A federal watchdog is suing a collection agency that allegedly operated like a “factory”churning out lawsuits against cash-strapped borrowers, often using misleading, deceptive and illegal practices.
The suit is the latest effort by regulators to crack down on debt collection abuse. The billion-dollar industry has ballooned in size over the past two decades and is under fire for filing wrongful lawsuits against vulnerable borrowers.
The Consumer Financial Protection Bureau (CFPB) announced on Monday that it had sued Frederick J. Hanna & Associates, a Georgia-based law firm that sues consumers for old, outstanding debts owed to banks, debt buyers and credit card companies.
The complaint against Hanna & Associates alleges that the firm operated as a lawsuit “factory,” cranking out more than 350,000 suits in Georgia alone since 2009. What’s more, the company operates with a skeleton staff of eight to 16 lawyers who merely put their signature on lawsuits, while the bulk of the work at the firm is performed by “automated processes” and non-attorney staff, according to the CFPB complaint.
In 2009 and 2010, the suit claims, a single lawyer at the company signed off on about 138,000 lawsuits, an average of about 1,300 a week. Such a feat would seem to test the limits of physical endurance. The firm’s lawyers were expected to spend “less than a minute” looking at each lawsuit before signing it, the suit contends.
The CFPB complaint names the law firm’s president, Frederick Hanna, and two of the company’s managing partners. It is asking for the firm to be fined, for its victims to be compensated, and for an injunction against the company and its partners.
The website for Hanna & Associates, which was founded in 1981, describes the company as a law firm dedicated exclusively to “creditors’ rights and recoveries.” Although the agency also has offices in Florida and Missouri, CFPB spokesperson Moira Vahey told HuffPost the agency’s lawsuit focuses on the firm’s alleged activity in Georgia.
Hanna & Associates Managing Partner Joseph C. Cooling said in a statement that the firm strongly denies the allegations.
“Our law firm takes great pride in its commitment to compliance with all consumer protection laws and takes great pains every day to ensure compliance with state civil procedure and evidentiary laws, step by step,” he said.
Businesses hire debt collection firms like Hanna & Associates to recover delinquent debts from consumers. It’s most often credit card debt, but can include things like old cell phone or utility bills. The collection firms are typically paid a fee or a percentage of the debts they successfully collect.
Hanna & Associates’ clients include high-profile banks like Bank of America, JPMorgan Chase, Capital One and Discover, the federal lawsuit says. BofA and Discover declined to comment. The other banks did not immediately respond to a request for comment.
Vahey said the probe is still ongoing. “The Bureau is still collecting evidence and will continue to do so as the case proceeds through the court system,” she said.
Unfortunately, Hanna & Associates’ alleged tactics may not be the problems of just one rogue firm.
“These practices sound so familiar to me when I read this complaint,” said Susan Shin of the New Economy Project, which advocates against predatory debt collection practices. “We’re happy to see that the CFPB is going after these abusive practices. This sounds like it could be brought against a lot of collection firms.”
The CFPB contends that many of the lawsuits filed by Hanna & Associates resulted in default judgments, which occur when a borrower doesn’t show up for his or her court date. Depending on the state, these default judgements sometimes let creditors seize wages and savings or put liens on property.
Yet collectors don’t always do their due diligence in properly tracking down consumers and verifying that the debts are valid. In June, HuffPost profiled a 69-year-old retired veteran who had his mother’s house taken from him over a debt he said he didn’t owe. The veteran, Willie Wilson of Elgin, Texas, said he never even received the notice to come to court.