Shedding Light on Regulation by Enforcement

Members of House Financial Services Committee call for bipartisan approach to oversight of the Consumer Financial Protection Bureau after ACA member testimony on lawsuit and Civil Investigative Demand process.

3/11/2019 10:00 AM

Shedding Light on Regulation by Enforcement

Scott Weltman, an ACA International member who serves as managing shareholder of Weltman, Weinberg & Reis Co., LPA, told the House Financial Services Committee on March 7 that a Consumer Financial Protection Bureau lawsuit his company faced in 2017 was the bureau’s attempt at “regulation through enforcement.”

Weltman was invited by Committee Ranking Member Patrick McHenry, R-N.C., to testify during the committee hearing titled, “Putting Consumers First? A Semiannual Review of the Consumer Financial Protection Bureau.” Weltman was among a short list of other high-level professionals who testified following CFPB Director Kathy Kraninger’s first appearance before the committee. Kraninger spent four hours in front of the committee answering a range of questions covering everything from her background in the financial services sector to her opinion on whether the CFPB should exist.

Meanwhile, the committee asked Weltman to recount his experience dealing with the CFPB in a lawsuit that ultimately resulted in a judgment entered in favor of Defendant Weltman, Weinberg & Reis Co., LPA, by a judge in the U.S. District Court for the Northern District of Ohio.

The CFPB alleged that Weltman, Weinberg & Reis Co., LPA’s attorneys were not meaningfully involved in reviewing consumer accounts but sent demand letters and made collection calls falsely representing that attorneys were involved in collecting the debts. Ohio Judge Donald C. Nugent found the bureau’s lawsuit lacked merit.

According to Weltman’s prepared testimony:

“Our story with the CFPB … began before the bureau was formed. In 2009, our law firm was hired by Ohio Attorney General Richard Cordray as special counsel, which meant that our law firm was directly responsible for collecting the state of Ohio’s debts. Mr. Cordray not only significantly vetted our firm and condoned exactly how we did business, he also required that our letters be written precisely to his specifications. And after observing firsthand how we did business, he hired us a second time.

Once he became director of the CFPB, however, Mr. Cordray [Richard Cordray served as CFPB director from 2012-2017] then approved a lawsuit against us claiming that virtually identical letters violated the law. And he authorized a press release accusing us of this illegal behavior, which was subsequently reprinted by every major national, local and industry news agency.”

The lawsuit and extensive Civil Investigative Demand (CID) process for Weltman cost the firm $2 million in attorney’s fees, loss of numerous clients and more than 100 employees (out of 650) lost their jobs, according to Weltman’s testimony.

“We encountered overzealous enforcement attorneys with the power of the U.S. Government behind them. Our nearly four-year ordeal included an extensive CID process—with which we fully cooperated, albeit at great expense—followed by a lawsuit that we won,” Weltman said.

During the March 7 hearing, McHenry noted that he invited Weltman to testify in reference to the bureau’s previous approach to “regulation by enforcement.”

“It’s a dangerous approach to regulation,” McHenry said.

In conjunction with the hearing, Chairwoman Maxine Waters, D-Calif., reintroduced the “Consumers First Act” H.R. 1500 cosponsored by 28 members of the committee. The proposal attempts to address concerns that the consumer bureau recently has not “fulfilled both the spirit and the plain letter of the law,” according to a memorandum for the hearing.

“The consumer bureau is the centerpiece of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which Congress passed after the financial crisis to provide America’s consumers with a watchdog that would swiftly and effectively crack down on unscrupulous financial practices, products and actors,” Waters said in her opening statement.

McHenry challenged the legislation stating that several of its components, especially with respect to organizational issues, could be accomplished by the bureau without a bill being signed into law.

Reform Needs to be Bipartisan

Ultimately, some members of the committee, including U.S. Rep. Anthony Gonzalez, R-Ohio, called for bipartisan reform legislation for the CFPB during the hearing.

“The CFPB needs reform, but that reform needs to be bipartisan,” Gonzalez said. “The bill that we’re talking about today is a pure partisan bill. We actually all agree that this system needs to be reformed, so what I would urge the committee to do is actually put in a process where we’re going to agree on some things that actually will get signed into law. The system needs to be fixed and it needs to be fixed in a way that we’re not having the same arguments over and over again, every single time.”

For Weltman, he said the CFPB needs to act on rules in progress for the accounts receivable management industry.

“As I stated in my testimony, I am aware that there are rules in discussion in the debt collection area,” he said. “When we have rules, we certainly would welcome them and we would like the publication of those finally.”

In CFPB Director Kathy Kraninger’s testimony earlier in the hearing and her semiannual report, she said the bureau continues to consider the imminent rule regarding Fair Debt Collection Practices Act collectors’ communications practices and consumer disclosures.

“Looking ahead, I will be setting priorities for the bureau, including setting the tone for how we will operate as an agency. I expect to emphasize stability, consistency, and transparency as hallmarks as we mature the agency and institutionalize the many partnerships that are key to our success,” Kraninger said. “I am also examining how we can best utilize all the tools that Congress has given us— broadening our efforts to focus on prevention of harm as a primary goal for our actions.”

ACA International will provide additional coverage and discussion of the hearing in an upcoming episode of ACA Cast.

Related Content from ACA International:

86 Days In: Lawmakers Seek Balance Going Forward with CFPB Director Kathy Kraninger

Pictured above, Leah Dempsey, ACA International’s vice president and senior counsel, federal advocacy, joins Robert Weltman, Scott Weltman and Melanie Weltman before Scott Weltman, of ACA member company Weltman, Weinberg & Reis Co., testifies on Capitol Hill during the House Financial Services Committee hearing.

Follow ACA International on Twitter @ACAIntl and @acacollector, Facebook and request to join our LinkedIn group for news and event updates. ACA International members are welcome to submit news items for possible publication to Visit our publications page for news submission guidelines and subscriptions to ACA Daily, Collector magazine and Pulse.

Advertising is available for companies wishing to promote their products or services. Be sure to visit the ACA Events Calendar on the Education and Training page to view our listing of upcoming CORE Curriculum and Hot Topic seminars featuring critical educational opportunities for your company.

Subscribe to ACA Daily NEWSROOM