The Washington PostDemocracy Dies in Darkness

CFPB sues law firm behind debt collection lawsuits

Law firm Frederick J. Hanna & Associates filed tens of thousands of lawsuits against people behind on their bills claiming that attorneys reviewed and signed off on the cases. But federal authorities started to raise questions when they noticed the same name on 130,000 debt collection lawsuits over a two-year period.

It turns out that the firm was actually churning out lawsuits through an automated process, without any meaningful involvement of lawyers, while misrepresenting itself to consumers in violation of the law, according to a lawsuit filed Monday by the Consumer Financial Protection Bureau.

The government watchdog has accused the Georgia-based law firm of using illegal tactics to intimidate consumers into paying debts they may not even owe. It claims the firm used sworn statements from people who couldn't possibly know the details of the consumer debts. Officials at the CFPB said the firm, when challenged, dismissed more than 40,000 lawsuits it had filed in Georgia alone because it couldn't substantiate the claims.

“The Hanna firm relies on deception and faulty evidence to drag consumers to court and collect millions,” CFPB Director Richard Cordray said in a statement. “We believe they are taking advantage of consumers’ lack of legal expertise to intimidate them into paying debts they may not even owe.”

Cordray said the bureau is seeking compensation for victims, a civil fine and an injunction against the company and its partners.

Joseph C. Cooling, managing partner at Frederick J. Hanna & Associates, said in an e-mail that "we strongly deny the allegations of the complaint and, moreover, the overall mischaracterization of our law firm."

Cooling added that the law firm has cooperated with the CFPB for the past year in reviewing its practice and was "disappointed" that the bureau decided to file suit.

"Our law firm takes great pride in its commitment to compliance with all consumer protection laws," Cooling said. "We believe the law and evidence will show that; and we look forward to presenting our side of the case to the court."

The CFPB likened the law firm to a factory that produces hundreds of thousands of debt collection lawsuits against consumers on behalf of its clients--banks, debt buyers and major credit card companies.

Since 2009, the firm has made millions attempting to collect debts for credit card issuers such as Bank of America and Capital One as well as debt buyers--companies that purchase old accounts for collection--such as Portfolio Recovery Associates and Midland Funding.

In May, Midland was the subject of a Post story on debt buyers' activities in Northern Virginia. The company is a unit of Encore Capital Group, a San Diego-based corporation that buys portfolios of charged-off debt — delinquent accounts that lenders give up on. In the past four years, Midland has flooded courts from Loudoun County to Prince William County with nearly 11,000 lawsuits as companies overwhelmed by delinquent accounts have sold them for pennies on the dollar.

The company, much like other debt buyers, uses law firms like Frederick J. Hanna to pursue its cases. But state attorneys general, judges and consumer lawyers nationwide have been complaining of a broken debt collection system that allows companies such as Midland to file tens of thousands of cases built on flimsy documentation.