\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0The Consumer Financial Protection Bureau (CFPB) was established in the wake of the 2008 Recession to assume a wide range of regulatory functions. Created by the Dodd-Frank Act in 2011, the CFPB regulates a broad range of activities and actors, from large financial institutions to the smallest originators of consumer financial products and services, including law firms.1 The CFPB combines functions once held by several disparate agencies, including the right to enforce various federal statutes, such as the Real Estate Settlement Procedures Act (RESPA), the Fair Debt Collection Practices Act (FDCPA) and the Dodd-Frank Wall Street Reform and Consumer Protection Act (CFPA).2
\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0A key aspect of the CFPB’s enforcement regime is its ability to bring civil enforcement actions against businesses and individuals for violations of the federal consumer protection laws it administers. In its first four years alone, the CFPB has completed more than 90 enforcement actions, resulting in more than $10.1 billion in fines.3 In these formative years, the CFPB has also exhibited its willingness to pursue law firms for violations. For attorneys, compliance with the CFPB’s requirements, however, requires an understanding not only of the substantive law that the CFPB enforces, but also the scope of the CFPB’s authority.
\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Although the CFPB wields broad enforcement power, its authority is limited by the CFPA’s “practice of law exclusion,” which restricts the Bureau’s authority over an attorney’s activities while engaged in the practice of law.4 However, this limitation is subject to two broad exceptions that bring attorneys within CFPB’s authority.
\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0First, the practice of law exclusion does not limit the CFPB’s authority when an attorney engages in the practice of law under statutes transferred to the CFPB’s purview.5 Because the CFPB acquired authority to enforce statutory rights held by separate agencies, this provision leaves that existing authority unimpaired. For instance, the FDCPA applies to attorney debt collection actions, even those involving litigation,6 and the practice of law exclusion would not impair the CFPB’s ability to enforce FDCPA rights.
\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Second, the practice of law exclusion does not apply to offers or provisions of enumerated consumer financial products or services that satisfy one of two criteria under Title 12 Subsection 5517(e)(2) of the United States Code. The exclusion does not limit CFPB authority over offers or provisions that are not part of —or incidental to—the practice of law that occurs exclusively within the scope of the attorney-client relationship under subsection 5517(e)(2)(A). As the district court in CFPB v. Frederick J. Hanna & Associates explained, this “arguably” includes debt collections on behalf of an attorney’s clients.7 However, the exclusion does not limit the CFPB’s authority over financial services or products offered with respect to any consumer that is not receiving legal advice or services in connection with the financial products or services under subsection 5517(e)(2)(B) of Title 12. This exception casts a broader net over the practice of law.
\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0The court in Hanna addressed the second exception.8 There, a Georgia collection firm argued the practice of law exclusion removed the firm from CFPB authority. The district court disagreed and found that because the consumers subject to collection activities did not receive legal advice or services from the attorney in connection with the financial service, subsection 5517(e)(2)(B) removed the collections activity from the practice of law exclusion.9 Because the subsection 5517(e)(2) exceptions are disjunctive, the court held that either may subject an attorney to CFPB authority.
\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Although the practice-of-law exclusion’s moniker is deceptively broad, it primarily protects those in an attorney-client relationship with consumers. This should come as no surprise, given that consumer protection motivated Congress to promulgate the Dodd-Frank Act. Attorneys engaged in litigation or services on the other side of the “v” as consumers, however, should be wary of the exclusion’s actual protections and monitor their practice for compliance.
\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0The CFPB also exercises authority over attorneys under the CFPA. The Act applies to “covered persons,” defined in Title 12 Subsection 5481(6) of the United States Code as “any person that engages in offering or providing a consumer financial product or service” and any affiliate acting as a service provider. While the term “consumer financial product or service” may seem restrictive, the statutory definition includes real estate settlement services, transmitting or exchanging funds, acting as custodian of funds, providing services to assist consumers with debt management, credit modification, or avoiding foreclosure, as well as debt collection.10
\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Attorneys should be particularly concerned with whether they are offering or providing a “consumer financial product or service,” and those engaged in these practices should be especially mindful of CFPB statutes and regulations.
\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Of course, attorneys must consider more than the authority of the CFPB; they must also understand the substance of the rules that the CFPB enforces. In its short time enforcing consumer protection laws, the CFPB has pursued firms for violations in mortgage assistance relief, real estate settlements and debt collections.
\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Mortgage assistance relief
\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Unsurprising in the wake of the sub-prime foreclosure crisis that prompted Dodd-Frank, the CFPB is particularly active in preventing wrongful mortgage modification schemes that target distressed homeowners facing foreclosure. These enforcement actions focus on firms’ representations to consumers that they will provide relief through legal action or negotiations with lenders.
\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Several federal rules prohibit these activities. Subsection 5536(a)(1)(B) of Title 12 also makes it unlawful for any “covered person or service provider” to engage in any unfair, deceptive or abusive act or practice, while subsection 5531 authorizes the CFPB to prevent a covered person or service provider from engaging in such an act or practice in connection with any transaction for or offer of a consumer financial product or service.