H.R.5082 Proposes Change to FDCPA and CFPB

September 12, 2018      |      James G. Kozelek, Esq.   

On February 23, 2018, Representative Alexander Mooney (R-WV) and Representative Vicente Gonzalez (D-TX) introduced H.R.5082 – Practice of Law Technical Clarification Act of 2018, which proposes to remove attorneys from Consumer Financial Protection Bureau (CFPB) supervisory and enforcement authority and from the definition of a debt collector under the Fair Debt Collection Practices Act (FDCPA) when engaged in legal proceedings. The full text of the Bill can be found here:

The House Financial Services Committee approved the resolution by a 35-25 margin on March 21, 2018. The next step is for the resolution to be placed on the legislative calendar for a full House vote.

Substantively, H.R.5082 varies from the earlier version of the Bill, H.R.4550, which was introduced by Mooney and Gonzalez on December 5, 2017. H.R.5082 removes attorneys and firms from the definition of debt collector when:

        (i) such firm or attorney is engaged in litigation activities in connection with a legal action in a court of
            law to collect a debt on behalf of a client, including –
            (III) any other activities engaged in as part of the practice of law, under the law of a State in which
                  the attorney is licensed, that relate to the legal action; and
        (ii) such legal action is served on the defendant debtor, or service is attempted, in accordance with the
             applicable statute or rules of civil procedure.

Essentially, the attorney will not be considered a debt collector if the attorney is pursuing a debt as part of a legal action for a client. This exception also covers any activities related to the legal action that the attorney is pursuing in the state in which the attorney is licensed.

In addition, H.R. 5082 seeks to close a loophole allowing the CFPB supervisory and oversight authority of attorneys:

        “Moreover, attorneys are removed from supervisory or enforcement authority by the CFPB under 12
        U.S.C. 5517 (e)(2)(B) …
        unless such financial product or service is provided by a licensed attorney who is not a debt collector
        as described under section 803(6)(f) of the Fair Debt Collection Practices Act.”

In essence, 12 U.S.C 5517 (e)(2)(B), in its current form, treats an attorney representing a creditor in a legal action against a debtor as having “offered or provided” a financial product or service, therefore subjecting the attorney to CFPB authority.

Since its introduction, multiple industry groups have come out either in support of or against H.R.5082.

Groups such as the American Association for Justice, the National Association of Consumer Advocates, and the National Center for Law and Economic Justice argue that, if passed, this Bill will cause a “rush” to litigation as attorneys seek to immunize their conduct. They also fear that the Bill will allow attorneys to employ unfair litigation tactics currently prohibited by the FDCPA (i.e., pursuing lawsuits in distant courts, lawsuits to collect “zombie” debt, and lawsuits to collect amounts not owed or discharged in bankruptcy).

At the same time, groups such as the American Bar Association and the National Creditors Bar Association (NARCA) have voiced support for passage of the Bill. These groups argue that all non-litigation collection activities are still covered. Furthermore, state courts are currently regulating attorneys, and these groups believe that those courts are in the best position to do so. Finally, they argue that the Bill as crafted provides only a narrow litigation exception to the protections offered by the FDCPA, and merely seeks to make clear congressional intent to exclude attorneys from the FDCPA when litigating claims.

How does this potential legislation impact the debt collection industry? As an initial matter, if passed, the Bill will eliminate a duplicitous layer of enforcement at the federal level and return oversight and enforcement to the state and local levels. It will also greatly impact attorneys engaged in debt collection, as well as credit grantors and others who regularly seek judicial intervention to collect bad debt through litigation. However, debtors will not lose any real protection and “bad actors” will still be subject to liability for their acts.

While the Bill has made it to the House floor for a vote, no vote is imminent. Therefore, there is still time to urge your elected representatives to support passage of this important piece of legislation.

For more information, please contact James G. Kozelek, Esq. Mr. Kozelek is Managing Shareholder of Weltman’s Columbus office and chairs the firm’s Commercial Collections Group. Focusing exclusively on commercial collections, litigation, and arbitration, he partners with banks and businesses both local and national in scale to offer comprehensive recovery strategies.