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From Banking and Finance Law Daily, December 28, 2015

CFPB consent order would throw monkey wrench into lawsuit mill’s gears

By John M. Pachkowski, J.D.

The Consumer Financial Protection Bureau has filed a proposed consent order in federal court that would resolve a lawsuit against Frederick J. Hanna & Associates, a Georgia-based law firm, and its three principal partners, for operating an illegal debt collection lawsuit mill.

The CFPB’s lawsuit, which was filed in July 2014, alleged that the law firm violated the Fair Debt Collection Practices Act and engaged in deceptive or abusive acts or practices in violation of the Dodd-Frank Act. The bureau’s complaint claimed that the firm, its principal owner, and the managing partners operate “like a factory” in processing debt collection suits for its clients, which the bureau says are principally banks, credit card issuers, and debt buyers (see Banking and Finance Law DailyJuly 14, 2014).

The proposed consent order follows a July 15, 2015, court order that rejected a motion to dismiss the CFPB’s case. In that court proceeding, the law firm argued that the bureau was attempting to illegally regulate the practice of law and was violating the firm’s constitutional rights (see Banking and Finance Law DailyJuly 16, 2015).

If approved by the court, the consent order would:

  • Prohibit the law firm and its principal partners from filing lawsuits or threatening to sue to enforce debts unless they have specific documents and information showing the debt is accurate and enforceable.
  • Require the law firm to create a recordkeeping system documenting that the Hanna law firm and its partners reviewed specific documentation related to the consumer’s debt before filing or threatening debt collection lawsuits.
  • Prohibit the law firm and its partners from using affidavits as evidence to collect debts unless the statements specifically and accurately describe the signer’s knowledge of the facts and the documents attached.
  • Require a firm and its principal partners to jointly pay a $3.1 million penalty to the CFPB’s Civil Penalty Fund.

In a press release, the CFPB noted that its latest action is part of an initiative to address illegal debt collection practices across the consumer financial marketplace, including companies who sell, buy, and collect debt. For instance, in separate enforcement actions, the CFPB has ordered three of the Hanna 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 (see Banking and Finance Law DailyJuly 8, 2015 and Sept. 9, 2015).

Commenting on the proposed consent order, CFPB Director Richard Cordray noted, “The Hanna firm relied on deception and faulty evidence to coerce consumers into paying debts that often could not be verified or may not be owed. Debt collectors that use the court system for purposes of intimidation should reconsider how their practices are harming consumers.”

Companies: Encore Capital Group; Frederick J. Hanna & Associates, P.C.; JPMorgan Chase; Portfolio Recovery Associates

MainStory: TopStory CFPB DebtCollection DoddFrankAct EnforcementActions UDAAP

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