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From Banking and Finance Law Daily, April 25, 2016

CFPB is ‘monkey wrench’ in lawsuit mill’s gears

By John M. Pachkowski, J.D.

The Consumer Financial Protection Bureau has entered into two consent orders with a debt collection law firm, two of the firm’s principal partners, and a debt buyer ordering them “to stop churning out unfair and deceptive debt collection lawsuits based on flimsy or nonexistent evidence.” The CPFB based the consent orders on violations of the Fair Debt Collection Practices Act and provisions of the Consumer Financial Protection Act that prohibit unfair and deceptive acts or practices in the consumer financial marketplace.

The consent orders were entered into by the bureau with Pressler & Pressler LLP, a New Jersey-based law firm, Sheldon H. Pressler and Gerard J. Felt, partners of the firm, and New Century Financial Services, also based in New Jersey.

100,000 lawsuits per year. Under the terms of the consent order with Pressler & Pressler, the CFPB found that the law firm, in a five-year period between 2009 and 2014, filed more than 500,000 debt collection lawsuits. To accomplish this, the bureau noted that the law firm used an automated claim-preparation system and non-attorney support staff to determine which consumers to sue; and that attorneys generally spent less than a few minutes, sometimes less than 30 seconds, reviewing each case before initiating a lawsuit.

Both consent orders against the parties also found that they:

  • made false or empty allegations about consumer debts;
  • filed lawsuits based on unreliable or false information; and
  • harassed consumers with unsubstantiated court filings.

Redress. In light of the FDCPA and UDAAP violations, Pressler & Pressler, the named partners, and New Century Financial Services are prohibited from:

  • filing lawsuits or threatening to sue to collect debts unless they obtain and review specific account-level documents and information showing the debt is accurate and enforceable; and
  • using affidavits as evidence to collect debts unless they accurately describe relevant facts including that the individual executing the affidavit has personal knowledge of the debt, or, if not, has reviewed documentation related to the debt.

In addition, the law firm must also keep an electronic record showing it is following proper procedures. Finally, the law firm and the named partners must pay a penalty of $1 million to the CFPB’s Civil Penalty Fund. New Century must pay a penalty of $1.5 million.

Violating public trust. Commenting on the consent orders, CFPB Director Richard Cordray stated, “For years, Pressler & Pressler churned out one lawsuit after another to collect debts for New Century that were not verified and might not exist. Debt collectors that file lawsuits with no regard for their validity break the law and violate the public trust. We will continue to take action to protect borrowers from abuse.”

Companies: New Century Financial Services; Pressler & Pressler LLP

MainStory: TopStory CFPB ConsumerCredit DebtCollection DoddFrankAct EnforcementActions Loans UDAAP

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