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November 30, 2017

ABA supports FDCPA, CFPB exemptions for creditor lawyers engaged in litigation

ABA President Hilarie Bass expressed the association’s strong support this month for the “Practice of Law Technical Clarification Act of 2017,” legislation that would restore traditional state court regulation and oversight of creditor lawyers’ litigation activities.

In a Nov. 16 letter to leaders of the House Financial Services Committee and the House Judiciary Committee, Bass explained that the legislation, H.R. 1849, would clarify that the Fair Debt Collection Practices Act (FDCPA) does not apply to creditor lawyers engaged in litigation activities and that the existing “practice of law exclusion” in Section 1027(e) of the Dodd-Frank Act of 2010 covers both consumer and creditor lawyers.

In her letter, 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 the FDCPA were intended to allow debtors to bring suits against creditor lawyers for their improper non-litigation collection activities, but the courts have since applied the 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.

The Dodd-Frank Act also granted the Consumer Financial Protection Bureau (CFPB) broad authority to regulate both lawyer and non-lawyer debt collectors and to enforce the FDCPA. Although Section 1027(e) exempts most consumer lawyers engaged in the practice of law from the CFPB’s authority, the current exemption may not apply to certain creditor lawyers.

Bass gave several reasons that the ABA supports the legislation.

First, Bass explained, the ABA “firmly believes that state courts, not the CFPB or debtor lawyers filing technical FDCPA suits, are in the best position to regulate and discipline creditor lawyers who are engaged in litigation activities to collect debts on behalf of their clients.” She added that over time, an extensive and effective system of judicial regulation of lawyers has developed – including admission requirements, ethical codes and disciplinary rules – which govern virtually every aspect of a lawyer’s professional life.

If a creditor lawyer engages in abusive or improper conduct against a debtor in a collection lawsuit, Bass said the judge presiding over the case is in the best position to discipline the creditor lawyer, impose the appropriate sanction based on the circumstances, and protect the debtor.

Second, she pointed out that the legislation is consistent with Congress’ original intent not to regulate creditor lawyers engaged in litigation or other activities that are part of the practice of law, citing a statement made in 1986 by Rep. Frank Annunzio (D-Ill.), who sponsored the bill amending the FDCPA that year.

In addition, Bass emphasized that the legislation is narrowly tailored to exempt only creditor lawyers engaged in litigation activities and is consistent with a previous Federal Trade Commission recommendations to Congress that the FDCPA be amended to “exempt from the FDCPA’s provisions attorneys who pursue debtors solely through litigation (or ‘similar legal practices’).”

The bipartisan legislation, cosponsored by Reps. Dave Trott (R-Mich.) and Vicente Gonzalez (D-Texas), was the subject of a Sept. 7 hearing in the  House Financial Services Subcommittee on Financial Institutions and Consumer Credit. The full committee could mark up the bill as early as December.



Back to the November 2017 Washington Letter