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Enforcement Update

CFPB loses case against Cleveland debt collector

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Enforcement Update
Monday, August 6, 2018

The Consumer Financial Protection Bureau (CFPB) has failed to prove its claims that consumers were harmed by a Cleveland-based debt collector’s practice of identifying itself as a law firm in demand letters, a federal judge ruled recently.

The CFPB initiated a Civil Investigative Demand (CID) process against Weltman, Weinberg & Reis Co., LPA in September 2014. The bureau filed a lawsuit in April 2017 after the firm refused to sign a consent order.

The case is Consumer Financial Protection Bureau v. Weltman, Weinberg & Reis Co. (U.S. District Court for the Northern District of Ohio, E.D., No. 17-CV-817).

After a four-day trial before U.S. District Court Judge Donald C. Nugent, the judge has released an opinion adopting an advisory jury’s finding that the company is legally allowed – as a law firm – to provide collection and legal services. In addition, Nugent ruled the firm is being truthful with consumers when it uses its name and company letterhead for debt collection activity.

“The judge’s opinion thoroughly vindicates Weltman’s processes and is a complete rejection of the CFPB’s unfounded allegations,” Scott Weltman, the firm’s managing partner, said in a news release.

The case went before an advisory jury in May on three counts. Count one alleged Weltman’s demand letters “misrepresented that the letters were from attorneys and that attorneys were meaningfully involved in preparing and sending the letters.” The other counts accused the company of violating the Consumer Financial Protection Act (CFPA).  

“Although there was some evidence presented in support of the idea that the letters could be misleading to certain consumers, that evidence came exclusively from an expert that the court does not find credible,” Nugent said in his ruling.

The judge added that the evidence did not prove the demand letters violated the CFPA or Fair Debt Collection Practices Act (FDCPA).

The judge noted that Weltman is a legal professional association operating as a law firm, with a fully-integrated collection agency. The firm is owned exclusively by attorney shareholders, and employs non-attorneys in the debt collection units.

“Weltman sends out letters that are generated from attorney-created and attorney-approved templates,” Nugent wrote. “One of these templates is an initial demand letter printed on law firm letterhead, with the name of the firm appearing in all caps and in bold at the top with ‘ATTORNEYS AT LAW’ printed directly beneath. ‘Weltman, Weinberg & Reis Co., LPA’ is listed as the signatory on those letters.

“The demand letters accurately describe the identity and legal description of the entity sending the letter. As such, it cannot be fairly described as false or misleading simply for correctly identifying Weltman as a law firm, and as the signatory.

“The initial demand letter advises the putative debtor (1) that the debt has been placed with Weltman for collection and (2) that the consumer has specific rights under the FDCPA. These representations are both truthful.”

The judge added that the letter does not state an attorney has reviewed the particular circumstances of the account or mention any legal action.

The CFPB, under then-director Richard Cordray, offered no evidence to show any consumer was harmed by Weltman’s practice of identifying itself as a law firm in their demand letters, according to Nugent. 

“Plaintiff offered no evidence to show that any consumer did or would be inclined to pay the amount sought in Weltman’s demand letters even if they did not owe the debt,” the judge wrote. “Plaintiff’s expert witness did not present credible evidence from which the fact finder could infer that any consumers were misled by Weltman’s demand letter. The expert testified that his research showed that 40 percent of the people who read the letter would think that a lawyer had ‘reviewed’ the account. His testimony also showed, however, that 20 percent of people thought a lawyer ‘reviewed’ the account even when no mention of a law firm, or attorney, was made in the letter.”

The CFPB did not prove Weltman’s letters were false, misleading or deceptive, he added.

“Weltman’s demand letters were truthful on their face,” the judge said in the opinion. “Weltman attorneys were meaningfully and substantially involved in the debt collection process both before and after the issuance of the demand letters.”

A CFPB spokesman declined to comment on the decision.

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12 USC Section 2605 or Section 6 is titled Servicing of mortgage loans and administration of escrow accounts. It pertains to qualified written requests, notices of transfer of servicing and the administration of escrow accounts.
An arrangement that involves a person who is in a position to refer business as part of a real estate settlement service and who has an interest in a settlement services provider.

In the arrangement, the person, who has either an affiliate relationship with or a direct or beneficial ownership interest of more than one percent in a settlement services provider, directly or indirectly refers business to that provider or influences a consumer to select that provider.
An arrangement that involves a person who is in a position to refer business as part of a real estate settlement service and who has an interest in a settlement services provider.

In the arrangement, the person, who has either an affiliate relationship with or a direct or beneficial ownership interest of more than one percent in a settlement services provider, directly or indirectly refers business to that provider or influences a consumer to select that provider.
A mortgage disclosure that lists all estimated charges and fees associated with your loan. In addition to fees and charges, it will list your loan amount, mortgage rate, loan term and estimated monthly payment. Your escrows due at closing for insurance and taxes will also be outlined. Mortgage lenders are legally required to provide a GFE within three days of receiving your application.
A mortgage disclosure that lists all estimated charges and fees associated with your loan. In addition to fees and charges, it will list your loan amount, mortgage rate, loan term and estimated monthly payment. Your escrows due at closing for insurance and taxes will also be outlined. Mortgage lenders are legally required to provide a GFE within three days of receiving your application.
Under RESPA Section 2605(e)(1)(B), a qualified written request is a written correspondence that includes: 1) the name and account of the borrower, or has enough information to allow the servicer identify that information; and 2) a statement of the reasons for the belief of the borrower that the account is in error or provides sufficient detail to the servicer regarding other information sought by the borrower.

A QWR cannot be written on a payment coupon or other payment medium supplied by the servicer.
Under RESPA Section 2605(e)(1)(B), a qualified written request is a written correspondence that includes: 1) the name and account of the borrower, or has enough information to allow the servicer identify that information; and 2) a statement of the reasons for the belief of the borrower that the account is in error or provides sufficient detail to the servicer regarding other information sought by the borrower.

A QWR cannot be written on a payment coupon or other payment medium supplied by the servicer.
12 USC Section 2609 or Section 10 is titled Limitation on requirement of advance deposits in escrow accounts. It governs escrow accounts including notifications and statements to borrowers. Section 10 also sets out penalties for those who violate the section.
RESPA Section 3 provides that a thing of value includes any payment, advance, funds, loan, service or other consideration

Regulation X says thing of value includes: monies, things, discounts, salaries, commissions, fees, duplicate payments of a charge, stock, dividends, distributions of partnership profits, franchise royalties, credits representing monies that may be paid at a future date, the opportunity to participate in a money-making program, retained or increased earnings, increased equity in a parent or subsidiary entity, special bank deposits or accounts, special or unusual banking terms, services of all types at special or free rates, sales or rentals at special prices or rates, lease or rental payments based in whole or in part on the amount of business referred, trips and payment of another person’s expenses or reduction in credit against an existing obligation.
A form used by a settlement or closing agent itemizing all charges imposed on a borrower and seller in a real estate transaction. This form represents the closing transaction and provides each party with a complete list of incoming and outgoing funds. RESPA requires the HUD-1 to be used as the standard real estate settlement form in all transactions in the U.S. involving federally related mortgage loans.
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