WASHINGTON (Legal Newsline) -- A Connecticut attorney and her outsourced support services provider filed a lawsuit in federal court Monday accusing the Consumer Financial Protection Bureau of attempting to obtain sensitive bankruptcy information protected by attorney-client privilege.
The lawsuit, filed in the U.S. District Court for the District of Columbia, also accuses the bureau of "data mining," or the creation of usable information out of masses of stored computer entries.
The CFPB, created by the Dodd-Frank Wall Street Reform and Consumer Protection Act, is tasked with overseeing the federal financial laws that specifically protect consumers -- people who keep their money in banks and credit unions, pay for goods and services with their credit cards, and rely on loans to buy homes or pay for college, among other services.
In their lawsuit, attorney Kimberly Pisinski and support services provider Morgan Drexen Inc. contend the bureau has overreached its authority.
"Unbridled from constitutionally-required accountability, CFPB has engaged in ultra vires and abusive practices, including attempts to regulate the practice of law (a function reserved for state bars), attempts to collect attorney-client protected material, and overreaching demands for, and mining of, personal financial information of American citizens, which has prompted a Government Accountability Office ('GAO') investigation, commenced on July 12, 2013," the plaintiffs wrote in their 22-page complaint.
"Serious constitutional questions have been raised about CFPB's structure and insulation from mandatory checks and balances, but to date, no court has passed on these questions."
They continued, "Plaintiffs seek an order halting these tactics and declaring CFPB's structure to be unconstitutional, and declaring unconstitutional the provisions of the Dodd-Frank Act creating and empowering the CFPB."
Pisinski and Morgan Drexen are rejecting the CFPB's investigative demand to hand over privileged and confidential communications, as well as sensitive financial records of thousands of financially distressed consumers who are considering filing for bankruptcy.
The agency is seeking thousands of personally identifiable documents of Pisinski's bankruptcy clients, which are not public record. The sought-after information includes names, addresses, phone numbers, amount of debt owed, source(s) and amount of income, creditors (including banks, medical service providers and non secured loans), and other financial obligations (including utilities, car insurance, rent, mortgage and child support).
The CFPB also is requesting details of when clients talked to their attorney, for how long, the medium of communication, all attorney notes, the amount paid for the attorney's services, and the nature of the client's engagement with the attorney -- which, itself, is considered privileged information.
"At some point, this agency, which has expansive powers to write its own rules, needs to be reeled in," Pisinski said in a statement.
"Americans facing bankruptcy have enough to deal with without having the personal, privileged details of their financial troubles seized by the federal government for an unknown purpose."
Walter Ledda, CEO of Morgan Drexen, agreed.
The company provides third-party support services to businesses nationwide, including attorneys. Many of these attorneys advise clients considering bankruptcy protection, and go on to prepare and file thousands of bankruptcy petitions every year, he explained.
"This is an egregious overreach by the CFPB, plain and simple," Ledda said. "The company's integrity as a reliable outsourcing option for attorneys is dependent on our commitment to honoring a lawyer's obligations under the Model Rules of Professional Conduct. The lawyers demand it. Their clients count on it. We intend to honor our commitment to it."
Morgan Drexen is permitted to provide outsourced, administrative services to attorneys pursuant to Model Rule 5.3 of the American Bar Association.
According to the rule, Morgan Drexen's attorney customers must make "reasonable efforts" to ensure that the company's conduct is compatible with the professional obligations of the lawyer -- including protecting the attorney-client privilege and abstaining from disclosing confidential information.
This week's lawsuit isn't the first challenge to the CFPB's powers.
Last June, the State National Bank of Big Spring in Texas, the 60 Plus Association and the Competitive Enterprise Institute filed a lawsuit in the same federal district court, challenging the constitutionality of certain provisions of the Dodd-Frank regulatory overhaul, including the bureau.
In October, South Carolina, Oklahoma and Michigan joined the suit.
In February, eight additional states came on board, including West Virginia, Montana, Texas, Georgia, Alabama, Kansas, Nebraska and Ohio.
And just last week, the GAO announced it is launching an investigation into the CFPB's data mining efforts.
From Legal Newsline: Reach Jessica Karmasek by email at jessica@legalnewsline.com.