The Seventh Circuit Court of Appeals on Friday overturned a $59 million award issued against a pair of law firms and four attorneys that were accused by the Consumer Financial Protection Bureau of improperly engaging in the practice of law and collecting advance fees from homeowners in exchange for debt relief services that were not provided.
A copy of the ruling in the case of CFPB v. Consumer First Legal Group et al. can be accessed by clicking here.
The lawsuit, originally filed by the CFPB back in 2014, accused the defendants of violating Regulation O by making misrepresentations about their services, failing to make mandatory disclosures, and collecting unlawful advance fees from thousands of individuals who were struggling to make their mortgage payments in the wake of financial collapse of 2007-08. A District Court judge ruled in favor of the Bureau, assessing $59 million in penalties, applying fines of $25,000 per day while the violations were occurring.
While agreeing with the District Court judge that they attorneys were not practicing law and were not subject to Regulation O, the Seventh Circuit took issue with the size of the financial penalties assessed to the defendants. Rather than agree with the District Court judge, who applied a $25,000 daily fine reserved for reckless violations, the Seventh Circuit applied the less-penalizing amount of $5,000 for statutory violations.
“Although we have found that they were not engaged in the practice of law, the question was a legitimate one,” the Seventh Circuit wrote in its ruling. “We consider it a step too far to say that they were reckless — that is, that they should have been aware of an unjustifiably high or obvious risk of violating Regulation O.”
The Seventh Circuit also overturned a ban imposed by the District Court judge on the defendants from offering debt relief services, instead requiring the defendants from violating consumer protection laws in the future. “…the injunction need only ensure that the individual defendants do not stray beyond the scope of the Act and its implementing regulations,” the Appeals Court wrote.
