Today the CFPB filed a proposed consent order in federal court that would end its lawsuit that began in July 2014 against Frederick J. Hanna & Associates P.C. The Bureau alleged that the firm filed thousands of collection lawsuits per year against consumers without “meaningful involvement” by the firm’s attorneys, and that it relied on faulty evidence.

Over the last eighteen months the case has taken many turns. The latest was last month, when United States District Court Judge Amy Totenberg issued an order denying Hanna’s request to certify the case for an interlocutory appeal.

According to a CFPB press release, the proposed order, if approved by the court, would:

  • End illegal collection and intimidation tactics: The Hanna law firm and its principal partners would be 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.
  • Clean up attorney practices: Under the proposed order, the Hanna law firm and its partners would be prohibited from filing or threatening lawsuits unless they or their attorneys have reviewed specific documentation related to the consumer’s debt. The law firm would also be required to create a record of that review.
  • Prohibit deceptive court filings: The CFPB alleged that the firm files sworn statements from its clients with the court even though in some cases the signers could not possibly know the details they are attesting to. Under the proposed order, the defendants would not be permitted to use affidavits as evidence to collect debts unless the statements specifically and accurately describe the signer’s knowledge of the facts and the documents attached.
  • Pay a $3.1 million penalty: The firm and its principal partners would be jointly required to pay a $3.1 million penalty to the CFPB’s Civil Penalty Fund.

In separate enforcement actions earlier this year, 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 consumers.

You can read the CFPB’s December, 28 2015 proposed consent order here

You can read the CFPB’s original July 14, 2014 complaint against Hanna here

The Hanna law firm released this statement today:

“Frederick J. Hanna & Associates, P.C. (FJH) entered into a Negotiated Settlement Agreement with the Consumer Financial Protection Bureau (the “Bureau”) which brings an end to a nearly two-and-a-half year investigation and pending federal lawsuit in the United States District Court for the Northern District of Georgia.  A core component of the Settlement Agreement is that FJH and its named partners have admitted to no wrongdoing; and there was no adjudication of any wrongdoing, deception, or consumer harm.

FJH entered into the Settlement Agreement not only to halt the relentless expense and uncertainty of protracted litigation with the Bureau; but also with the sincere hope that the requirements set forth in the Settlement Agreement will assist attorneys in reconciling the nebulous principle of “meaningful attorney involvement” with State Law rules of civil procedure, evidence, and ethical rules of conduct.

In spite of the Bureau’s allegations about our firm, we did not institute any pattern or practice with the intent to deceive or harm consumers, and there has been a robust and substantial compliance management system with redundant levels of due diligence in place at FJH for many years.  At all times, FJH followed the spirit of the Professional Rules of Conduct and complied with the Georgia Civil Practice Act.

Moreover, many of the requirements outlined in the Settlement Agreement with the Bureau are reflective of policies and procedures that have been in place at FJH for a period of years, together with many additional layers of mature policies and procedures in place to comply with consumer protection laws.

FJH cooperated fully with the Bureau over the course of this matter and is committed to continuing that cooperation to ensure that its policies and procedures treat consumers fairly, while still upholding a lawyer’s duty to provide zealous representation and advocacy for his or her clients in accordance with the professional rules.  We thank our many peers and colleagues across the country for their unwavering support and encouragement throughout this process.”

NARCA, the National Creditor’s Bar Association, of which the Hanna firm is a member, also released a statement today, in which it expressed:

“NARCA understands that many consent orders are entered into because the cost of fighting is overwhelming and believes that the current consent order falls in that category.

The Consent Order continues the trend of federal agencies treading upon the separation of powers by trying to regulate the litigation activities of lawyers who turn to the courts in order to help recover unpaid consumer debts. The right to petition for redress through the courts is a constitutional right guaranteed by the First Amendment, and the courts are fully empowered to make sure that this right is exercised in a fair and just manner for all parties in each lawsuit.

Lawyers are officers of the court who must answer to the court for the way they conduct litigation. At the same time, to the extent that the CFPB has the authority to regulate debt collection litigation, law firms require regulatory certainty and even-handed enforcement, so that they can do the longer-term planning critical for growth and success. While consent orders can provide some guidance to creditor law firms, the biggest takeaway from enforcement complaints and settlement agreements is that the Bureau knows unlawful activity when it sees it. Without clear and concise rules, industry is forced to scramble to figure out what is acceptable.”

insideARM Perspective

This case is incredibly significant for the ARM industry. insideARM has been following it from its inception. Over the upcoming days and weeks collection lawyers, clients, and anyone involved in the filing of collection lawsuits will be scrutinizing and analyzing the settlement agreement and Consent Order.

As the ability to communicate with consumers continues to be limited by a shift from land lines to cellphones, TCPA litigation fears, and an increased consumer fear of telephone collection scams, the use of litigation as a tool to collect delinquent accounts has increased. This case has the potential to be the only CFPB direction on the subject unless and until formal rulemaking begins.

insideARM encourages a thorough and thoughtful review of the case. 


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