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

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.”