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March 31, 2018

House panel approves bill to exempt creditor lawyers engaged in litigation from FDCPA, CFPB regulation

The House Financial Services Committee approved ABA-supported bipartisan legislation March 21 that would clarify that the Federal Debt Collection Practices Act (FDCPA) does not apply to creditor lawyers’ litigation activities and that the existing “Practice of Law Exclusion” in Dodd-Frank Act that limits the Consumer Financial Protection Bureau’s (CFPB) broad regulatory authority covers both consumer and creditor lawyers.

H.R. 5082, the “Practice of Law Technical Clarification Act of 2018,” cleared the committee by a 35-25 vote. During the markup, the bill’s sponsor, Rep. Alex Mooney (R-W.Va.), emphasized that by amending the FDCPA to exclude law firms and licensed attorneys engaged in litigation activities from the definition of “debt collector,” Congress is “restoring traditional state court regulation and oversight of the legal profession.” He noted that 17 states already have FDCPA-type statutes exempting attorneys either outright or when they are engaged in litigation activities.

Mooney said he was proud that the ABA endorsed the bill and asked that a letter from ABA President Hilarie Bass be included in the record of the markup.

In her letter, sent to the House Financial Services Committee and the House Judiciary Committee on March 19, Bass explained that lawyers have been regulated for centuries primarily by the state supreme courts that license them and that the FDCPA, enacted in 1977, originally contained a complete exemption for lawyers engaged in the practice of law who collect debts on behalf of their clients. Congress voted to eliminate the broad exemption in 1986 after a small number of debt collectors who also were lawyers engaged in abusive collection practices outside of the litigation context and were shielded from FDCPA coverage.

The 1986 revisions to FDCPA were intended to allow aggrieved debtors to bring suits against creditor lawyers for their improper non-litigation collection activities, but the courts have applied this revised act to creditor lawyers even when they are engaged in litigation. As a result, Bass said that many creditor lawyers are now routinely sued in federal or state court for their actions in state court proceedings that are alleged to be technical violations of the FDCPA, even when the consumer suffers no harm.

Congress later passed the Dodd-Frank Act in 2010, which granted the new CFPB the authority to enforce the FDCPA and to regulate debt collectors, but which exempted consumer lawyers engaged in the practice of law from the bureau’s regulatory and enforcement authority.

Bass emphasized that H.R. 5082 would not “turn back the clock” on consumer protection to pre-1986 levels because the bill is narrowly tailored and would merely exempt the litigation activities of creditor lawyers, not their other non-litigation collection activities. “This narrow exemption is appropriate,” she wrote, “as the judge overseeing the lawsuit is in the best position to discipline any lawyer who engages in abusive litigation practices.” The bill also would “preserve all existing consumer protections regarding any other non-litigation lawyer actions that are taken outside the watchful eye of a judge and the court system,” she said.

The bill now moves to the full House for consideration.


Back to the March 2018 Washington Letter