Is The CFPB’s Collection Litigation Strategy Consumer Friendly?

   Collection attorneys who are nervous about the risks involved in handling consumer accounts can relax.  The CFPB has devised an ideal litigation strategy for you to follow.  Let’s take a closer look at what the Bureau wants you to do to make sure it dovetails with the CFPB’s consumer protection goals.

          First, if your client plans to place accounts with your office, you should ensure the client has access to or possesses all the evidence needed to file suit and win the case at trial.  Next, as soon as an account is placed with your office, you should sue the consumer quickly, before the expiration of the shortest possible statute of limitations period.  Finally, when you sue the consumer, you better mean business.  A dismissal may be viewed by the CFPB as an admission of guilt by your firm and your client – an acknowledgment that you never had sufficient evidence to support your claims, and that you did not intend to pursue the case through judgment. 

          In sum, in order to protect consumers, the CFPB wants you to follow this litigation strategy:  quickly sue all accounts placed with your office, and take every contested case to trial to get a judgment against the consumer. This description is too sarcastic, you say?  You may be right.  But let’s examine the positions taken by the CFPB to see if this summary of its ideal litigation strategy is accurate.

          There is no question the CFPB wants you to sue consumers quickly. The Bureau believes that filing a lawsuit after the statute of limitations expires violates the FDCPA and the Consumer Financial Protection Act.  See, e.g., CFPB Amicus Brief in Delgado v. Capital Management Services, LP, filed August 14, 2013.  Any attorney who files suit after the limitations period has run puts the attorney and the client at risk.  If there are two possible limitations periods that might apply to your client’s claims, the wisest path is to select the shorter of the two.  To avoid risk, attorneys must sue consumers faster. 

          The CFPB has also been openly hostile to the practice of dismissing collection lawsuits.  In the Spring 2014 Supervisory Highlights, it said the filing of a lawsuit is a “representation” to a consumer that the company intends to establish that the consumer owes the amount claimed in court filings.  See CFPB Spring 2014 Supervisory Highlights, p. 14.  If the case is dismissed after the consumer answers, the CFPB says the dismissal may be evidence that the company made a false representation when it filed suit.  Id.  This anti-dismissal mantra was repeated at page 19 of the CFPB 2015 Annual Report To Congress On The FDCPA.  Given this, whenever an attorney dismisses a consumer lawsuit, he may be putting himself or his client at risk. 

          The CFPB also wants attorneys to ensure that their clients have sufficient documents to prevail in the lawsuits they file against consumers.  In its July 2014 suit against the Frederick J. Hanna & Associates law firm, the CFPB faulted the firm for filing lawsuits for debt buyers who allegedly did not have “basic documents, such as the original contracts” or chain of title information, and for submitting affidavits signed by persons who lacked personal knowledge of their contents.  See CFPB v. Frederick J. Hanna & Associates Complaint, ¶¶ 20, 23.  The Hanna firm allegedly did not confirm whether documentation to support the client’s claims would be made available, and did not review the clients’ purchase and sale agreements for disclaimers regarding the accuracy or validity of the debts.  Id. ¶ 24.  According to the CFPB, the firm “routinely” dismissed cases, and did so at a higher rate when the consumer retained an attorney.  Id.  ¶ 22.  The CFPB says these alleged practices violated the FDCPA and the Consumer Financial Protection Act.  Id.  ¶¶ 28-45.

          All of these themes were confirmed in the CFPB’s September 2015 Consent Orders with Encore Capital Group, Inc. and Portfolio Recovery Associates, LLC.  The Bureau faulted both companies for buying portfolios where the seller had placed restrictions on the availability of media.  See Encore/CFPB September 2015 Consent Order, ¶¶ 32-35; PRA/CFPB September 2015 Consent Order, ¶¶ 29-32.  Encore was accused of using “scattershot litigation” tactics, including filing suit without verifying that account-level documentation existed to support the claims.  See Encore Consent Order, ¶ 51.  Both companies were criticized for misrepresenting their intent to “prove the debt, if contested” – and this allegation was based in part on their filing lawsuits without sufficient documentation.  See Encore Consent Order, ¶¶ 48-53; PRA Consent Order, ¶ 67-70.  Both companies allegedly threatened to sue, or actually filed suit, on claims where the statute of limitations had expired.  See Encore Consent Order, ¶¶ 65-69; PRA Consent Order, ¶¶ 56-59.  Both are now required to possess detailed documentation and information before filing suit, presumably to ensure they can pursue cases through judgment even if contested by the consumer.   See Encore Consent Order, ¶ 129; PRA Consent Order, ¶ 116.

          What message should collection attorneys glean from all of this CFPB activity?  Arguably, the Bureau is telling attorneys:  “Go Big or Go Home.”  To minimize risk, you should not accept new placements unless your clients have access to the documents and witnesses needed to prove the claim at a contested trial.  Once an account is placed with your office, sue the consumer quickly to avoid risks with the statute of limitations.  If the consumer files a response, do not dismiss the case – litigate the case through trial and get a judgment.  Follow all of these steps and you can help the CFPB achieve its consumer protection goals.