Yesterday I commented on a recent decision from the Eleventh Circuit Court of Appeals, Miljkovic v. Shafritz and Dinkin, P.A. et al., noting it spelled trouble for attorneys engaged in debt collection. Miljkovic incorrectly construes the Fair Debt Collection Practices Act and its legislative history as well as two U.S. Supreme Court cases, to arrive at the mistaken conclusion that attorney litigation activity is regulated by the FDCPA, except for one minor exemption.
Hours later, a trial court sitting in the Eleventh Circuit handed down a decision in CFPB v. Frederick J. Hanna & Associates, P.C.
To put it another way, the CFPB contends Hanna’s lawyers violated consumer protection law because they are not diligently lawyering against consumers.
Gutting Dodd-Frank’s Practice of Law Exclusion
The court finds the authority for the CFPB to regulate how an attorney files and prosecutes a lawsuit in Title X of the 2010 Dodd-Frank Act. Title X contains an exclusion for the practice of law:
Except as provided under paragraph (2), the Bureau may not exercise any supervisory or enforcement authority with respect to an activity engaged in by an attorney as part of the practice of law under the laws of a State in which the attorney is licensed to practice law.
There are two strangely worded exceptions under the referenced “paragraph (2).” It is the second exception to the exclusion that allows the CFPB to regulate attorneys — at least that’s what the court found. The exception covers “the offering or provision of a consumer financial product or service . . . that is otherwise offered or provided by the attorney in question with respect to any consumer who is not receiving legal advice or services from the attorney in connection with such financial product or service.”
Still, it would seem that an attorney representing a creditor in a lawsuit against a debtor would not have “offered or provided” a financial product or service. But that is exactly what the CFPB believes and so did the court. The decision allows the regulation of the practice of law, because an attorney suing a debtor to collect a consumer debt is deemed to be providing the debtor with a financial product or service.
Not Limited to Debt Collection Attorneys
The decision is so broad in its reading of the practice of law exception that it can be construed to allow CFPB regulation over every attorney engaged to represent lenders in a consumer credit matter. It can be used by the CFPB to take enforcement actions against law firms practicing debt collection or foreclosure law or representing lenders in loan transactions.
Of immediate concern to all attorneys, the decision places no boundaries on the CFPB’s regulation of attorney professional conduct. It makes no distinction between an attorney who handles one loan closing for a bank and one who files hundreds of collection cases a week.
State Bar Rules v. CFPB Rules
This dual regulation will lead to conflict between state rules of professional conduct and what the CFPB desires. When an attorney decides to follow the CFPB’s directives as to how she should exercise her professional judgment, treat a client confidence or handle a client’s funds, can a state bar regulator discipline the attorney when the directive causes the attorney to violate the state’s professional conduct code? As the new federal regulator of attorney conduct, the decision might even allow the CFPB to make its own rules governing attorney-client confidentiality, what constitutes a meritorious claim or what an attorney must do when a consumer demands return of funds held in trust for its creditor clients.
These are troubling questions. As these conflicts arise, attorneys will have little guidance on how they should proceed.
The decision does not end the case and the law firm may still prevail. But the decision establishes a terrible precedent and certainly emboldens the CFPB in its effort to regulate attorney professional conduct.