CFPB Sues Debt Collection Law Firm Over Suit Volume, FDCPA Violations

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The Consumer Financial Protection Bureau (CFPB) Monday said it has filed a lawsuit against a debt collection law firm and its three principal partners alleging that the firm was a “lawsuit mill” that churned out debt collection actions and violated the FDCPA en masse. The firm denies the claims and says it will defend the action in court.

The CFPB filed its suit in U.S. district court in Georgia, the home state of the defendants Frederick J. Hanna & Associates.

Documents filed in court allege that the Hanna law firm churns out hundreds of thousands of debt collection lawsuits with little or no oversight from attorneys. The CFPB is seeking unspecified compensation for victims, a civil fine, and an injunction against the company and its partners.

The CFPB alleges 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. Between 2009 and 2013 the firm filed more than 350,000 debt collection lawsuits in Georgia alone. The Georgia suits are the focus of the CFPB’s action.

The action alleges that the firm violated the Fair Debt Collection Practices Act (FDCPA) by misrepresenting that communications came from an attorney. The CFPB said that communications, and even the debt collection lawsuits themselves, could not have come “from attorneys” due to the volume of lawsuits compared to the number of attorneys on staff.

Hanna’s lawsuits, the CFPB claims, are the result of automated processes and the work of non-attorney staff, without any meaningful involvement of attorneys.

CFPB investigators said they found that while the firm employed “hundreds” of non-attorney staff, it had only eight to 16 attorneys over the relevant period. The Bureau claims that one attorney in particular signed about 138,000 debt collection suits in Georgia in 2009 and 2010.

The CFPB noted that that “most” of the Georgia suits resulted in default judgment against the consumer when they failed to appear. The firm also allegedly voluntarily dismissed more than 40,000 of its suits after process was served. The CFPB claims that when consumers challenged the suits, the Hanna law firm dismissed the complaints “because it cannot substantiate its allegations.”

In addition to seeking redress under the FDCPA, the CFPB said that it is using its authority to regulate unfair, deceptive, or abusive acts and practices (UDAAP) in the financial marketplace under the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

That legal distinction drew the concern of a debt collection industry trade group.

“NARCA attorneys engage in the practice of law as established by our state judiciaries and not by the executive branch of the federal government,” said Joann Needleman, President of the National Association of Retail Collection Attorneys (NARCA).  The filing of a complaint is fundamentally the practice of law and Dodd-Frank bars the Bureau from regulating this type of activity.  “As we have been doing over the last four years, we will continue to work with the CFPB and our elected officials in Washington to educate and inform them on this most important issue.”

Frederick J. Hanna told insideARM.com in a statement that it will defend the case and it feels the CFPB’s statements about it were incorrect.

“Frederick J. Hanna & Associates, P.C. has completely cooperated with the Consumer Financial Protection Bureau over the course of the last year, including expending thousands of man hours, in assisting the Bureau with reviewing our law practice,” the firm’s statement read.  “We were completely surprised and obviously disappointed by yesterday’s events.  Of course, we strongly deny the allegations of the complaint and, moreover, the overall mischaracterization of our law firm as a ‘mill’ or ‘factory.’

“Our law firm takes great pride in its commitment to compliance with all consumer protection laws and takes great pains every day to ensure compliance with state civil procedure and evidentiary laws, step by step.  At all times, our firm has faithfully followed the long established legal rules and due process guidelines set forth under Georgia law and the long line of established federal judicial precedent with regard to the Fair Debt Collection Practices Act.

“We believe the law and evidence will show that; and we look forward to presenting our side of the case to the court at the appropriate time.”

 

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Posted in CFPB, Collection Law Firms, Collection Laws and Regulations, Credit Card Receivables, Debt Buying, Debt Collection, FDCPA, Featured Post .

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  • avatar Ameripay says:

    They don’t want us to write, they don’t want us to call, now they don’t want us to sue.

    Guess it’s time to stop lending and let the loansharks get back to work.

  • avatar ryon gambill says:

    Obama voters owe every one of us an apology. We employ hundreds of thousands, but not for long.

  • avatar william-edwards says:

    I’m not really seeing the violation here. If a law firm has interns, secretarys, paralegals and clerks, how does that make them any less of a law firm? Does anyone think that Congressmen write their own bills? Does the fact that a staffer or think tank wrote the legislation make a law any less enforceable? I can’t imagine ANY law firm engaged in debt collection activities where the attorney is compiling all the paperwork and prepping the suit by themselves.

  • avatar PAguy says:

    The CFPB is under pressure to justify their existence. The banks can afford to pay whatever ransom the government demands, but the large private firms like Hanna are going to get crucified.

    When the stock market failed, somebody had to pay. They found their fall guy, and Martha Stewart deserved what she got.

  • avatar PAguy says:

    The CFPB is under pressure to justify their existence. The banks can afford to pay whatever ransom the government demands, but the large private firms like Hanna are going to get crucified.

    When the stock market failed, somebody had to pay. They found their fall guy, and Martha Stewart deserved what she got

  • avatar Sisko says:

    So there’s this modern thing called a “computer” which can print out a “form”, and may even be able to complete the the blank lines. Little else remains for the attorney to do besides a review and a signature. CFPB’s Worst Case Scenario: 138,000 lawsuits over 2 years translates to approximately 110 seconds for each one by my math. Is it do-able?

  • avatar Commercial Guy says:

    That’s a good question, Sisko. When I forward a claim to an attorney for suit, the attorney in each case reviews the documentation that I provide to ensure that the correct defendant(s) are listed on the complaint, the balance is correct, I have the necessary documentation and the debt is within statute…this is after I have done the same review myself. Generally, best case is 5-10 minutes, average is probably 20 minutes. Pretty basic due diligence on my part and that of the attorney.

    It seems to me that if the attorney is going to sign off on the complaint, it’s his responsibility to ensure the information is correct and complete.

  • avatar Newb Collector says:

    So if I’m reading this right, and I completed the match right, between 2009 and 2013 there was a minimum of 8 attorneys on staff. During that time they filed 350,000 lawsuits. So assuming that they worked 8 hours a day 5 days a week, then each lawsuit had the attention of an attorney for 855 seconds, or 14 minutes average. I’m not sure what the standard is, and it would be interesting to know what people feel that standard should be.

  • avatar Commercial Guy says:

    I think your numbers are probably right, Newb. Assuming they did NOTHING other than review the complaints and documentation prior to signing off on them, that would be adequate time to review review everything.

    Let’s face it…we are under a regulatory microscope. The business models that worked very lucratively in the middle of the last decade need to be revamped. Chase had a model that allowed them to generate a large amount of post-charge off collections for a long time. Now they are paying out significantly for that model, and it’s nowhere close to over.

    Our industry needs to grow with the times and the changing landscape. The organizations that do this will survive and flourish; those that don’t will have a life similar to what Thomas Hobbes said…”solitary, poor, nasty, brutish, and short.”

  • avatar ping says:

    State ex rel. Doyle v. Frederick J. Hanna & Assoc., 695 SE 2d 612 – Ga: Supreme Court 2010

    Accordingly, we hold that the representation of clients by a law firm does not come within the FBPA even if certain services were provided by non-lawyers within the firm and could have been offered by a company without any attorneys. If Appellee’s employees engaged in wrongful conduct against debtors, the remedy must be found outside the FBPA.

    See Heintz v. Jenkins, 514 U.S. 291, 115 S.Ct. 1489, 131 L.Ed.2d 395 (1995) (federal Fair Debt Collection Practices Act (FDCPA) applies even to lawyers regularly engaged in collecting consumer debt through litigation); Rules of Professional 616*616 Conduct 5.3 (responsibilities regarding non-lawyer assistants), 5.7 (responsibilities regarding law-related services).

    Like the dissent, we recognize that the debt collection practices of attorneys “would be subject to investigation by the Federal Trade Commission, the regulatory entity responsible for enforcement of the FDCPA. [Cit.]” (Dissent, p. 620) As a result, the State Bar is not the sole entity authorized to investigate a lawyer for engaging in unfair debt collection practices.

  • avatar ping says:

    12 U.S.C. § 5517(e)(3)

    (3) Existing authority

    Paragraph (1) shall not be construed so as to limit the authority of the Bureau with respect to any attorney, to the extent that such attorney is otherwise subject to any of the enumerated consumer laws or the authorities transferred under subtitle F or H.

    Part F – 12 U.S. Code § 5581 – Transfer of consumer financial protection functions

    (5) Federal Trade Commission
    (A) Transfer of functions
    The authority of the Federal Trade Commission under an enumerated consumer law to prescribe rules, issue guidelines, or conduct a study or issue a report mandated under such law shall be transferred to the Bureau on the designated transfer date. Nothing in this title [1] shall be construed to require a mandatory transfer of any employee of the Federal Trade Commission.
    (B) Bureau authority
    (i) In general The Bureau shall have all powers and duties under the enumerated consumer laws to prescribe rules, issue guidelines, or to conduct studies or issue reports mandated by such laws, that were vested in the Federal Trade Commission on the day before the designated transfer date.
    (ii) Federal Trade Commission Act Subject to part B, the Bureau may enforce a rule prescribed under the Federal Trade Commission Act [15 U.S.C. 41 et seq.] by the Federal Trade Commission with respect to an unfair or deceptive act or practice to the extent that such rule applies to a covered person or service provider with respect to the offering or provision of a consumer financial product or service as if it were a rule prescribed under section 5531 of this title.

  • avatar charles-moore says:

    14 minutes would probably be fine if they had all of the supporting data to prove ownership across the chain of title on each account.

    A good dialogue on the subject on credit & collections linkedin group.

    https://www.linkedin.com/groupItem?view=&gid=38124&type=member&item=5899271103011921920&qid=3ca36838-a986-422c-82d4-782b38920dcf&trk=groups_items_see_more-0-b-ttl

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