U.S. watchdog moves to block 'debt mill' working for Citi, Discover

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(Reuters) - The Consumer Financial Protection Bureau moved to stop a New York law firm it said was acting as a high-volume debt collection service for major lenders including Citigroup Inc (NYSE:C) and Discover Financial Services (NYSE:DFS), according to a statement by the regulator on Wednesday.

The proposed settlement, which would include a $100,000 fine, would resolve a lawsuit brought by the CFPB against Forster & Garbus in 2019, accusing it of filing tens of thousands of lawsuits without properly documenting the underlying loans. The settlement is pending court approval.

In a statement, CFPB Director Rohit Chopra accused the firm of "bombarding ... customers with sketchy lawsuits" on behalf of major financial institutions and said the consumer watchdog would continue to scrutinize banks' relationships with "lawsuit mills."

Representatives for Forster & Garbus as well as Citigroup and Discover did not respond to requests for comment. The CFPB's complaint stated that Forster & Garbus did not admit nor deny the allegations.

According to the CFPB, between 2014 and 2016, fewer than a dozen attorneys at the firm produced more than 99,000 debt-collection lawsuits but retained documentation for the debts in question in only a fraction of cases. The agency also accuses the firm of misleading consumers by claiming its attorneys were meaningfully involved in preparing the lawsuits.

Under the terms of the settlement, the law firm, based in Commack, New York, will be required to drop any pending lawsuit that lacks proper documentation and refrain from bringing further such unsupported litigation, according to the CFPB.

The firm will also agree to retain documentation showing borrowers in fact authorized the debts in question, recording the identities of the original creditors and of lenders that may have purchased the debt, among other requirements.