CFPB takes action against frivolous debt-collection lawsuits

The agency is cracking down on a law firm it says sued thousands of home-equity loan, student loan, and other borrowers – without bothering to see if those consumers actually owed the debts

CFPB takes action against frivolous debt-collection lawsuits

The Consumer Financial Protection Bureau is cracking down on a debt-collection firm it says files lawsuits against consumers who may not actually owe debts.

The CFPB is suing Forster & Garbus, a debt-collection law firm that contracts with Citibank and Discover, among other clients, in US District Court. The firm collects on home-equity loan, student loan, credit card and auto loan debts, among others, according to the complaint filed by the CFPB.

The bureau alleged that Forster & Garbus violated the Fair Debt Collection Practices Act by representing that attorneys were “meaningfully involved” in preparing and filing its lawsuits. In fact, the CFPB alleged, Forster & Garbus basically rubber-stamped its lawsuits, giving debt files only a cursory review before deciding to sue consumers.

“Using high-volume litigation tactics, Forster & Garbus collects substantial sums of money from consumers who may not actually owe debts or may not owe debts in the amounts claimed in the collection suits,” the CFPB said in its court filing.

According to the bureau’s complaint, Forster & Garbus’ clients have placed more than 136,700 accounts with the firm for collection since 2014. The CFPB alleged that unless a consumer disputed a debt, the law firm generally didn’t conduct any inquiry into whether the debt was actually owed. The bureau also said that the firm – despite employing only about 11 lawyers in addition to its two named partners, filed lawsuits “on a massive scale.”

Between 2014 and 2016, Forster & Garbus filed more than 99,000 collection lawsuits, according to the CFPB. However, the bureau said, those suits were filed without any of the firm’s attorneys “being meaningfully involved in reviewing the merits of the lawsuits, including conducting any inquiry into the facts, or in preparing the pleadings.”

Instead, according to the CFPB’s complaint, the firm relies on non-attorney staff and automated processes to determine whether a collection account is “suit-worthy.” Accounts so deemed are then presented to partner Mark Garbus – who generally approves more than 90% of the accounts presented to him for lawsuits, the CFPB said.

The other attorneys on staff at the law firm approved lawsuits against consumers in much the same way, the CFPB said. According to the bureau’s complaint, one former associate attorney at the firm allocated “roughly two minutes” to reviewing each debtor’s file before approving a lawsuit. According to the CFPB, between 2014 and 2016 the firm routinely filed lawsuits against consumers without possessing supporting documentation to prove those consumers owed a debt. In 2014, of the 45,621 accounts on which the law firm filed a suit, it possessed “original or supporting documentation” for only 8,958 – less than 20%.

Since the firm’s attorneys don’t actually conduct reviews of the debt accounts, the CFPB said, debt buyers represented by Forster & Garbus can buy and try to collect debts “without any warranty that the debts are valid, accurate, or were owned by the seller.” 

The firm also files lawsuits on behalf of creditors – including Citibank and Discover – that have been accused of unlawful debt-collection practices, including alleging consumers owe debts they don’t actually owe. Forster & Gorbus has filed lawsuits on behalf of those creditors without investigating or verifying the information that served as the basis for those lawsuits, according to the CFPB.

The CFPB’s lawsuit asks the court to grant injunctive relief, award damages, order Forster & Gorbus to pay restitution to “consumers harmed by its unlawful conduct,” impose civil money penalties against the firm, and order it to “disgorge all ill-gotten gains.”