Collection law firm Frederick J. Hanna & Associates on Wednesday agreed to pay $3.1 million to settle a Consumer Financial Protection Bureau lawsuit that alleged the firm illegally operated a debt collection lawsuit mill.
The CFPB’s proposed order, filed Monday in federal court, accuses the Georgia-based firm and its three principal partners, Frederick J. Hanna, Joseph C. Cooling and Robert A. Winter, of using deceptive court filings and faulty evidence to churn out debt collection lawsuits. The CFPB's lawsuit was filed in July 2014 in federal court in the Northern District of Georgia.The order, if approved by the court, would bar the firm and its partners from filing lawsuits without being able to verify the consumers’ debt is owed and from intimidating consumers with allegedly deceptive court filings - including those that appeared like they were signed by an attorney when they actually involved the work of non-attorney staff. "This process allowed the firm to generate and file hundreds of thousands of lawsuits," the CFPB said. "One attorney at the firm, for example, signed over 130,000 debt collection lawsuits over a two-year period." The agency also accused the law firm of filing sworn statements from its clients who attested against a consumer with outstanding debt even though some of the clients could not have known such details."In a substantial number of cases, when challenged, the firm dismissed lawsuits," the CFPB said. "Between 2009 and 2014, the firm dismissed over 40,000 suits in Georgia alone, and the CFPB believes it did so frequently because it could not substantiate its allegations."
Officials with the Hanna law firm on Monday, responding to the settlement agreement, said they wanted to "halt the relentless expense and uncertainty of protracted litigation with the [CFPB].
"In spite of the [CFPB’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 the firm] for many years. At all times, [the firm has] 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 with the CFPB] are reflective of policies and procedures that have been in place at [at the firm] for a period of years, together with many additional layers of mature policies and procedures in place to comply with consumer protection laws." The Hanna law firm, which focuses exclusively on debt collection litigation, is a member of NARCA - The National Creditors Bar Association. NARCA on Monday issued a statement about the settlement agreement.
"While Hanna has agreed to monetary penalties, there has been no admission of liability on the part of Hanna or its members. Further, both parties agree that there has been no adjudication of any issue of fact or remaining issues of law arising from the conduct alleged in the CFPB’s complaint. 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 defendants had filed a motion to dismiss the case but the court rejected the request in July 2015. On Monday, Hanna officials pointed out the the firm cooperated fully with the CFPB during the course of an investigation that began at least 2 1/2 years ago.
"[Hanna & Associates] 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," officials with the firm stated Monday.
The CFPB noted that the action is a part of a larger sweep to end wrongful debt collection practices, including both buyers and sellers.
"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," the CFPB said in a press release. "The bureau will continue working to ensure all players in the collections market treat consumers fairly."
Hanna law firm officials said Monday they hope the requirements set forth in the settlement agreement will help attorneys in "reconciling the nebulous principle of 'meaningful attorney involvement' with state law rules of civil procedure, evidence and ethical rules of conduct."