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Suit Challenges CFPB Authority Over Legal Services
The National Law Journal
In the latest constitutional challenge against the Consumer Financial Protection Bureau, the agency was accused Monday of overstepping its authority by attempting to regulate the practice of law and collect personal financial data.
A complaint filed in the U.S. District Court for the District of Columbia accused the agency of trying to force a company that provides support services to lawyers to turn over confidential personal financial information. The plaintiffs also claimed the bureau was weighing enforcement actions over fee arrangements in bankruptcy matters that would "usurp" the authority of state bar associations.
More broadly, the lawsuit included claims that the bureau's structure was unconstitutional because it operated too far outside the oversight of the executive, legislative and judicial branches. Previous challenges to the bureau focused on President Barack Obama's recess appointment of bureau director Richard Cordray, but the Senate confirmed his appointment last week.
The plaintiffs are Connecticut solo practitioner Kimberly Pisinski and Morgan Drexen Inc., a company that provides contract legal support staff and licenses software to lawyers. Pisinski, whose practice includes bankruptcy matters, contracted with Morgan Drexen for support staff for her practice, according to the complaint.
In March 2012, according to the lawsuit, the bureau demanded information from Morgan Drexen regarding attorneys supported by the company who provided debt-settlement services. The information demanded, Morgan Drexen said, included confidential financial records that belonged to the clients of lawyers the company supported.
Morgan Drexen said it learned in April that the bureau was considering an enforcement action against the company. According to the complaint, the bureau took the position that hourly rates charged by lawyers in bankruptcy matters constituted illegal "upfront fees" if the work involved debt-settlement services. The bureau has previously pursued companies that allegedly charged illegal advance fees for debt-relief services.
In its complaint, Morgan Drexen accused the bureau of attempting to "usurp" the authority of state bar associations to regulate the practice of law under the guise of regulating debt-relief services. The company claimed the bureau's requests for information would require it to disclose information protected by the attorney-client privilege.
Noting that the Government Accountability Office recently launched an investigation into the bureau's data-collection practices, Morgan Drexen claimed the lack of checks and balances made it possible for the bureau to overstep its authority.
Venable litigation partner Randall Miller, a lead attorney for the plaintiffs, said that, absent oversight, "it's more likely that you’d reach out beyond your authority and do things or take actions without balancing other interests." The plaintiffs have asked the court for a preliminary injunction to halt the bureau’s investigation.
"The concern is that there’s a jurisdictional limit that they’re stepping over," he said. "It may be connected to the fact that this agency doesn’t have sufficient oversight and constitutional structure so that there's checks and balances."
A spokesperson for the bureau could not immediately be reached this morning for comment.
The case hadn't been assigned to a judge as of press time.
This article originally appeared in The National Law Journal.