On December 28, 2015, the Consumer Financial Protection Bureau (CFPB) announced that it filed a proposed consent order in federal court in the Northern District of Georgia that, if approved by the court, will resolve a lawsuit against Frederick J. Hanna & Associates, a Georgia-based debt collection law firm, and its three principal law partners.
In July 2014, the CFPB filed a lawsuit against the firm and its principal law partners alleging violations of the Dodd-Frank Wall Street Reform and Consumer Protection Act’s (Dodd-Frank Act) prohibition on deceptive practices as well as the Fair Debt Collection Practices Act (FDCPA). Specifically, the CFPB alleged that the firm and its principal law partners:
- filed lawsuits against consumers that were purportedly reviewed and signed by attorneys when, in fact, there was no meaningful involvement by attorneys; and
- filed sworn affidavits from clients attesting to details about consumer debts that the clients could not have possible known about, in order to support its lawsuits.
The proposed consent order would:
- prohibit the law firm and its principal partners from filing or threatening to file lawsuits to enforce debts, unless they have specific documents and information demonstrating that the debt is accurate and enforceable;
- prohibit the law firm and its principal partners from filing or threatening to file lawsuits unless attorneys have reviewed specific documentation related to the consumers’ debt;
- prohibit the law firm and its principal partners from using affidavits as evidence to collect debts unless the statements contained in the affidavits specifically and accurately describe the signer’s knowledge of the facts and documents attached to the affidavit; and
- require the law firm and the three principal partners to jointly pay a $3.1 million civil penalty.
In addition, in separate and previous enforcement actions, the CFPB ordered three of the law firm’s clients—JPMorgan Chase, Portfolio Recovery Associates, and Encore Capital Group—to overhaul their debt collection practices and to refund millions to harmed consumers.
These enforcement actions are just the latest of many recent debt collection related actions taken by the CFPB. The CFPB has made clear that addressing illegal debt collection practices is one of its top enforcement priorities. Indeed, the law firm and the three principal partners lost an earlier motion to dismiss based on the argument that the CFPB allegedly lacked the authority to regulate the lawyers. As such, it is important for all participants in the debt collection industry to review their policies and procedures and ensure that they are in compliance with relevant law, including the Dodd-Frank Act, the FDCPA, the Fair Credit Reporting Act, and applicable CFPB regulations, guidance, and enforcement actions.
In addition, as it relates specifically to debt collection law firms and attorneys, it is important to remember that although the CFPB’s authority to regulate lawyers and law firms (specifically the practice of law) is limited by the Dodd-Frank Act, as evidenced by this latest enforcement action, the CFPB does have relatively broad authority to regulate lawyers and law firms, especially those engaged in debt collection activities. Thus, it is important for debt collection lawyers and law firms that utilize non lawyer staff to assist in debt collection efforts to ensure that both the lawyers and staff members are well trained in proper debt collection practices.
You can view the CFPB complaint here: http://files.consumerfinance.gov/f/201407_cfpb_complaint_hanna.pdf.
You can view the proposed consent order here: http://files.consumerfinance.gov/f/201512_cfpb_proposed-stipulated-final-judgment-and-order-hanna-frederick-j-hanna.pdf.
You can view the court’s earlier order related to the law firm’s motion to dismiss in which the court addressed the issue of the practice of law discussed above: http://files.consumerfinance.gov/f/201512_cfpb_order-frederick-j-hanna.pdf.
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Stinson Leonard Street LLP provides sophisticated transactional and litigation legal services to clients ranging from individuals and privately held enterprises to national and international public companies. As one of the 100 largest firms in the U.S., Stinson Leonard Street has offices in 14 cities, including Minneapolis, Mankato and St. Cloud, Minn.; Kansas City, St. Louis and Jefferson City, Mo.; Phoenix, Ariz.; Denver, Colo.; Washington, D.C.; Decatur, Ill.; Wichita and Overland Park, Kan.; Omaha, Neb.; and Bismarck, N.D.
Zane Gilmer is a member of the firm’s litigation practice group. His practice focuses on business litigation and compliance and he is a member of the firm’s CFPB taskforce. Zane works out of the firm’s Denver office and he can be reached at firstname.lastname@example.org or 303.376.8416.
The views expressed herein are the views of the blogger and not those of Stinson Leonard Street or any client.