Prior Rulings a Challenge for CFPB in Suit Against Debt Collection Law Firm

Two weeks ago, the Consumer Financial Protection Bureau (CFPB) announced an aggressive lawsuit against a debt collection law firm accusing the ARM company of being little more than a “lawsuit mill.” At the time, the firm vowed to fight the suit. As details emerge, it appears that the defendants have a decent case, backed by prior court rulings on the same issue.

Defendants Frederick J. Hanna & Associates denied the characterization of their firm in CFPB statements. The Bureau said that the firm operates “like a factory,” producing hundreds of thousands of debt collection lawsuits against consumers on behalf of its clients, mainly major credit card-issuing banks and debt buyers.

But Hanna insisted that the description was wrong, stating, “We strongly deny the allegations of the complaint and, moreover, the overall mischaracterization of our law firm as a ‘mill’ or ‘factory.’”

At primary issue, according to the CFPB, is the use of non-attorney staff and automated processes to ready debt collection lawsuits before filing. The assertion that this proves wrongdoing, by way of lack of meaningful attorney involvement, is troubling, according to the firm.

“We should not be penalized or criticized just because a portion of our law practice utilizes modern computer technology to be more efficient, which most modern law practices and businesses do (including the federal government), and the use of such technology (or paralegals) does not make our practice any less the practice of law,” said the company in a new statement provided to insideARM over the weekend. “Several federal court decisions, and the Supreme Court of Georgia, have upheld that ultimate principle.”

That last point has gained some traction. The National Association of Retail Collection Attorneys (NARCA) jumped to Hanna’s defense immediately, noting that “The filing of a complaint is fundamentally the practice of law, and Dodd-Frank bars the Bureau from regulating this type of activity.” That defense got some exposure over the weekend as two highly respected publications focused on the legal arguments.

The Daily Report, a legal publication focused on Georgia law, noted that Hanna has previously gotten favorable rulings where the government attempted to make the exact same case. A federal district judge sided with Hanna in 2005 in a case that attempted to prove wrongdoing for sending collection letters that appeared to be from a lawyer without meaningful review by an attorney.

But the big case was a decision by the Georgia Supreme Court in 2010 in favor of Hanna and against the state’s regulatory agency the Office of Consumer Affairs (OCA). That case explicitly stated that the OCA’s action “constitutes an impermissible interference by the executive branch into the exclusive jurisdiction of the Court in violation of the separation of powers doctrine.”

The Wall Street Journal also noted the 2010 Supreme Court case in its coverage over the weekend.

The Georgia Justices were split 4-3 in that ruling, however, with three justices issuing a forceful dissent. They noted that that investigating violations of the law involving attorneys does not automatically amount to regulating the practice of law.

So there is plenty of room for a vigorous fight ahead. The CFPB case has been filed in federal court in Georgia, the venue for most of Hanna’s previous wins.

As for its part, Hanna is confident that it will prevail. “We unequivocally deny the allegations of the Bureau’s complaint and we believe the Bureau has exaggerated its criticisms of our firm’s practice without including proper context in its complaint; and we look forward to defending ourselves in a court of law,” the firm said.