March 28, 2023

Volume XIII, Number 87


March 28, 2023

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March 27, 2023

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CFPB Settles with “Debt Collection Mill”

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.

Copyright © 2023, Sheppard Mullin Richter & Hampton LLP.National Law Review, Volume XIII, Number 19

About this Author

Moorari Shah Bankruptcy Lawyer Sheppard Mullin Law Firm

Moorari Shah is a partner in the Finance and Bankruptcy Practice Group in the firm's Los Angeles and San Francisco offices. 

Areas of Practice

Moorari combines deep in-house and law firm experience to deliver practical, business-minded legal advice. He represents banks, fintechs, mortgage companies, auto lenders, and other nonbank institutions in transactional, licensing, regulatory compliance, and government enforcement matters covering mergers and acquisitions, consumer and commercial lending, equipment finance and leasing, and supervisory examinations,...

A.J. S. Dhaliwal Bankruptcy Attorney Sheppard Mullin Washington DC

A.J. is an associate in the Finance and Bankruptcy Practice Group in the firm's Washington, D.C. office. 

A.J. has over a decade of experience helping banks, non-bank financial institutions, and other companies providing financial products and services in a wide range of matters including government enforcement actions, civil litigation, regulatory examinations, and internal investigations.

With a diversified regulatory, compliance, and enforcement background, A.J. counsels financial institutions in matters involving...

Alyssa Paddock New York Finance Attorney Sheppard Mullin

Alyssa Paddock is an associate in the Finance and Bankruptcy Practice Group in Sheppard Mullin's New York office. 

Alyssa’s practice incorporates all aspects of corporate restructuring, bankruptcy, and financial distress. Her focus has primarily centered around debtor representations in chapter 11 proceedings, but she also represents creditors and companies in various in-court and out-of-court restructurings.