Living with credit, Protecting yourself

Consumer bureau sues debt collection lawyers

Fred Williams

When is a law firm really a debt collector using the courts to intimidate?

The federal government’s consumer protection watchdog filed a lawsuit this month that seeks to answer that question. In the process, the agency fired a shot across the bow of high-volume debt collection law firms.

Consumer bureau cracks down on robo-signed debt collection lawsuits

The Frederick J. Hanna law firm in Georgia has filed 350,000 collection lawsuits since 2009, the U.S. Consumer Financial Protection Bureau said in court papers. When a lawsuit is contested, the firm often drops the complaint — that happened 40,000 times. Hanna had eight to 16 lawyers, with a support staff numbering hundreds of people. The staff drew up legal papers and put them in mail buckets for lawyers to sign. One lawyer signed 138,000 lawsuits in two years, the CFPB said –about 1,300 a week.

“The Hanna firm relies on deception and faulty evidence to drag consumers to court and collect millions,” CFPB Director Richard Cordray said in an announcement of the lawsuit. The tactic uses courts to intimidate people into paying off thinly documented debts, he said, sometimes even debts they don’t owe. Lawsuits on behalf of debt buyers lacked evidence that the debt buyers even owned the debts they were trying to collect, the CFPB charged.

The agency has been eyeing debt-collectors-in-lawyers’-clothing for years, and the lawsuit marks the consumer bureau’s entrance into the connected controversy over robo-signed lawsuits. Consumer advocates argue that cheaply sold-off debts — often credit card debts — are fueling collection mills that turn the court system into a shakedown racket. Firms can get away with filing thinly supported cases because most of the time, the supposed debtor doesn’t show up, consumer law researchers have found.

Collection lawyers disagree. State licensing authorities set high standards for lawyers’ performance, said Joann Needleman, president of the National Association of Retail and Collection Attorneys. She said the federal consumer bureau has stepped out of bounds in trying to regulate the practice of law.

“Bad law firms get shut down all the time,” Needleman said. If clients believe the firm has not done a good job for them, she said, they can file a grievance.

The Hanna firm has steamed along in Georgia for years, however, with no record of censure or discipline from the state’s bar association. The CFPB lawsuit is based on a lack of “meaningful involvement” by an attorney in the lawsuits the firm filed. If there is no standard for attorneys to spend time on a case, and ensure there are documents to back it up, the courts become a tool for debt collectors in disguise.

But the tactic only works when the other side, the supposed debtor, is unlikely to fight back. For people staring down the wrong end of one of these lawsuits, there is an important lesson: Don’t take a claim at face value. Being served with legal papers is intimidating. But if you aren’t sure the debt is legitimate, and the amount is correct, there is good reason to question officialdom. In its lawsuit, the CFPB said that targets of the Hanna firm who hired lawyers to represent them were four times as likely to have their lawsuit dropped as others.

The consumer agency is working on a rule that would set new standards for debt collection. The rule will probably include standards for documentation to show a debt is legitimate. It might also require collectors to tell you when the right to sue for the debt has legally expired. Until the rule is in place, however, people need to be extra vigilant when it comes to debt collectors — whether they’re on the phone or in a courthouse.

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  • sylvester davis

    Is there a law in place now that has a legally expired date for a credit card debt?

  • Gay Lord Popp

    As sad as it is, at times, customers just don’t have the intentions to pay their debt to you. If you have tried calling, sending letters or even meeting in person to n o avail, its time to get the big guns and call in a debt collection lawyer in New Jersey.