The Consumer Financial Protection Bureau recently sued three law firms in the United States District Court for the Central District of California for collecting advance fees from consumers seeking debt relief.  CFPB Director Richard Cordray stated that “[t]he defendants exploited consumers who were already suffering financial difficulties by tricking them into paying steep, illegal fees.”

The lawsuit alleges that Williamson Law Firm LLC, Howard Law, P.C., Williamson & Howard LLP, and their owners, Lawrence Williamson and Vincent Howard, violated the Telemarketing and Consumer Fraud and Abuse Prevention Act, the FTC’s Telemarketing Sales Rule, and the Consumer Financial Protection Act of 2010 by collecting advance fees for debt relief services that were disguised as bankruptcy services fees.  The Telemarketing Sales Rule was amended in 2010 to generally prohibit debt relief providers from charging a fee before concluding their debt relief services.

The firms allegedly required new clients seeking debt relief services to sign a contract for bankruptcy services, even when they “neither wanted nor needed” the bankruptcy services.  The firms then proceeded to collect between $1,000 and $3,250 in advance fees and a monthly “administrative” fee of $50 from each consumer under the bankruptcy contract.

The CFPB states that this debt-relief scheme began in 2007 when Vincent Howard and Lawrence Williamson worked with debt relief company Morgan Drexen, Inc. to collect millions in illegal advance fees.  Even though Morgan Drexen folded after the CFPB obtained a $173 million judgment against it, Howard and Williamson continued with the scheme.

This lawsuit is not the first time the CFPB has set its sights on these firms.  Due to their role in the Morgan Drexen scheme, the CFPB filed a contempt motion in September 2016 that accused the three firms of violating a court order in the enforcement action against Morgan Drexen that prohibited the disclosure of customer information and the continued collection of related fees.  The firms argued they were not bound by the order because they were not joined in the underlying enforcement action, but the court disagreed and issued an injunction and $5.3 million in sanctions.  The Ninth Circuit eventually overturned the injunction, finding that they were not bound by the order.

The lawsuit adds to the CFPB’s enforcement track record against lawyers, including an action in January in which the CFPB ordered two medical debt collection law firms to pay more than $577,000, along with a $78,800 penalty, to settle claims that they used overly aggressive collection tactics.  Further discussion regarding recent actions by the CFPB against law firms can be found here.