For centuries, the regulation of the practice of law has been delegated to the judicial branch of government.  As the Supreme Court explained, “since the founding the Republic, the licensing and regulation of lawyers has been left exclusively to the states and the District of Columbia . . . (t)he states prescribe  the qualifications for admission to practice and the standards of professional conduct.  They are also responsible for the discipline of lawyers.”  Leis v. Flynt, 439 U.S. 438, 442 (1979).

On July 14, 2014, the Consumer Financial Protection Bureau (“CFPB”), a Federal regulatory body created by the Dodd Frank Act of 2010 mounted a frontal attack on this bedrock of separation of powers principle by filing suit in the United States District Court against a prominent consumer collection law firm, Frederick J. Hanna and Associates, P.C. of Atlanta Georgia.  This suit, which also names three law firm partners, asks that the Hanna firm pay penalties based on unverified allegations that the lawyers employed by the law office failed to exercise their independent legal judgment in determining whether to file collection suits.  The suit also claims that the Hanna firm did not determine whether underlying contract documents supporting affidavits signed by their clients validated the accuracy of the debts subject to the state court collection actions.

The CFPB alleges that this conduct violates the Fair Debt Collection Practices Act’s provisions outlawing false, deceptive or misleading statements and unfair conduct in the collection of the debts.  Although no lawyer has ever been required to obtain a license to practice law from the CFPB, this agency nonetheless claims they have the right to seek a court order restraining the law firm from filing suits on behalf of its creditor clients.

Make no mistake!  This lawsuit is no mere border incursion crossing the line drawn by the separation of powers doctrine.  Instead, this action represents the beginning of a full scale ground invasion which, if successful, will radically change the landscape for the practice of law in every state of the nation.

Perhaps the CFPB felt it could flex the heavy hand of government enforcement action against large collection firms by using Mr. Hanna as a test case.  They may have picked on the wrong party.  Mr. Hanna already successfully defeated a broad invasive subpoena request issued by the Georgia Administrator of Fair Business Practices Act which sought to investigate alleged abusive debt collection practices by the Hanna law firm.  Mr. Hanna took his case to the Supreme Court of Georgia which quashed the subpoena and issued an opinion, State ex rel. Doyle v. Frederick J. Hanna and Associates, P.C., 287 Ga. 289 (2010), holding that only the Georgia Supreme Court has the authority to regulate the practice of law.

Undoubtedly, Mr. Hanna’s defense of the CFPB’s ill-conceived action will focus on the separation of powers principle recognized by the Georgia court. His response should also point out the Dodd-Frank Act’s specific exclusion that the CFPB “may not exercise any supervisory or enforcement authority with respect to an activity engaged in by an attorney as part of the practice of the law under the laws of a state in which the attorney is licensed to practice law.”  12 U.S.C. § 5517(e)(1) (emphasis added).

The entire credit and collection industry, including creditor clients who are represented by collection attorneys, must recognize the present danger to the viability of the collection of consumer debts and to the preservation of the attorney-client relationship represented by this CFPB enforcement action.  The concern about the encroachment on the court’s function in overseeing lawyers is one that should be shared by every lawyer who has ever taken an oath to the highest court in his or her state to abide by the court’s rules of professional conduct in the representation of the lawyer’s clients.

If it seems that this piece is laced with a fair amount of hyperbole and somewhat reminisce of the Chicken Little adage that “the sky is falling,” the dramatization of this recent development is justified.  The Federal Government should stay out of the business of regulating how attorneys conduct the practice of law in representing clients.  The only reasonable outcome of this CFPB lawsuit is a complete dismissal of the suit and a vindication of the principle that a lawyer will answer to the courts if the lawyer’s conduct in representing a client and in prosecuting lawsuits does not meet professional standards of conduct.

Ronald Canter is the founding member of The Law Offices of Ronald S. Canter, LLC of Rockville, Maryland. Join Mr. Canter, Kim Phan of Ballard Spahr and Anita Tolani of Weinberg, Jacobs & Tolani at ARM-U (October 14-15 in Washington, DC) for a panel discussion of what the regulatory future looks like for debt collectors – including the huge role the CFPB will play – and how agencies can prepare for the future right now. This exclusive event will bring together senior compliance and operations officers, collection attorneys and HR/training experts, and allow them to learn from each other, discuss pitfalls and identify areas of improvement.