On July 14th, the Consumer Financial Protection Bureau filed suit against a debt collection law firm in federal district court in Atlanta, alleging in broad strokes that its practices— including some which are fairly common in the debt purchaser industry– systematically violate the Fair Debt Collection Practices Act (“FDCPA”) and the Consumer Financial Protection Act (“CFPA”). The complaint leaves little doubt that the debt purchaser industry and the law firms that support it now face increased scrutiny from the CFPB.
In CFPB v. Frederick J. Hanna & Associates, P.C., et al. , Case No. 1:14-cv-02211-AT-WEJ (N.D. Ga. July 14, 2014) (attached), the CFPB alleges that the law firm of Frederick J. Hanna and Associates, P.C. (the “Hanna firm”) is “a lawsuit mill” that has improperly filed hundreds of thousands of lawsuits in the last five years seeking to collect small, unsecured debts from consumers on behalf of various financial institutions. The most serious allegations of wrongdoing focus on the firm’s alleged practices in filing collection lawsuits on behalf of debt buyer firms. The CFPB claims that two of the firm’s alleged practices in filing these suits violate the FDCPA and the CFPA.
First, according to the CFPB, the Hanna firm files lawsuits without “meaningful attorney review.” Instead, the firm allegedly uses an “automated system” and staff to determine whether the consumers are “suit worthy,” including whether the claims might be barred by limitations. The non-attorney staff then draft complaints and forward them to the attorneys for their signature. The firm allegedly expects its attorneys to spend no more than one minute reviewing and signing each complaint before it is filed. As a result, the complaint alleges, the firm routinely files suit seeking debts that are not owed. The CFPB alleges that this conduct violates the FDCPA and CFPA by falsely representing to consumers that licensed attorneys are “meaningfully involved” in filing valid legal actions against them when they are not.
Second, the complaint alleges that the Hanna firm supports its complaints with affidavits concerning the character, amount, and legal status of consumers’ alleged debts which are prepared by individuals without personal knowledge. The complaint specifically identifies the firm’s debt buyer clients as the source of many of these affidavits, and alleges that these companies initiate collection activity without “basic documents, such as the original contracts underlying the alleged debt or the chain of title evidencing that the debt buyer has standing to sue the consumer.” Id. at 8. The CFPB alleges that this conduct, which is reminiscent of the “robo-signing” allegations made in the recent mortgage foreclosure litigation, is deceptive and unconscionable.
As with a recent consent order against an Alabama real estate firm (see discussion here), the CFPB has chosen to assert a legal theory against the Hanna firm that potentially has broader application to other actors in the financial industry. This is notable because the factual allegations in the complaint suggest that the CFPB could have pursued a narrower but more well-established legal theory against the Hanna firm under the FDCPA based upon its alleged filing of lawsuits without the intent or ability to prove those cases. The CFPB’s proclivity to use court cases as de facto rule-makings is well-noted. This latest case appears to be consistent with that practice. Debt buyer companies and their collections law firms should take note of this action and the positions the agency is staking out regarding their industry.