Please ensure Javascript is enabled for purposes of website accessibility

Debt scheme lawyers ensnared in 1st criminal referral by consumer agency

Debt scheme lawyers ensnared in 1st criminal referral by consumer agency

Listen to this article

In the first criminal complaint referred to prosecutors by the watchdog agency Consumer Financial Protection Bureau, a debt relief company and two lawyers have been indicted in an alleged fraud scheme.

The U.S. Attorney for the Southern District of New York indicted a debt settlement company on mail and wire fraud and secured guilty pleas from two employees on conspiracy charges.

The CFPB filed its own civil complaint seeking damages, restitution and attorney fees for the $8 million scheme.

While no one is surprised that the CFPB is sharing information with prosecutors, it’s a signal of where the newbie agency’s attention is focused.

“The CFPB has been very explicit that it intends to share information and consult with other agencies both at the federal and state level,” said Christopher Willis, a partner at Ballard Spahr in Atlanta.

He cited recent CFPB civil actions against a Florida law firm for debt relief activities and against California law firms for mortgage foreclosure rescue scams.

Consumer attorneys are pressing the agency to broaden its net.

“I’m glad to see that kind of referral, and I hope to see more,” said Ira Rheingold, executive director of the National Association of Consumer Advocates in Washington.

Andrew G. Pizor, a staff attorney at the National Consumer Law Center in Washington, said the agency has been more cautious than he would like.

“There are areas [in which] we think they could be more aggressive,” he said.

Those areas include Internet payday loans, student loans and abusive debt collection, particularly of credit card and medical debt.

A criminal referral from the CFPB may have originated as information from another agency, such as a state attorney general, or from the CFPB’s own investigation or a consumer complaint, said Willis.

Debt relief scheme

The criminal indictment and civil complaint names Mission Settlement Agency, its owner, Michael Levitis, a lawyer in Brooklyn, N.Y., and several current and former employees.

According to the indictment, the firm accepted nearly $14 million from more than 2,000 distressed clients to fix their debt, taking $6.6 million in fees while paying only $4.4 million to the clients’ creditors. The company lied about its fees and its results, and falsely advertised itself as a government-approved debt settlement program, while doing little to no work on cases; for some clients, the firm didn’t pay a penny to creditors, according to the indictment.

Another lawyer, Michael Lupolover of Englewood Cliffs, N.J., was named in the civil complaint and is accused of collecting more than $110,000 in fees in the scheme.

The criminal complaint alleges mail and wire fraud, and the civil complaint alleges violations of the Consumer Financial Protection Act, the Telemarketing and Consumer Fraud and Abuse Prevention Act and the Telemarketing Sales Rule.

Warning to lawyers

While the conduct looks like an extreme example, it’s a warning to lawyers about debt relief scams that often solicit lawyers to affiliate with them, said Pizor.

In one typical arrangement, a debt relief company can fit into a loophole that exempts legal services from rules on debt settlements by affiliating with a law firm as window dressing. The lawyer signs up clients for the debt service but never sees the clients again.

In another arrangement, a debt relief company promises referrals to an attorney and advertises to clients that it has an attorney on board.

“The attorney thinks the referrals are great but the cases are problematic, because the attorney gets cases at the last minute, there are often no defenses and the real harm was the bad advice from the debt settlement firm,” said Pizor.

Lawyers in Florida and California have recently been disbarred for providing fraudulent debt-relief services.

Attorneys who tend to get caught up in these schemes are new lawyers looking for work and older attorneys on the edge of retirement, according to Pizor.

Looking forward

Lawyers expect more enforcement directed at the debt relief industry by federal and state prosecutors, and more criminal referrals from the CFPB, which has broad investigatory powers but no prosecutorial authority.

According to Willis, the CFPB has expressed interest in looking into the origination and collection of student loans, and recently published a hefty report criticizing those practices.

On the criminal side, the CFPB is unlikely to make criminal referrals against big banks and mainstream credit card companies and mortgage lenders, Willis said.

However, on the civil side, the CFPB recently carried out enforcement actions against large banks for private mortgage insurance and credit card add-on products.

“There’s every indication there may be more cases coming in both areas,” Willis said.


What kind of stories do you want to read more of?

View Results

Loading ... Loading ...

Legal News

See All Legal News

Case Digests

Sea all WLJ People

Opinion Digests