On April 25, 2016, the Consumer Financial Protection Bureau (CFPB) entered into consent orders with a debt collection law firm, two of the firm’s principal partners, and New Century Financial Services, Inc., a company that purchases and collects consumer debts. The orders resolve allegations by the CFPB that each party violated the Fair Debt Collection Practices Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act by filing collection lawsuits which were unfair and deceptive to consumers. The respondents agreed to pay a combined $2.5 million in civil penalties and take steps to discontinue certain alleged unfair and deceptive debt collection practices, while also agreeing to participate in future compliance monitoring.
New Century contracted with the firm to collect its consumer debt holdings. In filing hundreds of thousands of lawsuits between 2009 and 2014 on behalf of New Century and other clients, the firm used non-attorney support staff and an automated claim-preparation system to determine the proper course of action. In some cases, the CFPB reports, attorneys spent less than 30 seconds reviewing a case before filing a lawsuit against an unsuspecting consumer.
The CFPB, following an investigation, criticized these practices, claiming a variety of consumer protection law violations. The consent order included findings that lawsuits were filed on an insufficient evidentiary basis, that the respondents did not review documents supporting the validity of the debts, that the respondents failed to appropriately address consumer challenges to the validity or accuracy of the debts or did not obtain or review information to justify the claims, and, in some cases, that the respondents filed suits and collected debt knowing that the account portfolio contained unreliable or false information. The CFPB investigation also uncovered that the respondents filed suits that relied on summary data generated mainly by automated processes.
In addition to civil fines, the CFPB’s consent orders also include injunctive relief designed to ensure future compliance with federal consumer protection laws. The orders prohibit respondents from threatening or filing lawsuits without first obtaining and reviewing account-level documents and information ensuring that each consumer debt is accurate and enforceable, and bar respondents from using affidavits as evidence unless they accurately describe relevant facts, including that the individual executing the affidavit has personal knowledge of the debt or has reviewed the documentation related to the debt. Further, each respondent must maintain electronic records verifying that it is following proper procedure.
In the consent orders, the respondents neither admit nor deny any substantive findings of fact or law. The full order in the matter of the law firm may be found here, and the full order in the matter of New Century may be found here.
This is the latest enforcement action by the CFPB against debt buyers performing illegal debt collection activities and may signal an increased effort by the CFPB to curb these practices.