By: Ilayna M. Guevrekian
St. John’s University School of Law
American Bankruptcy Institute Law Review Staff
In response to the financial crisis of 2007-2008, and the subsequent rise of unfair and deceptive for profit-mortgage assistance relief services (“MARS”), Congress designated the Federal Trade Commission (“FTC”) to employ rules regarding the regulation of MARS.  These rules, the U.S. Consumer Financial Protection Act (the “Act”) and Regulation O, restricted MARS providers “from charging upfront fees, telling consumers not to talk to their lenders, and misrepresenting material aspects of their services,” unless otherwise exempted. In Consumer Fin. Prot. Bureau v. Consumer First Legal Grp., LLC, the United States Court of Appeals for the Seventh Circuit held that the Consumer First Legal Group (“Consumer First”) was not engaged in the practice of law, and thus its attorneys were not exempt from the consumer finance regulations of the Consumer Financial Protection Bureau (the “Bureau”). Consumer First’s course of work entails intake specialists retrieving all necessary documents, which are next reviewed by the firm’s attorneys to make sure all the documents are present, then forwarded to a local attorney in the customer’s home state who reviews the documents again and sends them back to the intake specialists who send the loan modification application to the lender.
In 2014, the Bureau commenced an action against Consumer First alleging that “while providing mortgage-assistance relief services to more than 6,000 customers across 39 states, Consumer First violated Regulation O,” and was not otherwise exempt because the firm did not provide assistance as a part of practicing law. Following pretrial proceedings, the district court granted summary judgment against Consumer First. A post trial bench then issued an order concluding that Consumer First was not exempt from Regulation O because the work engaged in by the firms’ attorneys did not equate to “practicing law.”
On appeal, the United States Court of Appeals for the Seventh Circuit acknowledged the district court’s reliance on Rule 5.5(c), which generally provides four safe harbors in which a lawyer may practice in a jurisdiction they are not admitted to. Accordingly, the court adopted a common definition for the “practice of law” analysis, which evaluated whether the local attorneys applied legal principles and judgment to the consumers’ files. Upon review, the Seventh Circuit concluded that the record supported a finding that the “pro forma document review” performed by the local attorneys was merely perfunctory, not equivalent to practicing law, and accordingly, did not warrant an exemption. The Seventh Circuit also reaffirmed the district court’s finding of substantive Regulation O violations.
If an entity violates Regulation O, it is subject to penalties, including monetary fines dependent upon the entity’s culpability. Here, Consumer First, which was found to have violated Regulation O by, among other things, charging unlawful advance fees, was subject to restitution damages, civil penalties, and permanent injunction. However, because the Seventh Circuit determined that the defendant’s violations “were more a product of misapprehending the regulation’s applicability than of recklessness,” the court vacated the penalties and ordered them to be recalculated.
 See Consumer Fin. Prot. Bureau v. Consumer First Legal Grp., LLC, No. 19-3396, 2021 U.S. App. LEXIS 21907, at *2 (7th Cir. July 23, 2021).
 See id. at *3 (citing 12 C.F.R. §§ 1015.3, 1015.5 (LexisNexis 2021)).
 See Consumer Fin. Prot Bureau, 2021 U.S. App. LEXIS 21907, at *3 (citing 12 C.F.R. § 1015.7(a) (LexisNexis 2021) (quoting attorneys from most MARS regulations so long as they (1) “provided mortgage assistance relief services as part of the practice of law,” (2) “[are] licensed to practice law in the state in which the consumer . . . resides,” and (3) compl[y] with state laws and regulations that cover the same type of conduct the rule requires”)).
 See Consumer Fin. Prot. Bureau, 2021 U.S. App. LEXIS 21907 at *1.
 See id. at *7–8.
 See id. at *5.
 See id. at *9 (holding that the firm (1) charged unlawful advance fees, (2) failed to make requisite disclosures, (3) wrongfully implied that customers should not communicate with lenders, (4) wrongfully implied that customers should stop making mortgage payments, and (5) misrepresented the performance of alternative nonprofit services).
 See id. at *9–10.
 See id. at *19 (relying on Model Rules of Pro. Conduct r. 5.5(c) (Am. Bar. Ass’n 2019).
 See Consumer Fin. Prot. Bureau, 2021 U.S. App. LEXIS 21907 at *19.
 See id. at *19–20.
 See id. at *27 (noting that although it may be true that such efforts could be “risky,” Consumer First’s welcome letter implied that clients “should avoid contacting their servicers.” Further, the firm’s sales scripts implied to customers that they could be helped better if they ceased making payments to lenders. Finally, the firm’s sales scripts also insinuated that free, nonprofit MARS alternatives would not provide consumers any relief.)
 See id. at *13. (“[The act] establishes three tiers of culpability: strict-liability violations, which carry penalties of $5,000 per day; reckless violations, at $25,000 per day; and knowing violations, at $1,000,000 per day.”).
 See id. at *9.
 See id. at *10–11.
 See id. at *33.
 See id. at *34. Upon more specific analysis, the court also struck down § 1015.7(a)(3) and (b) of Regulation O because it was in direct conflict with the attorney exemption in the Act. See id. at *15. (“[these sections] impermissibly broaden the class of attorneys who are subject to Regulation O.”). The court distinguished that, in defining “practicing law,” the Act disregards completely where the client lives, as opposed to Regulation O which erroneously expanded the exemption to national attorneys, whose work is dependent on the client’s home state regardless of where the attorney is licensed. See id.