On April 8, 2025, the Connecticut Supreme Court, in Commonwealth Servicing Group, LLC v. Department of Banking, issued an opinion that only attorneys and law firms are permitted to claim the attorney exemption from the state’s debt negotiation licensing requirements. The Court held that non-law firms must obtain a license to perform debt negotiation services, but may provide unlicensed support services if those tasks are non-regulated and carried out under the direct supervision of an attorney.
Background
The Connecticut Department of Banking (the “State”) issued a cease-and-desist order against Commonwealth Servicing Group (“CSG”), a non-law firm administrative services company working with a Connecticut based law firm offering debt negotiation. The State alleged that CSG advertised debt negotiation services online, directly negotiated with Connecticut consumers, and collected fees in excess of limits set by statute. The order demanded immediate cease and desist, restitution, and threatened civil penalties of up to $100,000.
CSG and the law firm filed a motion to dismiss in the administrative action, and also separately filed a complaint in the trial court seeking a declaration, or opinion, from the court as well as injunctive relief from the State’s cease and desist order. The complaint against the State alleged that instead of hiring in-house support staff, the law firm had contracted with CSG to handle its administrative and client support needs. The complaint further alleged that only the law firm performed debt negotiation, while CSG performed routine tasks such as managing incoming calls for the firm’s attorneys, organizing client-submitted documents, and answering basic procedural or administrative questions from clients, and thus, both are exempt from the debt negotiation licensing requirements. The ultimate argument here was that these services are properly regulated by Connecticut’s courts, not the Connecticut Department of Banking
In response to the complaint filed in the trial court, the State filed a motion to dismiss arguing that CSG and the law firm had failed to use all available remedies in the administrative process before seeking relief from the judicial courts. The trial court (assuming CSG and the law firm’s allegations were true) denied the State’s motion to dismiss.
Following the trial court’s denial of the State’s motion to dismiss, the State filed an interlocutory appeal, which the Connecticut Supreme Court transferred for direct review
The Connecticut Supreme Court
The Connecticut Supreme Court decision reaffirmed a previously held position in the State of Connecticut known as the Persels presumption which presumes debt negotiation services carried out by a law firm in Connecticut to be to be part of the practice of law, and thus, within the exclusive authority of the Judicial Branch, not the State, to regulate. See Commonwealth Servicing Grp., LLC v. Dep't of Banking, 351 Conn. 701, 703 (2025) (citing Persels & Associates, LLC v. Banking Commissioner, 318 Conn. 652, 122 A.3d 592 (2015))
In its decision for the law firm here, the Court recognized that the Persels presumption is not absolute and may be rebutted by the State in certain circumstances, particularly where “the Connecticut attorney has failed to (1) exercise meaningful oversight over debt negotiation staff, (2) provide any genuine legal advice or other legal services, and/or (3) maintain a bona fide attorney-client relationship with the client.” See Id. at 711 (citation omitted). In such cases, these deficiencies can open the door for state regulation, despite the general presumption that the conduct in question falls within the judicially governed practice of law.
The Court did not determine whether CSG actually engaged in debt negotiation in this case, but made clear that if it did, the statutory exemption would not apply, and the company could be subject to licensing requirements.
Importantly, the Court issued a clear warning to companies against using attorneys or law firms merely as a “front or facade” to “circumvent” licensing laws, indicating that such conduct could justify regulatory action by the State.
