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Dangerous debt collection legislation would hurt low-income Americans

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The House of Representatives will vote on a dangerous bill, H.R. 5082, called the Practice of Law Technical Clarification Act of 2018 sponsored by Reps. Alexander Mooney (R-W.Va.) and Vicente Gonzalez (D-Texas). This bill would exempt debt collection attorneys from the Fair Debt Collection Practices Act (FDCPA) and preclude the Bureau of Consumer Financial Protection (CFPB) from exercising supervisory or enforcement authority over them. H.R. 5082 will provide a perverse incentive for some debt collection law firms to engage in abusive and deceptive practices with impunity.

As public interest attorneys who have represented low-income consumers for more than a decade, we know that debt collection attorneys engage in some of the most egregious debt collection misconduct. Only the FDCPA and the CFPB keep them partially in check.

{mosads}To take just one example, our organizations (along with co-counsel New Economy Project and Emery Celli Brinckerhoff and Abady) used the FDCPA to sue a debt collection law firm that obtained hundreds of thousands of default judgments against unsuspecting people — mostly low-income people of color — by filing false affidavits with the court. The attorneys used these fraudulently obtained judgments to freeze people’s bank accounts, garnish their wages, and coerce people into entering “voluntary” payment agreements. Our FDCPA lawsuit returned tens of millions of dollars to our clients as part of a settlement and resulted in the vacatur of 200,000 state court judgments.

But that is just the tip of the iceberg. In a 2016 report, Rubber Stamp Justice: US Courts, Debt Buying Corporations, and the Poor, Human Rights Watch documented widespread abuses by debt collection attorneys in courts across the country, including cases brought beyond the statute of limitations and scores of cases where people never received notice of the suits, all of which resulted in wrongful judgments, often against the wrong people.

When experienced debt collection attorneys face off against unrepresented, unsophisticated consumers, consumers nearly always lose. Alarmingly, many collection attorneys have become debt buyers themselves, recognizing how lucrative it is to hire themselves to collect on their own behalf.

In the wake of the subprime mortgage crisis notorious foreclosure mills brought thousands of cases using fraudulent documents to foreclose on people’s homes. One collection law firm admitted that the time their attorneys spent reviewing complaints was a shocking average of just four seconds per document. Another falsely informed a retiree on Social Security that the law required him to prove that the money the firm had restrained in his bank account was exempt from collection. These examples are hardly “technical violations” of the FDPCA that deserve no redress. Rather, they show how some experienced attorneys routinely abuse the legal process to take advantage of unsophisticated, low-income Americans. Those bad actors do not need or deserve our protection.

The CFPB — the federal watchdog agency created to protect consumers in the wake of the financial crisis — has recognized the need to rein in abusive debt collection law firms. One subject of CFPB enforcement was Frederick J. Hanna & Associates, a debt collection lawsuit mill charged with filing deceptive court papers based on unsubstantiated evidence. That case concluded with a consent judgment in which the law firm agreed to pay a $3.1 million fine and to reform its practices.

Debt collection attorneys who act ethically and obey the law have nothing to fear from the FDCPA or the CFPB. But we all should dread what will happen if we shield unscrupulous attorneys from regulation and enforcement.

Under this bill, lawsuits will become the preferred method of debt collection, even over informal resolutions like payment plans, because attorney conduct — and misconduct — will be insulated from liability. Abusive litigation practices will flourish, while non-attorney collectors and ethical collection attorneys will face a significant competitive disadvantage. Why would we open the door to the same dangers that impelled Congress, over 30 years ago, to repeal the attorney exemption and specifically add attorneys to the definition of debt collector in the FDCPA?

This bill contravenes the important and well-established public policy behind the FDCPA and the role of the CFPB: to protect consumers from exploitative debt collectors. If passed, this amendment will enable debt collection attorneys to use their licenses as both shields and swords, and engage in an unfair competitive advantage, to the detriment of many.

Carolyn E. Coffey is the Director of Economic Justice at Mobilization for Justice and Claudia Wilner is a Senior Attorney at the National Center for Law and Economic Justice.


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