April 26, 2017
Law Firms Must Comply With Credit Services Organizations Act
Indiana has a number of laws which are designed to protect Hoosiers from exploitative tactics regarding debt or credit management. Individual attorneys licensed to practice law in Indiana are generally exempt from those requirements. But in this case, the Court held that these exemptions do not extend to the firms for which these lawyers are working.
In Consumer Attorney Services, P.A. v. State of Indiana, Consumer Attorney Services (“CAS”) is a Florida corporation in the business of providing foreclosure – and mortgage-related legal defense work. It charged clients non-refundable retainers and monthly fees to be automatically deducted from their bank accounts. CAS entered into relationships with several Indiana attorneys, making them either CAS “Partners,” Associates,” or “Of Counsel.” These lawyers would do very little on behalf of the clients.
After CAS began doing business in Indiana, the Indiana Attorney General began receiving many complaints. After an investigation, the State brought suit against CAS and the Florida law firm and attorney who ran CAS (who has been “effectively disbarred in Florida”), claiming violations of the Credit Services Organizations Act (CSOA), the Mortgage Rescue Protection Fraud Act (MRPFA), the Home Loan Practices Act (HLPA), and the Deceptive Consumer Sales Act (DCSA). Defendants moved for summary judgment, arguing that these statutes exempted them from liability. The trial court denied the motion, but the Court of Appeals reversed on everything but a portion of the DCSA claim. The Indiana Supreme Court then granted transfer.
The central issue on transfer was whether the CSOA applies to law firms. The Act specifically excludes liability for any “person admitted to the practice of law in Indiana if the person is acting within the course and scope of the person’s practice as an attorney.” And it defines “person” to include “an individual, a corporation, a partnership, a joint venture, or any other entity.” But this means that the law “is facially ambiguous” with regard to whether it applies to law firms, as law firms are not admitted to practice law.
Given the purpose of the CSOA—to protect vulnerable Hoosiers from predatory financial depletion—the Court held that any exemption to the Act should be read narrowly. Moreover, the Court found that it would be inappropriate to use the statutory definition of “person” every time the statute uses the word “person.”
Moreover, the Court found that there was good reason to exempt lawyers, but not law firms, as the Court holds exclusive jurisdiction over cases involving attorney misconduct, while the Rules have “no provisions for the discipline of an entire firm as a whole.”
The analysis under the remaining statutes was substantially the same—the statute either referred to an “attorney,” rather than a person, or incorporated violations of these other statutes.
The Court acknowledged that excluding attorneys from liability under these statutes as individuals may cause “peculiar” problems for their firms. But the Court ultimately found that this did not matter, as the ultimate purposes of these statutes was to protect the public from exploitative credit services, not to protect law firms.
Law firms may be liable for violations of consumer protection statutes, even if individual lawyers are exempt from liability.