Decoding the Order in CFPB v. Hanna

[Editor’s note: Yesterday insideARM reported that the judge in the case of CFPB v. Hanna issued an order denying the defendant’s motion to dismiss. The order, released yesterday, is 70 pages. Today, as promised, we begin to provide analysis of that order. This is one of two articles – by two different attorneys – offering their view. You can find the other one, by Joann Needleman, here.]

Natalie Mencia

Last year, the Consumer Financial Protection Bureau (the “CFPB”) brought an enforcement action against the Defendant law firm of Fredrick J. Hanna & Associates (“Hanna”). The Complaint alleged that Hanna lacked meaningful attorney involvement, in violation of the FDCPA and CFPA and used affidavits in violation of the FDCPA and CFPA.

A year later, to the date, the U.S. District Court for the Northern District of Georgia has ordered that the Defendant’s Motion to Dismiss be denied. Hanna filed the Motion to Dismiss on September 12th, 2014 contending that the “practice-of-law exclusion in the CFPA bars enforcement of the CFPA claims and the complaint failed to state a claim for relief premised on either an alleged lack of meaningful attorney involvement in the filing of complaints or Hanna’s filing of affidavits which Hanna knew or should have known were signed by affiants without personal knowledge of material facts averred in the affidavit. Finally, Hanna requested that the Court limit recovery for the FDCPA claims to the extent they are barred by a one-year statute of limitations.

While District Judge Amy Totenberg considered the Defendant’s arguments in support of their Motion to Dismiss, she ultimately issued a 70-page Order denying the Motion.

In the Order, the Court established that:

1. The CFPA practice-of-law exclusion does not bar enforcement of CFPA claims.
   The exclusion states “… the Bureau may not exercise any supervisory or enforcement authority with respect to an activity engaged in by an attorney as part of the practice of law under the laws of a State in which the attorney is licensed to practice law.” 12 U.S.C. § 5517(e)(1). Hanna argued that the filing of a lawsuit and the filing of affidavits in connection with a lawsuit were “undoubtedly activities that fell under this exception. The CFPA however, provides for exceptions to the practice-of-law exclusion, including “the offering or provision of a consumer financial product or service… that is otherwise offered or provided by the attorney in question with respect to any consumer who is not receiving legal advice or services from the attorney in connection with such financial product or service.” 12 U.S.C. § 5517(e)(2).The Court concluded that the exception to the exclusion unambiguously included the conduct at issue in this case and thus provides a carve-out for the CFPB to bring its CFPA claims. Judge Totenberg wrote that “The CFPA expressly provides the Bureau a narrow scope of authority over lawyers engaged in the activity that is otherwise part of the practice of law.”
2. A lack of meaningful attorney involvement may be a violation of FDCPA’s § 1692e.
   Section 1692e of the FDCPA prohibits “any false, deceptive, or misleading representation or means in connection with the collection of any debt.” While there are specific examples set out in the statute, the Court stated that the use of any false, deceptive or misleading representation in a communication violates §1692e, regardless of whether the representation in question violates a particular subsection of that provision. The Court found that “the least sophisticated consumer could view a lawsuit, signed by an attorney, as an indication that a lawyer had in fact scrutinized the case and determined that it had legal merit. In this way, [Hanna's] alleged litigation-mill may plausibly violate § 1692e.” While Hanna argued that the meaningful attorney involvement standard was limited to dunning letters and that there was no standard for complaints, among other points, the Court was unpersuaded.
3. A lack of meaningful attorney involvement may be a violation of the CFPA.
   Section 5536(a)(1)(B) of CFPA prohibits “any unfair, deceptive, or abusive act or practice.” Defendants argued that a consumer could not be misled with respect to whether the purported creditor had initiated a lawsuit against the consumer to collect a debt. The Court disagreed with the defendant’s interpretation. The Court found that the CFPB’s claim was regarding whether Hanna’s litigation practice misled consumers that a lawyer has reviewed the consumer’s file and determined that it is validly merits litigation. As such, the Court rejected the defendant’s motion to dismiss on this claim.
4. The allegations in the CFPB’s Complaint regarding the use of affidavits in violation of FDCPA and CFPA support plausible inference that the affidavits were themselves false or misleading.
   The Defendant argued that the Bureau did not allege any facts upon which the Court could infer that the affiants actually lacked personal knowledge of the debts or that the Defendants knew or should have known that. The Court rejected the defendant’s argument to apply Rule 9(b) to CFPB’s claims, as the case does not allege fraud or mistake.
5. The CFPB has a time limitation when it comes to bringing FDCPA and CFPA claims.
   The Court declined to decide whether a one-year or three-year statute of limitations should apply but rejected the Bureau’s assertion that §1692l contains no limitations.

While this case is just getting started, the old adage “an ounce of prevention is worth a pound of cure” is relevant here. Regardless of what the ultimate outcome is, this Order gives the CFPB the authority to proceed with similar enforcement actions while the case is pending. Now more than ever, debt collection law firms should ensure that they have a meaningful attorney involvement policy and practice in place.