Expert Says Practice of Law Exemption is Essential to Fix FDCPA

On September 7 the House Subcommittee on Financial Institutions and Consumer Credit held a hearing entitled “Legislative Proposals for a More Efficient Federal Financial Regulatory Regime.” One of the bills addressed was H.R. 1849, the Practice of Law Technical Clarification Act of 2017. insideARM published this story about the hearing.

In case you didn’t have the opportunity to watch that hearing, you may be interested to read highlights of the testimony of Anne P. Fortney, partner emerita with the law firm of Hudson Cook, LLP, in support of the bill. You can see her testimony in its entirety here.

In addition to her former practice as partner with Hudson Cook, Fortney served as Associate Director for Credit Practices at the Federal Trade Commission, as in-house counsel at a retail creditor, and as a practitioner counseling clients on compliance with consumer protection laws.

She began by explaining that none of the bills being considered at the hearing would jeopardize the protections contained within the major consumer financial services laws: the Fair Credit Reporting Act, the Fair Debt Collection Practices Act, and the Credit Repair Organizations Act. She suggested that the current bills would make these laws more “effective and fair for everyone…by bringing common sense into the interpretation of each law and by correcting some judicial misinterpretations.”

As it relates specifically to H.R. 1849, the Practice of Law Clarification Act of 2017 she argues:

…The original intent of the repeal of the attorney exemption from the FDCPA was to clarify that attorneys engaged in non-litigation collection activities are subject to the FDCPA. The FTC has always taken the position that the FDCPA should have a clear, narrow practice of law exemption for attorney debt collectors when they litigate on behalf of their clients. The failure to include such an exemption in 1986 resulted in the Supreme Court’s decision in Heintz, and its progeny, including cases that subject attorneys’ legal judgment in litigation to FDCPA liability, and the CFPB’s position that it has the authority to supervise attorneys litigating consumer debt collection cases.

H.R. 1849 – which essentially clarifies Congress’s intent – solves many of the problems stemming from Heintz by creating a specific, narrow practice of law exemption from both the FDCPA and the CFPB’s supervisory authority for attorneys that (1) serve, file, or convey formal legal pleadings, discovery requests, or other documents pursuant to the applicable rules of civil procedure, or (2) communicate in connection with a legal action to collect a debt on behalf of a client in, or at the direction of, a court of law, or in the enforcement of a judgment. Specifically, 1849 addresses the following issues:

• Attorneys can exercise legal judgment, and advocate zealously on behalf of their clients without fear of lawsuits and the reputational risks attendant to those lawsuits;
• Attorneys can exercise legal judgment, and advocate zealously on behalf of their clients without the burden of having to comply with complex technical rules that limit an attorney’s ability to settle lawsuits; and
• Attorneys will be subject to supervision and discipline only from their state bars and state supreme courts, which control their ability to practice law, and not from a consumer protection regulator that has in mind only the interests of consumer debtors, who are typically averse to a debt collection attorney’s clients.

H.R. 1849 also solves many of the problems that arose from the inclusion of a broad attorney exemption in the original version of the FDCPA. Specifically:

• Attorneys collecting debt are still subject to the FDCPA and the CFPB’s supervisory authority when they make collection calls, send dunning letters, attempt to skip trace, or engage in any other activities for which a law license is not required;
• Debt collection law firms that primarily engage in non-litigation debt collection activities, and which employ large numbers of non-attorney staff to do those activities, will still be subject to regulation and supervision;
• The legal process still has built-in protections for debtors (e.g., the judge, rules of civil procedure, and requirements concerning the veracity of court filings); and
• Attorneys collecting debt using legal process will still be subject to the supervision and discipline of their state bars and supreme courts. An attorney who commits almost any act that the FDCPA prohibits, or that would be considered a UDAAP, would also be subject to discipline by her state bar, and could potentially lose her law license. Indeed, the prospect of an attorney losing her law license is at least as foreboding as facing potential monetary liability for a violation of the FDPCA.

NARCA, the National Creditors Bar Association, also published a release in support of the bill (see it here), as did the American Bar Association (see it here).

In 2015 insideARM published an extensive discussion by attorney Don Maurice of the Heintz v. Jenkins Supreme Court decision. You can read it here.

H.R. 1849 is currently awaiting markup and then will be referred out of Committee to the whole House of Representatives. 

insideARM Perspective

Any discussion of this bill needs to include recognition of the CFPB past enforcement actions against law firm debt collectors. insideARM has written extensively on those prior enforcement actions, including Frederick J. Hanna and Associates P.C. and Pressler & Pressler LLP. Also see the April 18, 2017 article on the CFPB lawsuit filed against Weltman, Weinberg & Reis, L.P.A. That matter is still pending.

One of the key issues in those prior actions concerned "attorney involvement" in the decision to file lawsuits. While this bill allows the CFPB to retain supervision over law firms that primarily engage in non-litigation debt collection activities, that activity has not been the focus of the prior enforcement prceedings against law firms.

insideARM will continue to monitor this bill and report on future activity.