November 20, 2020

CFPB Final Debt Collection Practices Rule Avoids Imposing New Litigation Rules on Creditor Attorneys

Final Rule Omits ABA-Opposed Safe Harbor Language

The Consumer Financial Protection Bureau issued its final Debt Collection Practices Rule on October 30.

The Consumer Financial Protection Bureau issued its final Debt Collection Practices Rule on October 30.

The Consumer Financial Protection Bureau issued its final Debt Collection Practices Rule on October 30 without the controversial “safe harbor for meaningful attorney involvement” provision contained in its original proposal that would have imposed special due diligence requirements just on creditor litigation attorneys.

Section 807(3) of the Fair Debt Collection Practices Act prohibits debt collectors from making a “false representation or implication that any individual is an attorney or that any communication is from an attorney.” This straightforward provision was designed to prohibit non-attorney debt collectors from impersonating actual attorneys by falsely claiming that they or their representatives are attorneys—or that their correspondence or court filings are from an attorney—when that is not the case.

Some courts have interpreted the term “from” to mean not just that a communication is from an actual attorney, but also that the attorney directly controlled the process through which the item was sent and that the attorney formed a professional judgment on the validity of the underlying debt. Because of this interpretation, many creditor attorneys are now routinely sued and can be forced to pay substantial damages, attorneys’ fees, and costs unless they can prove “meaningful attorney involvement” in the preparation of the demand letter or the actual law suit.

In its proposed rule issued last year, the CFPB included a “safe harbor for meaningful attorney involvement” to protect creditor attorneys from liability under Section 807(3) if they can prove that they followed certain special due diligence steps before filing a lawsuit or motion with the court. However, those special steps are significantly different from the standard due diligence requirements in Federal Rule of Civil Procedure 11(b) that apply to all litigation attorneys appearing in federal court.

In its September 2019 comments to the CFPB, the ABA explained that while it appreciated the Bureau’s efforts to create a safe harbor, it was concerned the proposal would actually harm many attorneys and law firms and should be withdrawn for several reasons.

First, the ABA warned that the proposal would improperly codify the flawed “meaningful attorney involvement” concept, which is not mentioned in the FDCPA or other federal statutes. Because there is no statutory basis for imposing a special meaningful attorney involvement requirement on creditor litigation attorneys, it is up to the courts to regulate and establish professional standards for these attorneys and improper for the CFPB to issue new rules codifying or granting a safe harbor from the flawed concept.

Second, the ABA cautioned that the safe harbor proposal would undermine the courts’ primary and inherent authority to regulate and sanction all attorneys engaged in litigation. Creating special due diligence requirements that only creditor litigation attorneys must follow establishes a double standard that is grossly unfair and undermines the courts’ authority to oversee the litigation activities of all attorneys appearing before them in a consistent, evenhanded manner.

Third, the ABA expressed concerns that the proposal would undermine the attorney-client privilege, the work product doctrine, and the confidential attorney-client relationship. To claim the safe harbor, the attorney would have the burden of proving that the attorney drafted or reviewed the pleading or other paper in question and determined that the claims, defenses, and contentions were well-supported by existing law and evidence. But proving these enhanced requirements would force the attorney to disclose confidential communications with the client and a great deal of the attorneys’ work product.

After considering these and other similar concerns raised by the ABA, the National Creditors Bar Association, and Rep. Alex Mooney (R-WV)—and different concerns raised by consumer groups and other stakeholders—the CFPB decided not to include the meaningful attorney involvement safe harbor in the final rule. However, the Bureau predicted that creditor attorneys will continue to face lawsuits under the meaningful attorney involvement theory, and it raised the possibility of pursuing a future rulemaking on the subject.

Although the ABA supports the CFPB’s decision not to adopt the safe harbor proposal, it still vigorously opposes the underlying concept of imposing a special meaningful attorney involvement standard solely on creditor litigation attorneys. Instead, the ABA supports the courts’ primary and inherent authority to regulate and oversee the litigation activities of all attorneys, regardless of the types of cases they file with the court, in a consistent and evenhanded manner.

For developments on this and other attorney regulation issues, follow us on Twitter @ABAGrassroots.