The Consumer Financial Protection Bureau (CFPB) is cracking down on law firms that offer debt relief services to consumers in the same way it has been cracking down on banks and other debt relief companies for misrepresenting their services and charging up-front fees. Two law firms have recently been found by a federal judge, to be in violation of federal consumer laws and can be held liable by the CFPB.
The CFPB is the federal government agency responsible for consumer protection in the financial sector. Its oversees banks, credit unions, securities firms, payday lenders, mortgage-servicing operations, foreclosure relief services, debt collectors and other financial companies operating in the United States. A relatively new agency, the CFPB was created in 2011 in response to the financial crisis of 2007-2008.
A federal judge, Barbara B. Crabb of the U.S. District Court for the Western District of Wisconsin, ruled recently that the owners of two law firms providing debt relief services misrepresented their services to consumers and collected advance fees in violation of CFPB Regulation O. As a result, they may be held liable by the CFPB for violating federal consumer protection laws.
Regulation O, under the Consumer Financial Protection Act of 2010, prohibits debt relief providers from requesting or receiving payment of any fee or other consideration until there is a written agreement between the consumer and the loan holder.
The CFPB filed a lawsuit against two law firms, The Mortgage Legal Group LLP and Consumer First Legal Group LLC and attorneys Thomas G. Macey, Jeffrey J. Aleman, Jason E. Searns and Harold E. Stafford in 2014, alleging that while providing mortgage relief services to more than 6,000 consumers in 39 states, the defendants misrepresented their services, failed to make certain disclosures required under the Consumer Financial Protection Act and collected advance fees.
The CFPB also claimed that four attorneys in the case; Macey, Aleman, Searns and Stafford, attorneys with a background in consumer law, should be held liable because they either participated directly in the illegal acts or had the authority to control the actions of the corporate defendants.
But the defendants argued that their fees were legal because their debt relief services were offered as part of their law firms, making them exempt from the bureau’s authority. But the judge disagreed. She found that both the initial fees and the monthly retainer fees charged by the firms qualify as advance fees. She also agreed with the CFPB’s argument that lawyers in the case with experience in consumer law may be held individually responsible.
Those issues, among others, will be resolved at trial, according to Judge Crabb, a trial scheduled to take place in October or November.
If found liable at trial, the defendants will be liable for all revenue received which includes the advance fees collected from their clients minus any refunds made. The Mortgage Law Group received total net revenues in the amount of $18,331,737; Consumer First Legal Group received $2,992,296.
Consumers seeking debt relief assistance must be very careful when choosing debt relief companies.
Don’t pay until you see results.
A good debt resolution company will not charge any fees until you complete a settlement.
Bad companies will charge you fees BEFORE they get you any results. If you encounter a company like this, steer clear! Good companies will want you to think carefully before enrolling in their program and encourage you to make the decision that’s right for you.