Editors' Pick: Originally published Jan. 11.
Credit card and student loan debt-collector Frederick J. Hanna & Associates settled charges last month with the Consumer Financial Protection Bureau (CFPB) over allegations that it used illegal debt collection practices on a variety of consumer loans. Hanna agreed to pay $3.1 million stemming from a CFPB investigation that led to a lawsuit filed last July in U.S. District Court in Atlanta.
The CFPB charged that Hanna used its capacity as a law firm to disguise its activity as a bulk debt collector, where legal papers were rubber-stamped by the firm without verification of their contents, reminiscent of the practice known as robo-signing that surfaced in home mortgages during the financial crisis. The CFPB suit charges that Hanna filed hundreds of thousands of lawsuits without bothering to make sure that the people they were taking to court actually owed any money. The CFPB charges that one Hanna attorney signed off on 138,000 lawsuits in two years.
“The Hanna firm relied on deception and faulty evidence to coerce consumers into paying debts that often could not be verified or may not be owed,” said CFPB Director Richard Cordray. “Debt collectors that use the court system for purposes of intimidation should reconsider how their practices are harming consumers.” The CFPB suit demanded that the court "order disgorgement of ill-gotten revenues” and impose civil money penalties. It also asked that Hanna pay the CFPB's costs in bringing the case to trial.
But the suit did not stop at Hanna’s doorstep, where the firm has offices in a Marietta, Ga. shopping mall. J.P. Morgan Chase and the two largest debt buyers in the United States, Encore Capital Group and Portfolio Recovery Associates, all Hanna clients, have been tarred with the same brush.
A CFPB source who spoke on background said "This action is part of the Bureau’s work to address illegal debt collection practices across the consumer financial marketplace, including companies who sell, buy, and collect debt. 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 source noted that Chase, Encore, and Portfolio Recovery have coughed up millions of dollars in consumer relief.