Attorneys and law firms are keeping an eye on a case currently working its way through federal court in Georgia. The case, CFPB v. Frederick J. Hanna and Associates, was originally filed in July. In it, the CFPB used its authority to sue a law firm that filed legal documents in support of a debt collection agency. Although Hanna had very little interaction with consumers, the CFPB alleges that it violated the Fair Debt Collection Practices Act (FDCPA) and the Dodd-Frank Act.
The CFPB alleges that Hanna operated “like a factory,” producing hundreds of thousands of debt collection lawsuits against consumers on behalf of its clients, mainly major credit card-issuing banks and debt buyers. Between 2009 and 2013 the firm filed more than 350,000 debt collection lawsuits in Georgia alone, which is where the lawsuit was filed.
The action alleges that the firm violated FDCPA by misrepresenting that Hanna communications came from an attorney. The CFPB said that those communications could not have come “from attorneys” due to the volume of lawsuits compared to the number of attorneys on staff. Hanna’s lawsuits, the CFPB claims, are the result of automated processes and the work of non-attorney staff, without any meaningful involvement of attorneys. CFPB investigators said they found that while the firm employed “hundreds” of non-attorney staff, it had only eight to 16 attorneys over the relevant period.
The CFPB noted that “most” of the Georgia suits resulted in default judgment against the consumer when they failed to appear. The firm also allegedly voluntarily dismissed more than 40,000 of its suits after process was served. The CFPB claims that when consumers challenged the suits, the Hanna law firm dismissed the complaints “because it cannot substantiate its allegations.”
This fall, a federal judge denied a motion made by Hanna to have the suit dismissed. Hanna claims that the filing of a complaint is fundamentally the practice of law and Dodd-Frank bars the bureau from regulating this type of activity. Even if Hanna failed to properly review litigation matters before filing, which they deny, the regulation of attorneys is the domain of the states.
Although Hanna’s motion to dismiss was denied, that decision is currently being appealed. The result will be of great interest to law firms. No entity that has a legal right to sue for a debt can do so without the help of a consulting attorney or firm. Since 2014, the CFPB has filed legal actions against nearly two dozen lawyers and firms. That number could increase dramatically.