Collection Law Firm Uses Recent Ruling Against CFPB to Bolster FDCPA Enforcement Defense

A federal judge in Indiana last week dismissed part of an enforcement action brought by the Consumer Financial Protection Bureau (CFPB) against a for-profit college under the Truth in Lending Act (TILA) because TILA actions are subject to a one-year statute of limitations. A collection law firm currently embroiled in a nasty legal fight with the CFPB jumped on the opportunity to note that the FDCPA carries similar restrictions.

Judge Sarah Evan Barker, in the Southern District of Indiana, denied in part and granted in part a motion to dismiss a case against ITT Educational Services, an operator of for-profit technical colleges. ITT was sued by the CFPB for allegations it misled students and steered them into high-cost, high-interest education loans, violations of the TILA and UDAAP provisions of the Consumer Financial Protection Act (CPFA).

ITT filed a motion to dismiss the case on several grounds, including the CFPB’s constitutionality and its lack of authority over college operators. Judge Barker rejected most of the arguments, leaving the lawsuit primarily intact.

But she did dismiss the CFPB’s claims under the TILA as time-barred, as the law carries a one-year statute of limitations. The CFPB argued that it was suing under a different section of the TILA, thus, its claim wasn’t governed by the SoL. And besides, the CFPB said, the SoL applies only to private actions. Judge Barker, however, noted that even the CFPB’s claim is governed by the one-year limit because it was a civil action, not an administrative action.

She dismissed the one count under the TILA, but denied ITT’s motion to dismiss three other counts under the CPFA.

On Wednesday, collection law firm Frederick J. Hanna & Associates filed a notice that it was using the ruling to support its own motion to dismiss a case brought by the CFPB. (Hanna’s notice also contains a full copy of the ITT ruling.)

Hanna and the CFPB have been locked in a nasty legal battle ever since the Bureau announced its lawsuit last summer. The CFPB alleges that the firm was a “lawsuit mill” that churned out debt collection actions and violated the FDCPA en masse.

The case has drawn heavy scrutiny from ARM legal experts who claim that the Bureau might be overstepping its authority in targeting a law firm. Hanna certainly agrees with that contention, engaging in a testy back-and-forth argument with the CFPB in court filings.

Like in the ITT action, the CFPB sued Hanna under the CPFA and a consumer statute, the FDCPA in this case. The notice from Hanna this week argues that the FDCPA carries a similar SoL as the TILA and the judge in the case needs to take that into consideration.

“[We] have argued the Bureau’s FDCPA claims are barred by the one-year statute of limitations in § 1692k, and the Bureau countered in the same manner it did in ITT by arguing § 1692k applies only to private actions,” the firm wrote in its notice. “The court’s reasoning in ITT therefore applies equally here.”

The focus on the FDCPA’s statute-of-limitations for bringing legal action is relevant because the CFPB has vigorously argued that it does not apply to government actions. It said in its initial response to Hanna’s motion to dismiss that the one-year limitation applies only to private actions brought by consumers and provided numerous examples in the legislative history of the FDCPA. But it took the argument even further.

The CFPB wrote that even if the specific text of the FDCPA was not clear, a long-running principle of statutory construction would allow it to take enforcement actions on acts older than a year: quod nullum tempus occurrit regi – “Time does not run against the King.” The CFPB wrote that “In the absence of a congressional enactment clearly imposing a limitations period, the United States, in its governmental capacity, is not subject to one.”

Hanna filed its motion to dismiss in September 2014, and the CFPB responded three weeks later, and Hanna responded shortly thereafter. The filing this week is the first substantive action on the case since then.