The Consumer Financial Protection Bureau ordered New Jersey-based collection law firm Pressler and Pressler LLP and debt buyer New Century Financial Services Inc. to stop churning out collection lawsuits allegedly based on nonexistent or flimsy evidence.
The proposed orders, filed in federal court Monday, also accuse the law firm’s two principal partners - Sheldon H. Pressler and Gerard J. Felt - of unfair litigation activities, specifically making false or unsubstantiated representations about owing debts.
The CFPB found that to mass-produce the lawsuits, Parsippany, N.J.-based Pressler and Pressler allegedly used an automated claim-preparation system and non-attorney support staff to determine which consumers to sue. Attorneys generally spent less than a few minutes, sometimes less than 30 seconds, reviewing each case before initiating a lawsuit, according to the CFPB.
The process allegedly allowed the firm to generate and file hundreds of thousands of lawsuits against consumers in New Jersey, New York and Pennsylvania between 2009 and 2014.
"For years, Pressler & Pressler churned out one lawsuit after another to collect debts for New Century that were not verified and might not exist," CFPB Director Richard Cordray said in a press release. "Debt collectors that file lawsuits with no regard for their validity break the law and violate the public trust. We will continue to take action to protect borrowers from abuse."Sheldon Pressler took issue with two broad CFPB claims: that the law firm needed physical documentation rather than electronic data to file claims and that it did not have a thorough validation process.
He said that the CFPB had "rigorously and thoroughly scrutinized the firm for more than a year and a half" but that the settlement involved "no consumer redress or restitution, no invalidation of judgments and no findings of the use of improper affidavit practices."
"This settlement is not about laws or rules that are currently in place," Pressler said in a press release. "Instead, the CFPB has formed its own unique interpretation of federal and state law today and applied those interpretations retroactively to our past practices that were, at the time, in accordance with federal and state laws."
The CFPB found that the respondents violated the Fair Debt Collection Practices Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act. Specifically, the CFPB found that Pressler and Pressler, the firm’s named partners, and New Century Financial Services:
Made false or empty allegations about consumer debts: The CFPB found that the firm, the named partners, and New Century filed lawsuits against consumers without sufficient basis. Neither the firm nor New Century reviewed documents supporting the validity of debts.
Filed lawsuits based on unreliable or false information: Some consumers had previously challenged the validity or accuracy of the debts, but the firm or New Century did not obtain or review information to justify their claims. The firm and New Century also filed suits and collected debt knowing that some account portfolios targeted for lawsuits contained unreliable or false information.
- Harassed consumers with unsubstantiated court filings: The CFPB found that the firm, the named partners, and New Century filed collection suits generated mainly by automated processes that relied on summary data. The firm won the vast majority of the lawsuits by default when consumers did not defend themselves, even though neither Pressler and Pressler nor New Century had verified that the debts were actually owed.
The CFPB’s orders require the firms to review specific account-level documents and information showing that a debt is accurate and enforceable. The two firms and lawyers also are barred from using affidavits as evidence to collect debts, the CFPB said.
Pressler and Pressler and its two partners were ordered to pay $1 million; New Century was ordered to pay $1.5 million in civil penalties.
The law firm said it settled the complaint "so we can move on with our law firm practice."
The company also said it believed it was asked to pay a disproportionate penalty "due to our financial success and perceived ability to pay."
In a separate case, Bock v. Pressler and Pressler, a U.S. district judge ruled in July 2014 that the law firm violated the FDCPA by not conducting a "meaningful review" of a collection action filed against a consumer.
At issue in the case was the involvement of an attorney with the firm who signed off on the civil collection suit against Daniel Bock Jr. Bock incurred charges on a credit card and owed money to a bank. His debt was purchased by Midland Funding LLC. Pressler and Pressler was then used to collect the debt, sending a collection letter and filing a complaint in the Superior Court of New Jersey on Midland's behalf.
New Jersey District Court Judge Kevin McNulty granted the plaintiff summary judgment using reasoning from a benchmark case Lesher v. The Law Offices of Mitchell N. Kay, which was decided in 2011. That case established "that it is false and misleading, within the meaning of FDCPA, for an attorney to send a debt collection letter without having meaningfully reviewed the case."
The investigation found that much of the work done on any case filed by Pressler is conducted by non-attorneys, a point with which McNulty found no issue. But when it was time for an attorney to review the case before it was filed in court, the computer system used by the firm showed Bock’s file was accessed for only four seconds.