District Court: CFPB May Hold Law Firm Owners Individually Liable for Alleged Violations

by Holland & Knight LLP

Holland & Knight LLP


  • The U.S. District Court for the Western District of Wisconsin has ruled that the Consumer Financial Protection Bureau (CFPB) may hold the owners of two law firms offering debt-relief services liable for alleged violations of federal consumer protection laws.
  • The CFPB brought the action against two law firms and four lawyers associated with them, alleging violations of the Consumer Financial Protection Act of 2010 (CFPA) and Regulation O, which governs mortgage assistance relief services.
  • The court ruled that the defendants misrepresented their services to consumers and charged consumers impermissible advance fees.

The U.S. District Court for the Western District of Wisconsin ruled on July 20, 2016, that the Consumer Financial Protection Bureau (CFPB) may hold the owners of two law firms offering debt relief services liable for alleged violations of federal consumer protection laws. In a 54-page opinion, the court also ruled that the defendants misrepresented their services to consumers and charged consumers impermissible advance fees. In its ruling, the court punted on the question of whether the defendant law firms' debt relief services qualified as the practice of law and thus were outside of the CFPB's authority. Lastly, the court also held that the individual defendants may be liable not just for illegal profits, but for all of the revenue generated by the defendants' alleged illegal practices.


The CFPB brought suit against two law firms offering debt relief services and four lawyers associated with those companies, alleging violations of the Consumer Financial Protection Act of 2010 (CFPA) and Regulation O, which governs mortgage assistance relief services. Specifically, the CFPB alleged that while providing mortgage relief services to more than 6,000 consumers in 39 states, the defendants:

  • made misrepresentations about their services, in violation of Regulation O and the Consumer Financial Protection Act
  • failed to make certain disclosures required by Regulation O
  • collected advance fees in violation of Regulation O

The CFPB alleged that the individual defendants may also be held liable because they either participated directly in the illegal acts or had the authority to control the actions of the corporate defendants.

In response, the defendants argued that they were exempt from the CFPB's authority. The lawyer defendants argued that they offered the debt relief services as part of their practice of law, and qualified for a statutory exemption.

Last year, both sides moved for summary judgment. The court previously ruled on a number of issues presented at the summary judgment stage, including the validity of Regulation O and defendants' qualification for the statutory and regulatory exemption for attorneys. In this most recent ruling, the court addressed remaining issues related to: 1) liability and available remedies; 2) the CFPB's summary judgment claims relating to the defendants' alleged violations of Regulation O and the CFPA; and 3) the defendants' summary judgment claims for two of the individual defendants.


Representations About Legal Services and the Practice of Law Exemption. The court concluded that the defendants represented to consumers through a variety of media that they would receive the services of an attorney and legal representation. The court found that the defendants did so on their website and in scripts used by intake specialists that enrolled clients by, among other things, making claims that they were "one of the most sophisticated consumer protection law firms in the country" and that "our mortgage relief specialists are some of the highest rated professionals in the field."

It is important to note that while the court found that defendants' actions implied that consumers would receive an attorney, the court did not rule that consumers did not actually receive legal services.The court reserved the question for trial of whether the defendants' services qualified as the practice of law, acknowledging that is a state-by-state question that involves applying each state's practice of law definition to the defendants' services.

Advance Fees. Under Regulation O, a debt relief company may not charge any fees prior to obtaining a written loan modification agreement. The court found that the defendants' monthly fee structure violated this prohibition.

Additional Violations of Regulation O. The court found that the defendants failed to make certain disclosures required by Regulation O, that the defendants impermissibly implied that consumers should stop speaking with lenders and making loan payments, and that the defendants steered consumers away from nonprofit loan counseling services.

Individual Liability for Owners. The court stated that the individual defendants could be held liable if the CFPB could show that each individual: 1) participated directly in the illegal practices or acts or had the authority to control them, and 2) knew or should have known about the illegal practices. Applying this standard, the court held that three of the four individual defendants may be held individually liable for the law firms' violations if the corporate defendants are found liable at trial. Two of the three individuals were held liable because they partly owned and exercised control over the company, including an individual that served as general counsel. The third individual was held liable because he managed the day-to-day affairs of the company and made key decisions about the firm's operations and services. The court, however, did notfind the individual defendants liable for misrepresentations made to consumers by lead generators hired by the corporate defendants at the summary judgment stage. The court reserved this question for trial to determine if any of the individual defendants actually exercised any control over the lead generators.

Damages. The CFPB sought restitution or disgorgement of all revenue – a total amount of more than $20 million against all defendants, a permanent injunction and civil penalties of up to $1 million per day for knowingly violating the Consumer Protection Act and Regulation O. The defendants argued that, if found liable, damages should be profits received as opposed to disgorgement of all revenue.

The court held that if the defendants are found liable at trial, they will be liable for all revenue received – upwards of $20 million. With respect to remedies, the court specifically held that "the appropriate measure for restitution or disgorgement in this case is the defendants' net revenue from the advance fees that they collected, less any refunds that the consumers have received. Unless defendants are found exempt under the Act and Regulation O, their revenues all flow from their illegal practices of requesting and receiving advance fees, making certain misrepresentations to consumers and failing to make certain disclosures. Their liability should not be reduced to account for consumers who received some form of benefit." The court specifically rejected the defendants' contention that the measure of damages should be net profits, i.e., the gross revenue generated from the wrongdoing reduced by the business expenses incurred.


This case, set to go to trial this fall, brings to the forefront a number of issues relating to the CFPB's jurisdiction and the types of implied representations that may bring companies in the financial services industry to the attention of the CFPB. The court's decision to allow the CFPB to pursue disgorgement beyond profits made by the corporation to all revenues generated from the corporate and individual defendants is significant. It raises the monetary stakes for any organization or individual whose actions are subject to Regulation O.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Holland & Knight LLP | Attorney Advertising

Written by:

Holland & Knight LLP

Holland & Knight LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.