Trott debt collection bill draws consumer groups’ ire

Washington — Legislation proposed by U.S. Rep. Dave Trott is drawing the ire of consumer groups who say it would allow attorneys and law firms to sidestep federal law barring abusive debt-collection practices such as making false threats and pressuring people to pay debts they don’t actually owe.

Critics also say the bill could pose a conflict of interest for Trott, a Birmingham Republican who is planning to retire next year, by potentially benefiting his former foreclosure law firm in Farmington Hills.

The firm, Trott Law PC, is one of Michigan’s largest foreclosure firms and has been sued in federal court for alleged violations of the Fair Debt Collection Practices Act. The law firm disputes the allegations.

Trott sold his stake in the law firm nearly three years ago after he was elected to Congress and denies any conflict. He says his critics misunderstand the law in Michigan, where lenders can foreclose without going to court.

By contrast, his legislation would exempt lawyers from liability under the Fair Debt Collection Practices Act only to the extent that they are representing a client in court.

The Fair Debt Collection Practices Act prohibits certain debt-collection practices, such as attempting to collect unauthorized amounts.

“The technical correction proposed in HR 1849 would not help Rep. Trott or his former law firm in any way, and the legislation would have no impact on the frivolous lawsuit,” Trott spokeswoman Katie Vincentz said.

Trott’s bill would also exempt licensed attorneys engaged in litigation from the supervision and enforcement authority of the Consumer Financial Protection Bureau, which has gone after several law firms in recent years for questionable debt-collection practices.

Supporters of the legislation say lawyers are already regulated by the state supreme courts that license them, and that Congress and federal agencies shouldn’t interfere.

“This limited, targeted and common-sense bill clarifies that attorneys engaged in litigation should not be subject to interference by federal agencies,” Trott said this month at a hearing of the House Subcommittee on Financial Institutions and Consumer Credit.

“We must protect the system against any attempts to tip the scales of justice by interference with our independent judiciary.”

But April Kuehnhoff, a staff attorney with the National Consumer Law Center in Boston, has concerns about eliminating liability for what she calls debt-collection “mills” – large legal practices that generate and file tens of thousands of debt collection cases a year.

Some of these firms have gotten in trouble in recent years for tactics such as filing false or misleading pleadings, filing lawsuits in the wrong venue far from a debtor’s home and filing suits without any meaningful review of account-level documentation of the alleged debt.

Another high-pressure strategy used by some attorneys leans on consumers to “settle” a case in the hallway outside the courtroom when he or she arrives for court without their own lawyer, Kuehnhoff said.

“All of these practices are litigation-related practices that attorneys are engaging in, and debt collection is a huge portion of what happens in trial courts around the country,” she said.

“The idea that state regulators or bar advocates or the courts themselves are going to be able to take care of all of this is really unrealistic. These regulators are overwhelmed dealing with other important regulatory matters.”

Trott said the concerns are overblown.

“If you’re in court and doing something bad, you’ve got, potentially, opposing counsel, the state bar, the judge – so I think there’s adequate protection there,” Trott said in an interview.

Brian Marshall, policy counsel for the advocacy group Americans for Financial Reform, said one of the reasons Congress adopted the Fair Debt Collection Practices Act in 1977 was empowering consumers to sue to enforce their rights under the law.

Trott’s bill would exempt lawyers from being sued to the extent they are litigating on behalf of a client.

“You can file a bar complaint against a lawyer, but it’s not like you could take a lawyer to court to get compensation or relief from the wrongdoing,” Marshall said.

With this legislation, Trott is doing a “favor” for debt-collection law firms and attorneys by giving them a competitive advantage over non-attorney collectors, Marshall said.

“We think lawyers should follow the law, and Rep. Trott disagrees,” Marshall said. “He wants to create a carve-out so that lawyers and law firms can engage in abusive tactics that anyone else without a bar card would be prohibited from doing.”

But Trott stressed that, with his legislation, the Fair Debt Collection Practices Act would still cover lawyers’ activities out of court, such as calls to debtors and demand letters.

Kuehnhoff suggested the bill would complicate enforcement efforts, creating a situation in which false or deceptive statements made in a letter to a consumer could be punished, but the same statement filed in court could not be.

“You would end up with this very odd solution where the same statement could be a violation in one place and not a violation made in another place,” she said.

Trott’s bill is backed by ACA International, an association of credit and collection professionals; the Commercial Law League of America; and the National Creditors Bar Association.

The legislation also is supported by the American Bar Association, which says the measure is narrowly tailored to exempt creditor lawyers engaged in legal proceedings, and would not create a broad exemption for non-litigation activities. The Federal Trade Commission has recommended the change for years.

Congress initially exempted attorneys when it adopted the Fair Debt Collection Practices Act. But a few lawyers abused the system, calling debtors frequently late at night, making false threats and engaging in other practices that would have been prohibited were they considered debt collectors under the law.

Congress responded in 1986, saying attorneys hired by creditors could be held liable under the law if they “regularly” engage in debt collection.

The courts have interpreted that liability to extend to litigation-related activities, such as filing a lawsuit on behalf of a client.

Anne P. Fortney, partner emerita with the Maryland-based law firm Hudson Cook, said that interpretation has created somewhat of a cottage industry for plaintiffs attorneys who routinely sue law firms over “technical but harmless” violations of the Fair Debt Collection Practices Act, resulting in penalties and attorney fees.

She said plaintiffs suing law firms over legal pleadings often have not suffered any harm, but courts have found that they can be sued over technical violations of the law for information they included in a legal complaint, for harmless errors, or even mistakes that benefit the consumer.

She offered an example involving venue. The Fair Debt Collection Practices Act requires a debt collector to sue in the locality in which the debtor lives or signed the contract at issue.

A federal appellate court recently said a debtor could sue a law firm for filing a collection lawsuit in the wrong judicial sub-district in Cook County, Illinois – a technical violation of the law – even though the court selected was within the debtor’s same county. The debtor alleged no harm, and was not dragged into a far-flung court, Fortney said.

“The whole point of this bill is there’s a distinction between someone who collects debts as a business and someone engaged in the practice of law,” Fortney said.

“The benefits overall are clear, and whatever problems are being discussed or raised are really speculative.”

Consumer advocates say some violations of the Fair Debt Collection Practices Act are harmful. They highlight suits filed by the Consumer Financial Protection Bureau against firms such as the Georgia-based Frederick J. Hanna & Associates, which the bureau slapped with a $3.1 million penalty in 2015.

The bureau alleged the Hanna firm made misrepresentations to consumers by filing collection lawsuits signed by attorneys when the attorneys had little or no involvement.

The bureau said the suits were created through automated processes by non-lawyer staffers, allowing them to generate hundreds of thousands of suits. One attorney signed more than 130,000 collection suits over two years, according to the bureau.

The federal consumer bureau also accused the firm of filing faulty or unsubstantiated evidence in court in the form of sworn statements from clients. In some cases, the bureau said, the clients lacked the specific documents or details showing the debt was accurate and enforceable.

In Michigan, Ann Arbor attorney Andrew J. McGuinness in 2015 filed a proposed class-action lawsuit against Trott Law PC and Trott individually, alleging in part that they violated federal and state collection practices laws by sending certain “deceptive” form letters in an effort to foreclose on hundreds of thousands of homes.

The plaintiffs claim that the letters could give consumers the false impression that they were from an attorney when, the suit alleges, attorneys were not involved in a meaningful way in drafting, reviewing or sending the letters.

The firm and Trott are fighting the suit, saying in court records the letters were not misleading, and denying any violations of state or federal law. U.S. District Judge David Lawson in Detroit last year ruled that three types of claims against the firm and Trott could move forward, while he dismissed others.

The firm did not respond to calls for comment.