To protect the health and safety of the public and our employees, the Department of Banking has limited the number of employees at our office at 260 Constitution Plaza in Hartford. When contacting the Department, please use electronic communication whenever possible. Consumers are encouraged to use our online form for complaints. If you are unsure where to send an inquiry, you may send it to and it will be routed appropriately. Thank you for your patience during this time.

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This case focuses on whether an April 1, 2013 Temporary Order to Cease and Desist, Order to Make Restitution, Notice of Intent to Issue Order to Cease and Desist, Notice of Intent to Impose Civil Penalty and Notice of Right to Hearing (the “Notice”) issued by the Commissioner against Consumer Law Associates, LLC (“CLA”) should stand.  Co-respondent EFA Processing L.P. (“EFA”) resolved the allegations via Consent Order entered by the Commissioner on October 15, 2013 pursuant to Section 4-177(c) of the Connecticut General Statutes.

For the reasons set forth herein, there is sufficient evidence in the record to support the Notice.

The Notice, issued pursuant to Sections 36a-671 to 36a-671e, inclusive, of the Connecticut General Statutes governing debt adjusters and debt negotiation, alleged, in part, that 1) from at least February 2010 to April 2012, respondents CLA and EFA engaged in debt negotiation of unsecured debt on behalf of Connecticut residents; 2) payments made to CLA exceeded the amounts that debt negotiators could charge for services under the Commissioner’s October 1, 2009 Schedule of Maximum Fees; and 3) since respondent CLA was not licensed to engage in debt negotiation in Connecticut nor did it qualify for an exemption from licensure, CLA violated Section 36a-671(b) of the Connecticut General Statutes as in effect prior to and following October 1, 2011.  Significantly, no individual attorney was named as a respondent in the Notice.

The Notice directed CLA to 1) cease and desist from violating Section 36a-671(b) of the Connecticut General Statutes; 2) provide the Consumer Credit Division of the Department of Banking with a list of Connecticut residents with whom CLA had entered into agreements for debt negotiation services on and after October 1, 2009, such list to be provided no later than fourteen days following CLA’s receipt of the Notice; and 3) make restitution (including interest at the rate set forth in Section 37-1 of the Connecticut General Statutes) within a prescribed time frame of those sums obtained by CLA in violation of Section 36a-671(b) of the Connecticut General Statutes.


On April 3, 2013, CLA received the Notice at CLA’s Towson, Maryland address (Dept. Ex. 9).  In addition, on April 2, 2013, CT Corporation System, agent for CLA, received the Notice at its 1 Corporate Center, 11th Floor, Hartford, Connecticut address (Dept. Ex. 9).  On April 6, 2013, the agency received a request for a hearing from CLA.  On April 8, 2013, CLA filed an Application for Temporary Restraining Order and/or Injunction and for Order to Show Cause (the “CLA TRO Application”) in the Superior Court for the Judicial District of Hartford (Consumer Law Associates, LLC v. State of Connecticut Department of Banking, Docket No. HHD-CV-13-6040765-S).  CLA sought, among other things, to enjoin the Commissioner from 1) enforcing the Temporary Order and Notice “pending the outcome of the Department’s underlying enforcement proceedings against CLA”; and 2) enforcing the Temporary Order to Cease and Desist pending the outcome of Persels & Associates, LLC v State of Connecticut Department of Banking (Docket No. HHB-CV12-6017849-S), a challenge to a declaratory ruling issued by the Commissioner on September 11, 2012.  CLA argued that “law firms that provide debt negotiation services and other legal services to Connecticut clients using Connecticut attorneys qualify for the attorney exemption.”  On April 15, 2013, the Commissioner issued a Notification of Hearing and Designation of Hearing Officer setting the hearing date for June 4, 2013.

On May 24, 2013, CLA filed a Joint Motion to Stay Proceedings (the “Motion to Stay”) seeking to stay all administrative proceedings until final resolution of CLA’s April 8, 2013 judicial action against the department and the final resolution of the Persels proceeding, supra.  The department agreed to the request.  On June 7, 2013, following a postponement of the June 4, 2013 proceeding, the hearing officer granted the motion to stay pending final resolution of Consumer Law Associates, LLC v. State of Connecticut Department of Banking (Docket No. HHD-CV-13-6040765-S, April 8, 2013).  On July 29, 2013, the Superior Court for the Judicial District of Hartford denied CLA’s motion for injunctive relief and granted the department’s related motion to dismiss on the basis that CLA had failed to exhaust its administrative remedies and did not qualify for an exception to the exhaustion doctrine (Consumer Law Associates, LLC v. State of Connecticut Department of Banking (No. HHD-CV13-6040765-S).

The hearing was subsequently rescheduled for September 26, 2013 and to November 8, 2013 to allow both sides to stipulate to certain facts not in controversy.  Although CLA had sought dismissal of the administrative matter, the hearing officer declined the request, noting that under Section 36a-1-27(5) of the Regulations of Connecticut State Agencies (powers of the presiding officer), only the Commissioner had the authority to dismiss or otherwise dispose of a matter on the merits.  In response to CLA’s request for a stay of the administrative proceeding, the hearing officer concluded that, given the court’s instruction for CLA to exhaust its administrative remedies, a stay of the administrative proceeding was not appropriate.

On October 29, 2013, CLA requested and was granted a postponement of the hearing to November 15, 2013.  On November 15, 2013, a hearing was held at the Department of Banking in Hartford, Connecticut.  Introduced as Exhibit 18 at the hearing was a set of 22 stipulated facts (the “Stipulations”) prepared by the Connecticut Department of Banking and CLA.

On November 21, 2013, the hearing officer granted CLA’s request to file post-hearing submissions relating to the accuracy of Department Exhibit 10, any decisions or case history arising subsequent to the case law included in Department Exhibits 14-16; and the CLA training manual referenced in the hearing.  The hearing officer also provided CLA and the department with an opportunity to file briefs.  CLA’s post-hearing brief and supplemental submissions were subsequently received and included in the record, with the training manual being received under seal.  The department filed its post-hearing response to CLA’s submissions on December 19, 2013.


History and Background of CLA

1.CLA is a law firm organized as a limited liability company.  CLA maintains its principal place of business at 29 Susquehanna Avenue, Suite 400, Towson, Maryland (Stipulations, Dept. Ex. 18).
2.CLA was formed in Maryland as a limited liability company on April 30, 2007 (Dept. Ex. 4 and 5).  CLA’s Articles of Organization indicate that its purpose was “To practice law and offer consumer services in Maryland and the United States and elsewhere.” (Dept. Ex. 5)
3.CLA, along with Legal Advice Line, LLC and Ruther & Associates, LLC, was part of The Legal Advice Line Consortium whose managing member was Jimmy B. Persels (Dept. Ex. 5).
4.According to its retainer agreement, CLA is self-insured and does not carry malpractice insurance in any individual state.
5.CLA has no limited liability company members who are Connecticut attorneys (Stipulations, Dept. Ex. 18).
6.At no time was CLA licensed by the department to engage in debt negotiation in Connecticut (Stipulations, Dept. Ex. 18).
7.In 2010, Jimmy Persels was CLA’s managing member (Stipulations, Dept. Ex. 18).  At all times, Attorney Persels was admitted to practice law in Maryland (Stipulations, Dept. Ex. 18).
8.Since January 1, 2010, CLA’s managing member has been Neil Ruther (Stipulations, Dept. Ex. 18).  Attorney Ruther (“Ruther”) is admitted to practice law in Maryland (Stipulations, Dept. Ex. 18).
9.Ruther testified that CLA was a national law firm owned by Ruther and Lisa Perillo, and that, during Ruther’s time with the firm, CLA had represented Connecticut clients (tr. 109).
10.Ruther testified that he was not involved in representing individual clients (tr. 149)
11.Ruther explained CLA’s history:  “The firm and its predecessors began in 1997.  This firm was not formed to work primarily in the field of consumer debt.  Its origins were more or less as an experiment that I began with a colleague of mine on the faculty of the University of Baltimore Law School to provide what had become known as ‘unbundled legal services’ . . . Its purpose was to provide pro se assistance to people who were trying to go through the court system on their own.” (tr. 109, 110)
12.Unbundled legal services, also known as “discrete task representation” and “limited assistance representation”, involve an agreement between the attorney and a client pursuant to which the attorney will provide some but not all of the work involved in traditional full service representation, with clients performing the remaining tasks on their own.  Connecticut Practice Book Rule 1.2(c) permits a lawyer to limit the scope of representation “if the limitation is reasonable under the circumstances and the client gives informed consent.”
Ruther testified that non-legal debt settlement firms had “asked us if we would consider offering legal assistance to these people [debtors]; and we did so with the proviso that we represented only the client . . . And so we began to accept referrals from some of these companies to actually represent these people . . . . ” (tr. 113, 114)
14. Ruther added that, since the administrative burdens then grew, CLA engaged EFA to provide such services since “it was much less expensive for us to use them to do that, as well they were referring matters to us for consumers.” (tr. 114)
Ruther testified that CLA stopped taking clients in Connecticut October 1, 2010 (tr. 161).
The Service Agreement Between CLA and EFA
16.On March 20, 2007, CLA entered into a Service Agreement with EFA Data Processing, LP, identified therein as a Texas limited partnership located at 7668 Warren Parkway, Suite 325, Frisco, Texas.  Ruther executed the Service Agreement on behalf of CLA (Dept. Ex. 11).  Presumably, EFA Data Processing, LP was a predecessor or affiliate of EFA.
17.  The Service Agreement stated that “among the legal services provided to the general public, CLA provides debt resolution programs (each a ‘DRP’), creditor intercession services, and services related to bankruptcy matters” (Dept. Ex. 11).
18.  The Service Agreement obligated EFA Data Processing, LP to provide “the following administrative, support and reporting services to CLA with respect to CLA’s provision of Debt Services to Clients:  collecting and storing Client data, mailing of letters and other documents to Clients and their creditors on behalf of and in the name of CLA, processing payments to CLA from Clients, providing assistance to CLA with respect to reporting and other requirements related to the collection, deposit and disbursement of funds and fees from attorney Trust accounts maintained by CLA, and providing such other services as the Parties may agree upon” (Dept. Ex. 11).
19.  The Service Agreement also clarified that, to the extent EFA Data Processing, LP’s services involved communicating with a client or a client’s creditor or performing any other tasks on behalf of or in the name of CLA or its clients with respect to Debt Services, CLA “shall supervise, oversee and be responsible for such Services.” (Dept. Ex. 11).
20.While the Service Agreement was initially effective only for 90 days, it provided that it would then automatically renew for three year terms (Dept. Ex. 11).
21.  The Service Agreement obligated CLA to rely upon EFA Data Processing, LP as CLA’s exclusive provider of administrative support for debt negotiation services, and stated that CLA would only perform legal services for clients for whom EFA Data Processing, LP provided services.  (Dept. Ex. 11)
22.   The Service Agreement provided that:  “EFA or its Affiliates may initially collect information from consumers and perform a prescreening analysis to help the consumers assess and identify products and services to best meet their needs.  Information and data collected during this prescreening process may be forwarded at the consumer’s direction to CLA for Debt Services.”  The agreement added that “EFA or its Affiliates own the information collected by EFA or its affiliates from Clients and consumers during this prescreening process and may be used by EFA or its Affiliates in any manner EFA or its Affiliates determine ….”  (Dept. Ex. 11)
23.CLA was required to pay EFA Data Processing, LP certain Service Fees over the course of the agreement:  1) a service set-up fee of 5.6% of the consumer’s total debt brought into the program (payable over 4 months); 2) a monthly service fee for all clients enrolled but not canceled, such fee being .31% of the consumer’s total debt brought into the program; 3) a $300 bankruptcy processing fee “for the intake, processing, and file preparation of each consumer who does not qualify for the DRP”, such fee being payable after CLA received at least $300 from the client as payment for bankruptcy-related services; and 4) miscellaneous fees.  Consequently, the greater the consumer’s indebtedness, the greater the fees payable to EFA Data Processing, LP.
24.CLA was also obligated to pay EFA Data Processing, LP 50% of any other fees collected from the consumer by CLA.  (Dept. Ex. 11)
25.The majority of fees paid to CLA actually went to EFA (Ruther testimony, tr. 163).
26.   Accompanying the Service Agreement as Exhibit 2 was a document entitled “Standards of Operation.”  The Standards of Operation stated that the following EFA Data Processing, LP employees worked with CLA clients:  “Coaches, Customer Care Teams, Case Administrators, Negotiators and supervisory staff.”
Among the restrictions in the Standards of Operation were the following:
  • Call Center Operations:  “Creditor and Creditor attorney calls shall be routed to Negotiators 100% of the time”

  • “Appropriate calls for lawyers will be warm transferred to My Professional Advice call center”
  • “Every effort to answer the phone ‘Consumer Law Associates’ shall be used except when otherwise agreed”

  • “No Clients put through to CLA for questions that could be reasonably answered by EFA staff by reading the notes”

  • “‘Active’ status of clients shall be confirmed prior to connecting to CLA”

  • “The majority of all calls received during business hours shall be professionally handled   directly by the Coaches, Customer Care Team, Case Administrators, or voicemail."
28.  According to the agreement, the case management goal was for 50% of clients to successfully complete their program by resolving their debts as agreed.  A client could satisfy this goal by a) completing the DRP; b) returning to paying creditors directly; or c) filing for bankruptcy.
On December 23, 2009, CLA and EFA entered into an Assumption of Risk, Waiver and Addendum with respect to the Service Agreement.  (Dept. Ex. 11)  The amendment acknowledged that CLA and EFA had entered into the March 20, 2007 agreement.  Under the amendment, CLA assumed the risk associated with consumer revocation of payments following a refund of monies.  The amendment was signed by Jimmy B. Persels as managing member of CLA.
CLA's Use of Attorneys

30.From 2010 to 2013, CLA contracted with Connecticut-licensed attorneys to provide services to the firm’s Connecticut clients (Dept. Ex. 18).  At no time were the attorneys W-2 employees of CLA (Dept. Ex. 18).  Rather, the attorneys were contract attorneys who performed services on behalf of CLA (Dept. Ex. 18).
31.Attorney Lisa Perillo was in charge of recruiting attorneys for CLA (tr. 154).
32.Ruther testified that, in recruiting attorneys, the firm would use “the internet, Craigslist, and very often referrals from our existing counsel.” (tr. 153)
33.Ruther testified that “we would recruit lawyers who were, for example, home raising children; we recruited lawyers who were physically disabled and found it difficult to go to court the way a lawyer would have to do on a regular practice; we found lawyers who were retired; we found lawyers who were trailing spouses, and because the system was set up totally electronically, as long as they were competent, licensed, and fulfilling all of their CLE requirements in any state, it didn’t matter to us where they physically were located.” (tr. 153)
34.According to Ruther, while CLA attorneys earned between $65,000 and $75,000 per year, they were not compensated on a per case basis (tr. 155).  Rather, compensation was based on the number of files for which the attorney was responsible.  Ruther analogized CLA’s operations to “a legal insurance plan, only a small percentage of the population of clients at any given time will require legal intervention  And the caseloads are – we pay them according to the number of people for whom they have responsibility because we know on average how many of them are going to be sued and what kind of workload that will generate.”  (tr. 156)
35.Ruther also explained that:  “The attorneys would set their own limit on their caseloads, and also, we had maximums that we would allow any individual attorney to have in a caseload.  And so when a case came in, the computers would look at the array of attorneys who were on staff for any given state, make a determination as to which one of them were available for assignment, and then simply assign the case.  Notice would go out to the attorney, and when we were ready, when all of the documentation had been assembled, the rule is that within 72 hours, the attorney must make the first contact with the client for the initial consultation.  And that’s a crucial step because whether or not we continue to represent the client beyond just taking in information is a decision that is made by the Connecticut attorney, not by anybody else in the firm.” (tr. 118)
36.The following Connecticut-licensed attorneys worked for CLA (parenthetical dates represent dates of admission from online Judicial records):  1) Heidi Saas (admitted October 12, 2006; Grievance 8/9/2013); 2) Atim Nsunwara (admitted November 17, 2006); 3)Timothy Lodge (admitted May 20, 1999); 4) Michael Bulochnik (admitted 12/19/2008); 5) Raun Lubenstein (admitted 10/11/2000); 6) Bernadette Michaud (admitted 11/1/10; 7) Meredith Mesa (admitted 10/30/06); and Jean Hamer (admitted 6/7/02) (Stipulations, Dept. Ex. 18).
37.Ruther testified that Heidi Saas was still associated with CLA in a supervisory role (tr. 158, 159-60); that Atim Nsunwara had left because she needed a full-time job (tr. 158); that he could not remember what became of Timothy Lodge; that Michael Bulochnik had returned to work as a C130 pilot; that he did not know why Raoul Lubenstein had left the firm; that Bernadette Michaud had recently left; that he did not remember Meredith Mesa; and that he did not recall when Jean Hamer had left (tr. 158).
38.None of the individual attorneys was named as a respondent in the Notice.
39.There is no evidence in the record that any of the Connecticut licensed attorneys was a partner of or held an ownership interest in CLA.
None of the individual attorneys appeared or testified at the hearing.  Therefore, there is no testimony in the record from those attorneys concerning their respective dealings with CLA; their dealings with any Connecticut resident vis a vis CLA’s activities; or any other legal services they rendered during the pertinent time frame separate and apart from services performed for CLA.
Advertising and Holding Out
41.CLA claimed that it did not advertise its services beyond use of a “generic website.” (Ruther testimony, tr. 135).  The content of the website was not introduced into evidence.
42.Ruther explained that CLA did not market is services because it “was too expensive.  We could not have done what we do and advertised.”  (tr. 152)
43.However, Ruther also stated that “EFA did advertising and made referrals to us, and they got referrals that did do advertising.” (tr. 162)
44.Samples of advertising done through EFA, however, were not introduced into evidence.  In addition, on none of the client retainer packages introduced into evidence did the prospective client answer the question concerning how he or she learned about CLA.
45.CLA introduced new clients to the firm through a standard Welcome Letter.  The Welcome Letter was on Consumer Law Associates, LLC letterhead, and bore the following tag line “A National Law Firm Dedicated to Consumer Debt Resolution.”  (see, e.g., Dept. Ex. 3)
46.CLA’s responses to Better Business Bureau complaints, however, bore the line “A National Law Firm Dedicated to Consumer Rights.”
It was also typical for CLA to list various attorneys on its letterhead, together with their states of admission.  When dealing with Connecticut individuals, a Connecticut-licensed attorney’s name usually appeared on the letterhead.
But see, Dept. Ex. 7 [May 21, 2010 letter from CLA to the Better Business Bureau regarding Connecticut resident . . . (no Connecticut attorney listed, only “Assigned Attorney (ST)”, suggesting use of a template)]; Dept. Ex. 6 [February 22, 2011 letter from CLA to the Better Business Bureau regarding Connecticut resident . . . (Connecticut attorney Michael Bulochnik listed on CLA letterhead, with the following footnote at the very end of the letter “No longer with CLA”)].
48.The Disclosure Statement described CLA as “a law firm which assists consumers with a method of debt resolution known as debt settlement.”
There is scant evidence in the record that either CLA or the Connecticut licensed attorneys, while contractually retained by CLA, performed specific legal services (e.g. family law; criminal law; real estate transactions; other) that did not deal with debt settlement.
The Retainer Agreement
50.At least fifty eight (58) clients signed a retainer agreement with CLA similar to the retainer agreement CLA entered into with former client . . . (Stipulation; Dept. Ex. 18).
51.Typically, the Retainer Agreement required the payment (through automatic debiting from the client’s bank account) of certain nonrefundable upfront fees, to wit:  1) an initial Consultation Fee of $199; 2) a Retainer Fee; and 3) a monthly service fee.  If the client terminated the agreement prior to the end of the plan term, the client would be required to pay a File Closing Fee.
52.CLA and the department stipulated that each CLA client signed a hard copy of the retainer agreement and returned the retainer agreement via facsimile, e-mail or U.S. Mail; that each retainer agreement was signed by Jimmy Persels of CLA using a standard facsimile signature; and that the retainer agreements were not signed by the Connecticut attorneys. (Dept. Ex. 18)
The retainer agreement included a Welcome Letter on CLA stationery.  The Welcome Letter was not signed by an attorney.  The Welcome Letter
  • Commended the client on his or her decision to “regain control of your financial situation.”

  • Only referred to “law firm services” generically

  • Congratulated the client on his or her “decision to take control of your financial future and for allowing us to provide you with one of the most effective solutions to solving your debt elimination needs.”

  • Represented that CLA would be “available to answer your questions and concerns throughout the settlement process.  As you regain control of your personal finances, CLA will make this as easy and painless as possible.”
(Emphasis supplied)
54.The Retainer Agreement obligated the client not to incur additional unsecured debt while remaining a client, and not to negotiate directly with creditors “unless we authorize you to do so as in the case where you must go to court.” (cf. Findings of Fact, paragraph 12, supra)
55. The Retainer Agreement was accompanied by a Disclosure Statement.
The Retainer Agreement and the Disclosure Statement represented that CLA would perform the following services:
  • “We will work on your behalf to negotiate settlements with your creditors that are within your means.”  The agreement defined “we” to mean “Consumer Law Associates, LLC and its administrative staff at EFA Processing.”  (emphasis added)

  • Assist the client in the resolution of outstanding debts (described as “Enrolled Debts”) with specified creditors “by way of negotiation of payment plan or lump sum settlement.”  The agreement added that “We will offer each creditor a percentage settlement based on your estimated settlement percentage as set forth in this agreement, and your available funds.”

  • CLA’s negotiation obligation, however, would begin only when the client notified CLA that “funds are available to fund anticipated settlements.”  The retainer fee, however, would not be placed in a trust account, and CLA could “use said retainer at its sole discretion.”  The Disclosure Statement explained that the consultation fee, retainer fee and monthly service fee “are intended to compensate us for our efforts . . . Those fees are NOT being set aside or held in escrow to fund debt settlements and will not be available to pay creditors . . . You will be responsible for saving sufficient funds to fund debt settlements that CLA will endeavor to negotiate on your behalf.  Your plan reflects the minimum amount that we have estimated you will need to save to be in a position to reach your goals.”  (emphasis in text)  In other words, CLA would only negotiate on the client’s behalf if, after paying CLA’s separate upfront and recurring fees, the client had additional funds available to fund his or her trust account with CLA.

  • If the client is sued, “for a small additional fee” “we will assist you in preparing an answer to such suit, and will negotiate with the creditor’s attorney on your behalf . . . We will advise you on what the creditor can do, if anything, with a judgment and will work with you to revise your debt reduction plan if it’s necessary to serve your interests.”

  • CLA would “answer all correspondence and telephone calls from your creditors.”
According to the Retainer Agreement and the Disclosure Statement, CLA would not perform the following services:
  • “We will not go to court with you or file an appearance on your behalf as the cost of doing so would be prohibitive”

  • CLA “will not represent you in, accompany you to, or make any court appearances on your behalf in the event you are sued by one of your creditors.”

  • “Some or all of your creditors may try to collect your debts and sue you, and we cannot stop them from exercising their legal rights”

  • “Our services DO NOT include helping you improve your credit report, record, history or rating, or helping you dispute information on your credit report.  If you ask our lawyers or paralegals to assist you with any additional legal services or other work, small additional legal fees will be charged after you have consented to same.”  (Emphasis in original)

  • “We are not offering to provide or willing to provide any services of bankruptcy assistance at this time.  You must enter into a Bankruptcy Retainer agreement with us before we will offer to provide or provide any other services or bankruptcy assistance beyond what is contained in this Agreement.”

  • While “[y]ou are asking us to begin negotiating settlements with your creditors . . . ultimately it is the consumer’s responsibility and choice to evaluate and determine the best available option, which may include credit counseling, loan consolidation or bankruptcy protection.”

  • “CLA will not advise how a consumer should treat income tax payable on debt that has been forgiven through our representation.  CLA does not and will not provide accounting and/or tax advice.”
Transactions with . . .
. . ., a resident of Danbury, Connecticut, is employed as a truck driver (tr. 34).
59.. . . contacted CLA through a telephone number he obtained through a television advertisement (. . . testimony, tr. 35).  No corroborating evidence was introduced regarding the television advertisement.
60.Upon contacting CLA, . . . spoke to Elena Norman (. . . testimony, tr. 35).
61.There is no evidence that Elena Norman is or was a lawyer or a member of the Connecticut bar.
62.. . . testified that he had lost his job and was seeking to consolidate approximately $14,000 in credit card debt (tr. 35).
63.. . . testified that he believed that CLA would “pay, debit my credit cards, pay all my credit cards, and good healthy my credit [sic] because I lost my job.”  (tr. 38)
64.On February 15, 2010, . . . received the Welcome Letter and retainer agreement, as well as a checklist and related documents, including an Authorization and/or Permission to Speak and Negotiate.  The letter contained the typed signature of Elena Norman (Dept. Ex. 3; Resp. Ex. 1).
65.The Authorization and/or Permission to Speak and Negotiate granted CLA express authorization and/or permission to speak as an agent with . . . creditors and to negotiate the settlement of any and all claims, suits, liens, judgments and/or disputes associated with or related to the Enrolled Debt described in the retainer agreement.  The Authorization and/or Permission to Speak and Negotiate also provided that “Consumer Law Associates, LLC may designate one or more employees, agents, or third parties including but not limited to EFA Processing to assist in the negotiation of these settlements.”
66.Although the department and CLA stipulated (Dept. Ex. 18) that . . . retained CLA in August 2010, the evidence indicates that . . . signed the CLA documents on February 16, 2010 (Resp. Ex. 1).
67.CLA and the department stipulated that . . . paid $1,664.52 in fees between March and August 2010, with $739.09 later being refunded to . . . following his termination of the arrangement with CLA in August 2010.  (Dept. Ex. 18)
68.. . . filed a complaint with the Department of Banking on or about September 9, 2010 (Dept. Ex. 3).
69.CLA had a computerized file management system that it used to track client communications with members of the firm, its paraprofessional and administrative staff and the attorneys (Ruther testimony, tr. 121).  Ruther testified that:  “We insist that every lawyer and every admin and every paralegal makes notes in the system.” (tr. 121)
70.Ruther also testified that “The attorneys are generally required to review the files every 30 days, and we have a system that tracks whether or not they’ve done that.  And the supervising attorneys in the call centers will call them and remind them that this needs to be done.”  (tr. 126).
71.Respondent’s Ex. 1 consisted of CLA’s computer logs relating to . . . for the period from February 15, 2010 to October 22, 2010.
72.During that eight month period, entries were made by seventeen (17) different individuals who were not attorneys (Elena Norman; Sarah Wyngaard; Samantha Tshuma; Shirley Thibodeaux; Caroline Nu; Roneka Turner; Marcela Gabarron; Niya Brown; Angela Denson; Jim Smith; Heidi Cosgrove; Aaron D. Johnson; Taslim Chaudhury; Angel Salgado; Nancy DeLaMora; Joyce Kirimi; and Brenda Nelis) (tr. 172).  At least five telephone calls were initiated by . . .  (March 15, 2010; April 5, 2010; April 5, 2010; April 19, 2010 and August 10, 2010).
73.Ruther identified Chaudhury as a paralegal (tr. 126), Thibodeau as an “admin”, Nu as a paralegal and Brown as a paralegal (tr. 121-122).
74.On or about April 12, 2010, . . . received written notice that one of his accounts had been referred for collection.  (Resp. Ex. 1)
75.Ruther testified that the collection notice was  “very significant because, as is the case with nearly all of our clients, Mr. . . . was already in default with his credit cards, had not made the payments, it would typically be 90 to 120 days after such a default that the matter would be referred to a third-party collector.  So that as of the 19th of April, Mr. . . . credit would have already been very seriously and negatively impacted by . . . his inability to pay those debts in full.”  (tr. 123)
76.On April 19, 2010, Niya Brown logged the following entry:  “. . . Called in says he recvd a 3rd party [collection] notice . . . adv to fax over along with latest statement for all enrolled debt . . . adv it may take 7-10 bus days for docs to be uploaded.
77.On May 8, 2010, nonattorney Aaron D. Johnson logged a notation concerning an apparent upload of customer documents.  Johnson then entered “Cust Not in Prog”, following which he created a task coded as “O/B – Doc Rcvd Not in Program.  Priority:  Low.”
78.On June 23, 2010, approximately four months after . . . signed the retainer agreement, the following entry was logged by Atim Nsunwara “Spoke with . . . re IC.”
79.Atim Nsunwara is a Connecticut-licensed attorney.
80.Ruther testified that “IC” stood for “initial consultation” (tr. 167).  However, Ruther could not confirm that an initial consultation was actually held between Nsunwara and . . . . (tr. 168)
81.Nsunwara did not appear or testify at the hearing.
82.Ruther also testified that “there was no point in Ms. Nsunwara having this consultation with him [. . .] unless she had everything that she needed in order to properly advise the client.”  (tr. 170)
83.Only two more entries were made by Attorney Nsunwara, the first (“file review”) being logged on July 6, 2010 and the last (“rev’d file”) on August 19, 2010.
84.By contrast, non-attorney Angel Salgado’s entry appears to reflect some discussion with . . . regarding the status of . . . account:  “adv client of acct not in prgm . . . adv client tht at the time our main focus is to build up his trust acct.  Client was unaware of retainer fees and of monthly maintenenace [sic] fee . . . he was under the impression tht his accts would be settled out after a period of 6 months . .  educated client on his fees and the amnt of time the prgm takes.”
The evidence indicates that . . . communications with a CLA attorney regarding his file were minimal.
Transactions With . . .
86.. . . is a resident of Niantic, Connecticut.
87.Although . . . did not appear or testify at the hearing, the record does contain a Better Business Bureau complaint filed by . . . against CLA on or about April 29, 2010 (Dept. Ex. 7)..  In addition, Respondent’s Exhibit 3 contains various documents relating to . . . dealings with CLA.
88.On or about September 11, 2009 and October 8, 2009, . . . received collection notices from two creditors.
89.On October 9, 2009, . . . electronically signed an Authorization and/or Permission to speak and negotiate with CLA and received a retainer package.  (Resp. Ex. 3)
90.Accompanying the retainer package was an October 9, 2009 Welcome Letter on CLA letterhead.  The top of the letter listed several attorneys, including Atim Nsunwara whom the letter described as “licensed in Connecticut.”  (Resp. Ex. 3)
91.According to online State of Connecticut Judicial department records, Nsunwara was subject to a nondisciplinary administrative suspension from June 16, 2009 to November 12, 2009 (
92.The Welcome Letter, like that provided to . . ., lauded . . . on her “decision to regain control of your financial situation” and added that she was “now on the road to financial freedom.”
93.  The Welcome Letter was signed by Rhonda Walker.  There is no evidence in the record that Rhonda Walker is or was a Connecticut-licensed attorney.
94.  The retainer agreement obligated . . . to pay upfront fees consisting of a $199 consultation fee (paid on October 15, 2009); a retainer fee of $291.41 monthly for the first twelve months in which she was enrolled with CLA starting October 15, 2009; and a monthly service fee of $85 for each month “in which the customer is enrolled in the settlement program with CLA, collected in arrears beginning on November 15, 2009.”  (Resp. Ex. 3)
95.Ultimately, . . . was sued by her creditors (Resp. Ex. 3).
96.In an undated letter to . . ., CLA indicated that it was enclosing an Answer “prepared for you by your Consumer Law Associates attorney.”  (Resp. Ex. 3)  No individual attorney was referenced either in the letter or the Answer.  The Answer was to be signed by . . . as “Defendant Pro Se.”  (Resp. Ex. 3)  A footnote in the Answer added that:  “This document was prepared by or with the assistance of an attorney employed by Persels & Associates, LLC, 866-939-7252 and Consumer Law Associates, LLC, 888-510-1892.”  There is no evidence in the record that . . .  actually used the pleading.
97.There is no evidence in the record that CLA or any Connecticut-licensed attorney retained by CLA went to court on . . . behalf.
98.Over three months after . . . executed the retainer agreement with CLA, Nsunwara sent . . . a January 11, 2010 letter stating, in part, “The purpose of this letter is to introduce myself.  I am the attorney who has been assigned to your case and to work with our paralegal negotiators who will attempt to settle your debts with your creditors . . . After a few months letters will be sent out to all of your creditors informing them of our representation and demanding that they cease and desist all efforts to contact you . . . It is very important that you maintain a regular payment schedule with us to be successful in this program.”  (Resp. Ex. 3).
99.. . . also received from CLA a Debt Settlement Representation Summary and General Disclosures which provided, in part, that: “Debt settlement requires you to make regular monthly payments of your disposable income to Consumer Law Associates.  We will take our agreed legal fee in accordance with the month to month fee schedule included in your Client Retainer Agreement.  The Balance of your payments will be deposited in a highly secure Attorney’s Trust account for use in settling your debts.  THIS MEANS THAT THERE WILL BE LIMITED FUNDS AVAILABLE FOR SETTLEMENT DURING THE FIRST 18-24 MONTHS OF THE REPRESENTATION.”  (Emphasis in text)  (Resp. Ex. 3)
100.Between October 8, 2009 and September 24, 2010, approximately 20 individuals, none of whom were shown to be attorneys, made computer entries to CLA’s system concerning . . . .  While some of the entries alluded to settlement offers made by . . . creditors, there was a notable absence of entries by any Connecticut-licensed attorney demonstrating an involvement in the process.
. . . ultimately canceled her arrangement with CLA and received a refund check for $837.49 on or about July 7, 2010 (Resp. Ex. 3).
Transactions with . . .
102.. . . is a resident of Norwalk, Connecticut.
103.Although . . . did not appear or testify at the hearing, the documentary evidence introduced indicates that on May 7, 2010, . . . signed a retainer agreement with CLA which was similar to that signed by . . . and . . . (Dept. Ex. 6).
104.. . . filed a complaint against CLA with the Better Business Bureau (Ex. 6).  . . . complained that CLA did not live up to her expectations in settling her debts.  CLA responded that it was only obligated to settle . . . debts as funds in her trust account grew.  (Dept. Ex. 6)
105.Although, on paper, . . . was assigned to Timothy Lodge, a Connecticut-licensed attorney, the record does not demonstrate that . . . had any extensive communications or dealings with Lodge.
CLA’s last computer entry regarding . . . was on February 8, 2011 when . . . account status was described as “Cancelled – No refund – Customer could not afford payments.” (Resp. Ex. 2).
Jurisdiction and Procedure
1.The Commissioner has jurisdiction over the licensing and regulation of debt negotiators pursuant to Part II of Chapter 669, Sections 36a-671 to 36a-671e, inclusive, of the Connecticut General Statutes.
The Notice issued by the Commissioner against CLA comported with the requirements of Section 4-177(b) of Chapter 54 of the Connecticut General Statutes, and with Sections 36a-52(a) [cease and desist order], 36a-50(a) [civil penalty] and 36a-50(c) [restitutionary remedy] of the Connecticut General Statutes.
3.CLA received notice of the hearing and an opportunity to present evidence, rebuttal evidence and argument on all issues of fact and law to be considered by the Commissioner.

Alleged Violation of Section 36a-671 of the Connecticut General Statutes

Prior to October 1, 20111, Section 36a-671(b) of the Connecticut General Statutes provided, in part, that:

No person shall engage or offer to engage in debt negotiation in this state without a license issued under this section for each location where debt negotiation will be conducted. . . .  A person is engaging in debt negotiation in this state if such person:  . . . . (2) has a place of business located outside of this state and the debtor is a resident of this state who negotiates or agrees to the terms of the services contract in person, by mail, by telephone or via the Internet while physically present in this state . . . .

Section 36a-671(a)(1) defines “debt negotiation” to mean “for or with the expectation of a fee, commission or other valuable consideration, assisting a debtor in negotiating or attempting to negotiate on behalf of a debtor the terms of a debtor’s obligations with one or more . . . creditors of the debtor; . . .”  Section 36a-671(a)(2) defines “debtor” as “any individual who has incurred indebtedness or owes a debt for personal, family or household purposes . . . .”

There is sufficient evidence in the record to demonstrate that from approximately February, 2010 forward, CLA, at a minimum and with the expectation of a fee or other consideration, offered to engage in debt negotiation by representing to Connecticut debtors that it would assist them in negotiating or attempting to negotiate their obligations with their creditors.  While actual negotiation of the debt was subject to the contingency that the debtor have funds available in his or her trust account with CLA (excluding CLA’s upfront fees), Section 36a-671 requires only that debt negotiation services be offered, not that they actually be performed.

Therefore, CLA violated Section 36a-671(b) of the Connecticut General Statutes.

Applicability of the Attorney Exception to CLA

Connecticut’s regulation of debt negotiators came about with the enactment of P.A. 09-208 in 2009.  Public Act 09-208 “created a regulatory scheme whereby any person engaging in debt negotiation services would be required to be licensed by the Department and subject to fee limitations, bonding requirements and contract disclosures.” (September 11, 2012 Declaratory Ruling by the Connecticut Banking Commissioner in the Matter of Persels & Associates, LLC) (hereinafter, the “Persels Declaratory Ruling”).

Section 31 of Public Act 09-208, however, excluded from such regulatory authority “[a]ny attorney admitted to the practice of law in this state, when engaged in such practice.”  Section 31 of Public Act 09-208 was later codified at Section 36a-671c of the Connecticut General Statutes.

Section 36a-671c was amended by Section 43 of Public Act 11-216 to except “any attorney admitted to the practice of law in this state who engages or offers to engage in debt negotiation as an ancillary matter to such attorney’s representation of a client.”

In upholding the Persels Declaratory Ruling, the Superior Court explained that:  “This amendment clearly reflects an intent to narrow the statute’s scope so that the exemption no longer applies whenever an attorney practices law and provides debt negotiation services.  The narrowing of the exemption, which itself already must be narrowly construed, provides further support to the argument that the exemption does not apply to law firms.  Nothing in the record indicates that the legislature intended to exempt law firms from the state’s debt negotiation regulations.”  (Persels and Associates, LLC v. State Department of Banking, Superior Court, Judicial District of New Britain, 3/28/14 at n. 6) (emphasis supplied)

Indeed, unlike other states (see, e.g. Kansas Credit Services Organization Act §§ 50-1116(g) and 50-1117(g)), the Connecticut Legislature opted not to reference law firms as such, instead focusing on attorneys “admitted to the practice of law in this state.”

According to Section 2-8 of the Rules of the Superior Court to be admitted to the practice of law in Connecticut, an applicant must hold U.S. citizenship, be 18 years of age or old, possess good moral character, meet educational requirements and pass the bar examination.  Therefore, the Rules of the Superior Court contemplate that candidates for admission to the Connecticut bar be individuals.  (Also see, Grievance Committee v. Dacey, 154 Conn. 129 (1966) [a corporation cannot practice law even though it acts through attorneys who are themselves members of the bar]).

Significantly, in Persels and Associates, LLC v. State Department of Banking (Superior Court, 3/28/14), Judge Prescott held that a law firm does not fall within the statutory exemption for attorneys.

Judge Prescott also made it clear that applying the debt negotiation licensing requirements to law firms does not violate the separation of powers doctrine.  CLA has provided no legal authority to the contrary, and therefore the court’s opinion on this point must be given significant weight.

During the hearing, Ruther stated that, when performed by an attorney, debt negotiation services automatically involved the practice of law.  Persels and Associates, LLC v. State Department of Banking, supra, rejected this view, holding that:  “Debt negotiation, however, is not the practice of law . . . Debt negotiation services do not become the practice of law merely because an attorney or law firm provides the service . . . our Supreme Court has recognized that the practice of law is not an area under the exclusive control of the Judicial Branch and that attorneys are not immune from any agency regulation.”  (citation omitted; emphasis in text)

The "Spillover Effect"

Given that Section 36a-671c applies only to individual attorneys, this case presents the interesting question of whether it would be anomalous to require licensing of the attorney’s law firm if the individual attorney is exempt from licensure.

The Commissioner addressed this issue through a no enforcement action position in the Persels Declaratory Ruling, a position whose reasonableness was upheld by the court when the declaratory ruling was challenged.  Specifically, the Commissioner indicated that the agency’s no action position would extend to a law firm that is a partnership, limited liability company or professional corporation engaging or offering to engage in debt negotiation services, as defined in Section 36a-671 where 1) the services would be performed exclusively by an attorney admitted to the practice of law in Connecticut; 2) the attorney was a partner or shareholder of the law firm; and 3) the attorney was the only contact with the debtor and the debtor's creditor(s); and 4) post-amendment the law firm is offering and performing the debt negotiation service only as an ancillary matter to representation of the client.

In this case, the Connecticut-licensed attorneys were independent contractors rather than partners or shareholders of CLA.  As CLA’s computer logs clearly indicate, the attorneys in question were hardly the sole contact with the debtor and the debtor’s creditors.  Moreover, debt negotiation services would not be performed exclusively by the Connecticut-licensed attorneys but by other personnel associated with EFA and CLA.  Therefore, regardless of whether the exemption was claimed under the amended provision or its predecessor, CLA would not qualify for no-action treatment.

On a parallel note, in construing the Kansas exemption (which covered both Kansas-licensed attorneys and their law firms), the Kansas District Court quoted from a bankruptcy decision observing that “the fact that Persels has no attorney licensed in this State is the very reason it needed [the independent contractor attorney] who is licensed in the state of Kansas, to ‘represent’ the Kansas debtor . . . . But [the independent contractor attorney’s] relationship with Persels is that of an independent contractor, not a member of the Persels law firm acting as an agent of Persels . . . . Holding otherwise would allow Persels to insulate itself from liability resulting from [the independent contractor’s] conduct because he is an independent contractor while availing itself of the KCSOA safe harbor on the strength of [the independent contractor’s] Kansas license.” [citation omitted] (Parks v. Persels & Associates, LLC, D. Kansas, 2014 U.S. Dist. LEXIS 35556, 3/18/2014)

It cannot be emphasized strongly enough that, in this case, none of the individual Connecticut-licensed attorneys was named as a respondent.  In addition, “[e]xemptions to statutes are to be strictly construed . . . and . . . those who claim the benefit of an exception under a statute have the burden of proving that they come within the limited class for whose benefit it was established.” Taylor v Conservation Commission, 302 Conn. 60, 68 (2011)

Here, even if the Connecticut-licensed status of individual attorneys affected CLA’s need to be licensed (which, in this case, it did not), none of the individual attorneys appeared or testified concerning their Connecticut practice, the scope of their dealings with Connecticut clients or their relationship with CLA.  In addition, none of the attorneys entered into retainer agreements with the debtors, and the attorneys were only assigned by computer after the debtor signed the retainer agreement with CLA.

In short, CLA has failed to sustain its burden of proving the Section 36a-671c exemption as it existed in 2009 and after its 2011 amendment.  That burden does not fall on the department but on CLA.

As an aside, during the hearing CLA appeared to try to explain the limited role played by its independent contractor attorneys by styling its services as “unbundled.”  The retainer agreements used by CLA were not called Limited Services Retainer Agreements.  Unbundled legal services are used in cases such as divorce proceedings where the attorney and the client agree that some of the services are to be performed by the client himself.  ABA Rule 1.2(c) requires that the client give “informed consent” to an unbundled arrangement.  In an unbundled arrangement “The law firm should provide the client with a clear explanation of what full-service representation of the matter would entail so that the client may understand the difference between full and limited representation as well as understand his or her responsibilities under the agreement.  A thorough client intake process is also necessary for the lawyer to understand the client’s legal needs.”  Factors bearing on whether an unbundled arrangement would be appropriate include the complexity of the case; the urgency of the matter; the ability of the client, based on the client’s education, experience and education, to handle segments of the case following the firm’s instructions and guidance; and the client’s informed consent.  See, “Law a la Carte:  The Case for Unbundling Legal Services”, Kimbro, ABA GPSolo magazine, Vol. 29, No. 5 (September-Oct. 2012).  The record does not indicate that any attorney fully explained to any of the debtors the difference between full and limited representation or that a thorough client intake process was conducted.  Moreover, what drove the debtors was a need to minimize their indebtedness, not to obtain legal services per se.

In addition, CLA’s arrangement was marked by a delegation of functions to EFA rather than guiding a fully informed client on how the client could address a portion of the legal work on his own.  The debtors in this case were led to rely exclusively on CLA and EFA to resolve their debt problems.  Moreover, there was a systemic distancing of the attorneys from the debtors through CLA’s use of EFA to assist it in performing its debt negotiation activities.


Having read the record, I HEREBY ORDER, pursuant to Sections 36a-50 and 36a-52 of the Connecticut General Statute that:

1.Pursuant to Section 36a-52(b) of the Connecticut General Statutes, Consumer Law Associates, LLC shall CEASE AND DESIST from violating Section 36a-671(b) of the Connecticut General Statutes in effect prior to October 1, 2011, and Section 36a-671(b) of the Connecticut General Statutes as in effect after October 1, 2011;
2.Pursuant to Section 36a-50(c) of the Connecticut General Statutes, Consumer Law Associates, LLC shall MAKE RESTITUTION of those sums obtained as a result of Consumer Law Associates, LLC’s violation of Section 36a-671(b) of the Connecticut General Statutes in accordance with the terms set forth in the Notice.
3.A CIVIL PENALTY of Five Hundred Fifty Thousand Dollars ($550,000) shall be imposed upon Consumer Law Associates, LLC, such penalty to be remitted to the Department of Banking by cashier’s check, certified check or money order made payable to “Treasurer, State of Connecticut” no later than thirty (30) days from the date this Order is effective; and
This Order shall become effective when mailed.

So ordered at Hartford, Connecticut                 _____________/s/___________
this 12th day of May, 2014.                            Howard F. Pitkin
                                                                    Banking Commissioner

On May 12, 2014, this Order
was sent electronically and hand delivered
to Stacey Serrano, Esq., counsel to the
Department, and sent electronically
as well as by certified mail,
return receipt requested, to
Respondent’s counsel of record
at the following addresses:
Attorney Robert M. Frost, Jr.
Frost Bussert LLC
129 Church Street - Suite 226
New Haven, Connecticut  06510

1Post-October 1, 2011, the licensing requirement in Section 36a-671(b) was slightly altered by removing the reference to a "service contract" in favor of "services."  As amended, the provision reads, in part, as follows: "No person shall engage or offer to engage in debt negotiation in this state without a license issued under this section for each location where debt negotiation will be conducted. . . .  A person is engaging in debt negotiation in this state if such person: . . . (2) has a place of business located outside of this state and the debtor is a resident of this state who negotiates or agrees to the terms of the services in person, by mail, by telephone or via the Internet . . . . "

Administrative Orders and Settlements