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7th Circuit shrinks lawyers' $59 mln CFPB penalties

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Signage is seen at the Consumer Financial Protection Bureau (CFPB) headquarters in Washington, D.C., U.S., May 14, 2021. REUTERS/Andrew Kelly

  • Agreed lawyers were not providing legal services to mortgage relief customers, but were not reckless
  • $59 million in fines and restitution must be substantially reduced
  • Lifted bar on offering debt relief

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(Reuters) - The U.S. Court of Appeals for the 7th Circuit in Chicago agreed with the Consumer Financial Protection Bureau that debt-focused law firm Consumer First Legal Group misled borrowers but said a judge must reconsider $59 million in restitution and penalties.

U.S. District Judge Diane Wood wrote for the panel that the CFPB had proved at trial that the Wisconsin-based law firm and four attorneys it worked with were not engaging in the practice of law when they cursorily reviewed customer documents while providing mortgage relief services, meaning they were not exempt from consumer finance regulations.

A spokesperson for the CFPB declined to comment. Attorneys for the firm and the lawyers did not immediately respond to a request for comment.

Filed in 2014, the CFPB's lawsuit accused Consumer First and the four attorneys -- Thomas Macey, Jeffrey Aleman and Jason Searns, partners at defunct Chicago law firm the Mortgage Law Group, and Harold Stafford, partner at CFLG -- of collecting advance fees from struggling mortgage borrowers nationwide in exchange for promised debt relief that was not provided.

The lawsuit accused them of violating the U.S. Consumer Financial Protection Act and federal Regulation O, which governs mortgage debt relief programs and bars the collection of fees before debt relief is provided.

Wood, joined by U.S. Circuit Judges Judge Frank Easterbrook and Amy J. St. Eve, wrote on Friday that U.S. District Judge William Conley in Wisconsin did not err in concluding after a 2017 bench trial that the attorneys were not practicing law in their mortgage relief business and were therefore subject to the regulation.

However, the court found that there was not evidence that Consumer First and three of the attorneys had acted recklessly, as Conley had found when he levied fines of $25,000 per day during the course of the violations.

The resulting fines were between $8 million and $14.9 million for each of the three attorneys and $3.1 million for the firm.

The 7th Circuit directed Conley to instead consider the violations under the strict liability standard, which does not require a finding of intent and carries a fine of $5,000 per day. Conley had used that standard to fine Stafford $32,250.

The court also reversed Conley's ruling barring the attorneys from offering debt relief services, saying that the mortgage relief services, "though undoubtedly flawed in many respects, were not a complete scam." Instead the lawyers should be enjoined from violating consumer protection law, the panel said.

And Conley must reconsider a $21.7 million restitution judgment against Consumer First based on the net revenue derived from the scheme, in light of the U.S. Supreme Court's ruling in Liu v. SEC, which limited equitable relief to the amount of net profits involved.

The case is CFPB v. Consumer First, 7th U.S. Circuit Court of Appeals, No. 19-3396.

For the CFPB: Kevin Friedl

For Consumer First: Jon Loevy of Loevy & Loevy

Read more:

CFPB seeks $82 mln from mortgage debt relief lawyers, firm

Jody Godoy reports on banking and securities law. Reach her at jody.godoy@thomsonreuters.com

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