CFPB Settles Nine-Year Litigation for Regulation O Violations for $12 Million
The CFPB recently entered into a settlement agreement with a law firm and its attorneys more than nine years after it filed suit. As part of the settlement, the law firm and the attorneys will pay approximately $10.9 million in consumer restitution and an additional $1.1 million in civil money penalties.
In 2014, the CFPB brought an action against two law firms and their attorneys (collectively, the Providers) alleging that they misrepresented their services, failed to make mandatory disclosures, and collected unlawful advance fees in violation of Regulation O. Sometime after, one of the law firms filed for bankruptcy. On summary judgment, the district court invalidated the portions of Regulation O’s exemptions that required attorneys to comply with state laws and regulations because those exemptions were drafted more narrowly than the statutory exemption they purported to implement. But it held that the Providers were not exempt because their services did not amount to the practice of law, and awarded approximately $22 million in restitution and $37 million in penalties.
On appeal, the Seventh Circuit affirmed the district court’s decision to invalidate certain provisions of Regulation O that purported to impose conditions or limitations on the attorney exemption. It also invalidated an additional provision, which purported to require that attorneys be licensed in the state in which their clients resided. However, it remanded the $22 million restitution award and $37 million penalty award for recalculation. On remand, the district court recalculated the restitution award to approximately $10.9 million and the penalty award to approximately $18.4 million. It also imposed an eight-year ban on all the Providers related to mortgage assistance relief products or services, except for one of the attorneys who was subject to a 5-year ban.
As part of the settlement, the Providers will pay almost $10.9 million in restitution and $1.1 million in penalties. The Providers also agree to uphold their respective bans related to mortgage assistance relief products or services.
WBK’s previously coverage of the CFPB’s enforcement action can be found here.
