A proposed Consent Order has been filed in the CFPB’s enforcement action against Frederick J. Hanna Associates. This was the first enforcement action by the CFPB directly against a collection law firm and was the subject of a vigorous defense by Hanna and much comment in the trade press. Hanna lost its motion to dismiss in July 2015, made an unsuccessful motion for an interlocutory appeal and discovery was ordered to proceed.
The case attracted a lot of attention: from the Wall Street Journal to trade publication InsideARM which said that “[t]he case should be front and center for all law firms practicing in this space“. In light of the excitement about the case, the bottom line of the Consent Order is, rather disappointing: Hanna is to pay $3.1 million in penalties to the CFPB and agrees to injunctive relief(all without admitting any of the CFPB’s allegations). There is no relief for consumers targeted by Hanna – that is presumably left to private law suits.
The Consent Order’s injunction amounts to requiring a basic standard of proof before initiating or threatening a collection suit. Hanna must have:
- Original Account Level Documentation (i.e. documents for this account of a specific consumer from the original creditor) showing the consumer’s name last 4 digits of the account number, the amount claimed and (if suing on breach of contract theory) the terms and conditions of the contract.
- A chronological list of all previous owners of the debt.
- An authenticated copy of each bill of sale showing the transfer from each owner in the chain of title to the next including “a specific reference to the particular Debt being collected upon.” And
- Either (a) something signed by the consumer to open the account (most likely a contract or credit card application) or (b) Original Account Level Documentation showing payment, purchase or other actual use by the consumer.
Those are the substantive requirements. The order adds some procedural requirements that gives a more detailed insight into the CFPB’s case against Hanna. In particular, Hanna is not allowed to sue where:
- It’s attorney has not even logged in to the consumer’s account in its collection software.
- It’s attorney hasn’t reviewed the documents Hanna now requires to bring or threaten suit.
- It’s attorney hasn’t “confirmed based upon methods or means proven to be historically reliable and accurate” that the statute of limitations has not run, the debt wasn’t subject to bankruptcy and that Hanna has got the right person.
- It’s attorney has to certify in writing, that the suit complies with the Order.
Another section deals with the deceptive use of affidavits in fundamentally the same as similar orders dealing with debt buyers: affidavits have to be truthful.
CFPB Standards For Attorneys?
One reason the Hanna case attracted so much attention was that it was seen as a bellwether for the CFPB’s treatment of attorneys. Some hoped to avoid all CFPB regulation of attorneys – that was the goal of Hanna’s motion to dismiss. Clearly that hasn’t happened. Instead, the substantive and procedural provisions of the Order indicate best practices for collection attorneys (and behavior consumer lawyers should look out for). Ultimately, the Order requires Hanna to do some things all collection attorneys should do anyway:
- Look at the evidence they have before filing a lawsuit.
- Check that they are suing the right person.
- Check that the person they are suing isn’t bankrupt and that the debt isn’t past the statute of limitations.
- Check that they have enough evidence to file a lawsuit before filing (or threatening to file).
- Make a note that that is what they did.