In a move that could disrupt the business model of law firms that file large numbers of lawsuits to collect money from debtors, the Consumer Financial Protection Bureau (CFPB) took a debt collection firm to court last month for the first time. It accused Frederick J. Hanna & Associates, based in Marietta, Ga., of violating federal consumer protection laws.
The action, legal specialists say, shows that the CFPB intends to target other high-volume law firms over allegations that debt collection claims can be outdated, incorrect, lacking in documentary support, or overlapping with other claims against the same consumers. Such suits often target debtors who have little knowledge of the judicial system and may fail to appear in court, leading to judgments against them that can be difficult to correct.
The CPFB's suit accuses Hanna & Associates of churning out more than 350,000 credit card collection complaints against consumers -- some of whom may actually owe nothing or less than claimed. The firm's lawyers often spend less than one minute reviewing each suit, the suit alleges.
While the National Association of Retail Collection Attorneys argues that the federal watchdog is overstepping its reach because states are supposed to regulate their licensed attorneys, CFPB officials contend that the bureau may sue law firms that operate as debt collection businesses rather than legal advisers.
CFPB officials are also considering rules to put tougher requirements on debt collectors to ensure they have the right to collect on a debt and that the amount is accurate.