National Creditors Bar Association is aware of the CFPB’s announcement today and will be reviewing and analyzing the details of the Consent Orders over the coming days to understand their scope and implications,” Dobosz said in an e-mail to Bloomberg BNA.

To contact the reporter on this story: Chris Bruce in Washington at cbruce@bna.com

To contact the editor responsible for this story: Mike Ferullo at mferullo@bna.com

For More Information

The Pressler & Pressler order is at http://src.bna.com/en1.

The New Century order is at http://src.bna.com/en2.