In July the CFPB sued Frederick J. Hanna & Associates, a Georgia law firm, for its debt collection practices (complaint here), calling the firm a “lawsuit mill.” Hanna & Associates filed a Motion to Dismiss (copy hosted by CFPB monitor) in September, and the CFPB’s response (copy hosted by Consumer Financial Services blog) elegantly explains what Hanna was doing wrong:
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Federal law prohibits debt collectors from falsely implying that a communication is “from an attorney.” At the Hanna Firm, attorneys are not meaningfully involved in the preparation of debt collection lawsuits. The Firm’s attorneys spend less than a minute reviewing these suits, and they do not even review their clients’ contracts with the debtors they sue. . . .
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Under federal law, one may not use deceptive or unfair means to attempt to collect a debt. Attorneys at the Hanna Firm regularly support their debt collection suits with affidavits in which the affiants claim to have personal knowledge regarding the debts at issue. But Defendants know or should know that the affiants, in fact, have no such knowledge. . . .
Hanna’s Arguments
Hanna’s argues that the CFPB has not alleged that it made any actual mistakes. In some ways this is the most interesting aspect of CFPB’s action: the suit is about Hanna’s “lawsuit mill” practices, not about individual mistakes in individual cases. However, this is not the core of Hanna’s argument. Hanna argues that it should not be regulated by federal law at all, only by state courts and bar associations. The legal grounds on which it makes this argument are various: The 1st amendment’s petition clause, the 5th amendment’s equal protection clause, the “practice of law” exclusion in the Consumer Financial Protection Act (CFPA), statute of limitations and a variety of case law.
The CFPB answers these arguments convincingly. Hanna’s claims about the scope of the FDCPA and CFPA are particularly weak. As the CFPB points out, the FDCPA was amended in the 1980s specifically to remove an exception for debt-collection attorneys. Further, the Supreme Court has issued two decisions — Heinz v. Jenkins and Jerman v. Carlisle — which state that debt collection lawyers who file collection lawsuits are subject to the FDCPA, and that a mistaken understanding of the law will not excuse a violation of the FDCPA.
As for Hanna’s reading of the CFPA’s exception for practicing attorneys, the CFPB responds:
Section 1027(e)(2)(B) preserves the Bureau’s authority over attorneys who provide a financial product or service “with respect to any consumer who is not receiving legal advice or services from the attorney in connection with such product or service.” Defendants provide a financial service by collecting consumer credit-card debt. They provide that service “with respect to” consumers from whom they attempt to collect those debts. Because Defendants do not provide “legal advice” to those consumers “in connection with” Defendants’ debt-collection services, the Bureau may assert CFPA claims against them.
Importance of the Case
The debt collection industry has raised the alarm over this case. See this piece in Inside ARM.
The case is certainly an important one: it is the CFPB’s first enforcement action against a law firm and Hanna has taken the opportunity to attack CFPB’s authority to regulate all collection law firms. However, the idea that law firms engaging in debt collection are subject to federal consumer protection laws is not new. As long ago as 1995, the Supreme Court addressed the issue, in Heintz v. Jenkins 514 U.S. 291 (1995):
The issue before us is whether the term “debt collector” in the Fair Debt Collection Practices Act . . . applies to a lawyer who “regularly,” through litigation, tries to collect consumer debts. The Court of Appeals for the Seventh Circuit held that it does. We agree with the Seventh Circuit and we affirm its judgment.
The debt collection bar has survived nearly 20 years since Heintz and it seems unlikely that another ruling that debt collection lawyers are subject to federal law will change that. The real threat to the collection bar is in the CFPB’s underlying claim that running a lawsuit mill is in itself a violation of the FDCPA and CFPA, and on that issue, there should be very little room for debate.