January 15, 2016

Law Firm Settles CFPB Lawsuit on Debt Collection

3 min

A law firm sued by the CFPB over its debt collection activities on behalf of debt buyer clients reached a settlement with the CFPB after a year and a half of litigation. The CFPB's December 28, 2015 announcement of a consent order (subsequently finalized on January 6, 2016) with Frederick J. Hanna & Associates, a Georgia-based law firm, resolved allegations that the law firm engaged in illegal debt collection practices in violation of UDAAP and FDCPA. The lawsuit and settlement offer some important insight into the CFPB's view of law firm debt collection practices, including on the topic of what constitutes "meaningful attorney involvement."

According to the CFPB complaint, the firm filed debt collection lawsuits using an automated process that lacked meaningful involvement by firm attorneys. Because of this, the CFPB alleged, the firm's court filings were deceptive, since they were misrepresented as being "from attorneys." The Bureau also alleged that attorneys filed collection lawsuits without being able to verify whether the debts in question were actually owed, thereby submitting unreliable evidence to the court. The CFPB stated that in a "substantial number of cases," the firm dismissed suits when challenged by the consumer.

On July 14, 2015, a federal judge in Atlanta denied the firm's motion to dismiss regarding the CFPB's claims. Although the Dodd-Frank Act provides an exclusion for the practice of law, the court held that the firm's debt collection activity constituted "the offering or provision of a consumer financial product or service" and was exempt from the exclusion. The court also held that the practice of law exclusion does not apply to FDCPA claims.

The consent order prohibits the firm from engaging in the debt-collection practices at issue and requires the firm to pay a $3.1 million civil money penalty. Among other injunctive relief, under the consent order:

  • The firm and its principal partners are prohibited from filing lawsuits or threatening to sue to enforce debts unless they have specific documents and information showing the debt is accurate and enforceable. The firm may not initiate a collection suit unless it (1) has original account-level documentation, (2) is initiating the suit on behalf of a debt buyer, or (3) has either a document signed by the consumer evidencing the opening of the account or documentation reflecting a purchase, payment, or other actual use of the account by the consumer.
  • The firm may not initiate a collection suit until the consumer's attorney has accessed the consumer's file and certified that various criteria affecting the firm's ability to pursue legal action are met (including the application of any statute of limitations, bankruptcy filing, and correct identification of the defendant) and the lawsuit is filed in accordance with the terms of the consent order.
  • The firm may not use deceptive affidavits, such as representations of personal knowledge, personal review, or the presence of a notary, when the facts being represented are not true.

This enforcement action is part of the CFPB's ongoing effort to regulate through enforcement debt collection practices across the consumer financial marketplace.