On January 9, 2017, the Consumer Financial Protection Bureau (CFPB) entered a Consent Order against Works & Lentz, Inc., Works & Lentz of Tulsa, Inc., two medical debt collection law firms, and their president, Harry A. Lentz, Jr., for the defendants’ violations of the Fair Debt Collection Practices Act (FDCPA) and the Furnisher Rule (Regulation V promulgated by the CFPB under the Fair Credit Reporting Act).
The CFPB charged the defendant law firms with misrepresenting the level of attorney involvement when attempting to collect debts in a likely attempt to pressure consumers into making payments on purported medical debts. The conduct the law firms engaged in violated § 1692e(3) of the FDCPA, which prohibits false representations of attorney involvement, and § 1692e(10) of the FDCPA which prohibits false representations or deceptive means in debt collection.
In a press release, CFPB director Richard Cordray highlighted the importance of regulating such conduct, and opined that “[m]isrepresenting that a lawyer is involved in a debt collection action gives the collection a false weight.” Mr. Cordray went on to state that “Works and Lentz intimidated consumers with unfounded threats of potential lawsuits. Today we are putting a stop to that and getting consumers the relief they deserve.”
I. Debt Collection Activities
According to the Consent Order, the law firm defendants attempted to collect on approximately 700,000 debts totaling over $500 million annually. Upon receiving a new account from a client, the law firms’ computer systems automatically sent consumers an initial demand letter on formal letterhead stating “Law Offices” and listing the names of multiple attorneys. The letters did not include any disclaimer to alert consumers that no attorney had yet reviewed their account.
Approximately a month after the initial demand letter was mailed, representatives from the law firms called the consumers and immediately identified themselves as calling from a law firm. In many instances, no attorneys had reviewed the consumers’ accounts before these calls were made.
The law firms also sent subsequent demand letters to consumers, which again were on formal letterhead and included a computerized signature of an individual attorney, underneath of which the words “Attorney at Law” were printed. However, again, in many instances, no attorneys had reviewed the consumers’ accounts before these demand letters were mailed. In fact, the letters were sent and collection calls were made by non-attorneys and the firms’ attorneys were not meaningfully involved in evaluating individual accounts.
The CFPB additionally found that if the law firms ultimately decided to file a debt collection lawsuit against a consumer, they would send the client an affidavit to sign and notarize, approving the filing of the suit. In some cases, clients returned signed affidavits with a signature that was not notarized. When this occurred, the defendants notarized the affidavit themselves in violation of Oklahoma State Notary Law.
II. Alleged FDCPA Violations
The FDCPA prohibits any debt collector from using false, deceptive or misleading representations or means in connection with the collection of any debt, including “[t]he false representation or implication that any individual is an attorney or that any communication is from an attorney.” The CFPB claims that the defendants’ representations that the demand letters were from an attorney and their practices relating to notarizing client affidavits violated the FDCPA. Indeed, the CFPB determined that the defendants sent out collection letters without having an attorney review the consumers’ files and make any professional judgments about whether sending a demand letter or making a collection call was warranted, and thus, the defendants failed to meet the FDCPA’s standard of “meaningful attorney involvement.”
The CFPB also found that the law firm defendants furnished consumer information regarding more than one million consumers to credit reporting agencies. The law firms, however, did not maintain any written policies or procedures regarding their credit reporting. Accordingly, the CFPB charged the defendants with violating Regulation V (which regulation implements the FCRA).
III. Consent Order Provisions
The Order sets forth both injunctive and monetary relief:
- Injunctive relief:
- Defendants are prohibited from stating or implying that a collection or phone call is from an attorney if no attorney has been meaningfully involved in reviewing the consumer’s account.
- Defendants are also prohibited from illegally notarizing affidavits regarding consumers.
- The law firms must enhance their written policies and procedures regarding the accuracy and integrity of information relating to consumers that they furnish to consumer reporting agencies.
- Monetary relief: The defendants are ordered to pay $577,135.20 in refunds to harmed consumers and a $78,800 civil fine to the CFPB for their illegal actions.
This is the third CFPB Consent Order in less than one year alleging that a law firm was not “meaningfully involved” or did not sufficiently review accounts prior to and during the collection process.
Nothing in the Consent Order indicates any consumer was harmed, wrongfully sued, or that the information reported to the credit bureaus was inaccurate. While the CFPB’s Outline of Proposals for Debt Collection does not require that the substantiation of a debt must include a client’s “original account level documentation,” these law firms must have and review “original account level documentation” prior to any implicit or explicit communication that a lawsuit is likely.
As the CFPB’s most recent monthly snapshot report illustrates, debt collection is the most-complained-about product. Of note is the Bureau’s decision to draw attention to these law firms’ specialization in collecting medical debt, which is consistent with the Bureau’s past statements about the increased vulnerability of consumers when a medical debt is the subject of collection activity. As a result, the Bureau will undoubtedly continue to closely monitor the players in this arena, including first-party creditors, and is expected to continue its focus on the intersection of collections and healthcare.