The CFPB filed a lawsuit against two law firms, The Mortgage Law Group, LLP (MLG) and Consumer First Legal Group, LLC (CFLG), who provided foreclosure assistance to their clients. See CFPB v. The Mortg. Law Grp., Case No. 3:14-cv-00513 (W.D. Wis.). CFPB watchers have been paying careful attention to this 2014 case, as it may influence how future courts interpret the CFPB’s authority to regulate the practice of law. The case has reached the summary judgment stage, with all but reply briefs on file. We wanted to bring this case back into focus, given that the imminent decision is likely to have wide-ranging impact.
The Dodd Frank Act generally prohibits the CFPB from regulating the “practice of law.” 12 U.S.C. § 5517(e)(1) (“[T]he Bureau may not exercise any supervisory or enforcement authority with respect to an activity engaged in by an attorney as part of the practice of law....”) (emphasis added). The prohibition further defines the “practice of law” by the “laws of the state in which the attorney is licensed to practice law.” Id.
But there are two statutory exceptions. The prohibition against regulating the practice of law cannot be construed to limit the CFPB’s ability to regulate a consumer financial product or service “that is not offered or provided as part of, or incidental to, the practice of law. . .,” or that is offered or provided by an attorney who is not providing the consumer with “legal advice or services” in connection with the financial product. Id. at (e)(2)(A) & (B).
In the case against MFG and CFLG, the CFPB argues that, because the attorneys were not sufficiently involved in the foreclosure assistance provided to consumers, their activities fall into the second exception. See id. at (e)(2)(B). Troublingly, the CFPB’s motion for summary judgment does not include a state-by-state analysis of whether the attorneys’ services fell outside the “practice of law” as defined by their respective state bars. Instead, it attempts to define the “practice of law,” for purposes of the second exception, based on an amalgamation of legal authorities.
In an opposition brief filed on October 27, 2015, MFG and CFLG argue that CFPB is attempting to create a federal standard for the “practice of law” that asks, in essence, “could a task be done by a non-attorney?” If so, then the test concludes that the work is not the practice of law and is therefore subject to CFPB regulation under the second statutory exception. But, as MFG and CFLG point out, non-attorneys can perform many legal tasks—like drafting contracts and even trying a case (if pro se)—that are routinely recognized as the “practice of law” when undertaken by, or at the direction of, counsel. The federal standard would allow the statutory exception to all but swallow the general rule that the CFPB cannot regulate the “practice of law,” as defined by each state.
If courts accept the CFPB’s under-inclusive definition of the “practice of law,” the consequences could be far-reaching. A lawyer even tangentially involved with consumer financial services may find herself subject not only to CFPB enforcement but to CFPB examination, in which the attorney-client privilege is ignored. We eagerly await the Western District of Wisconsin’s decision as we continue to monitor this developing issue.
