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Big Win for CFPB on Debt Collection

posted by Dalié Jiménez

Yesterday, Judge Amy Totenberg of the Northern District of Georgia issued a very cogent 70-page opinion in the case of the CFPB v. Frederick Hanna & Associates, a large collection law firm with offices in Georgia, Florida, and South Carolina. The opinion denies Hanna's motion to dismiss in its entirety, and almost completely agrees with the CFPB's legal theory. In doing so, the opinion deals a serious blow to the collection law firm business model.

A brief recap of the case if you haven't been following. A year ago, the CFPB filed suit against the Hanna law firm essentially attacking the big collection law firm business model. Among other things, the CFPB alleged that the firm operated "less like a law firm than a factory" and that attorneys were not "meaningfully involved" in the collection lawsuits they filed. As an example, the CFPB alleged that one attorney in the Hanna firm signed about 138,000 lawsuits between 2009-10. That's 189 lawsuits per day, 7 days a week, 52 weeks a year.

The second CFPB claim was that in filing most of its lawsuits on behalf of debt buyers, the law firm "knew or should have known that many of the[] affidavits [they filed] were executed by persons who lacked personal knowledge of the facts." The Bureau sued under both the Fair Debt Collection Practices Act (FDCPA) and the Consumer Financial Protection Act (CFPA) for what it alleges were false or misleading and unfair acts and practices.

The opinion allows the Bureau to proceed on all of these claims. Specifically, Judge Totenberg (who incidentally, is Nina Totenberg's sister) found that the Bureau could regulate collection attorneys under the CFPA (the first time any court considered this issue), that the "meaningful involvement doctrine" extends to activities in litigation, and that the Hanna firm might be liable for filing affidavits given to it by its clients if the CFPB can prove its allegations.

The last two points are huge because it means that collection attorneys will have to spend some time reviewing the collection cases they file. (How much time and what constitutes enough "involvement" is up in the air). Nonetheless, this completely up-ends the business model of at least some collection law firms. As Joann Needleman has pointed out at InsideARM, an interlocutory appeal is unlikely to succeed here, so look for the CFPB to file more cases (or enter into consent decrees) with more law firms.


Using the 189 per day statistic, and breaking it down further, that's one lawsuit every 7 minutes, 37 seconds, assuming this employee is working 24 hours per day every day without breaks.

At a still unreasonable 18 hours per day without breaks, that's one every 5 minutes 43 seconds.

Great point, Ken. Going even further, if we assume a more reasonable work-life of 4 weeks of vacation/holidays/sick days per year and 5 days of work per week with 9 hours of billables per day (2160 hours per year), the numbers are even more stark: 1,438 complaints per week, 287 per day, 32 per hour, or 1 every minute.

This starts to look a lot like the Bock v. Pressler & Pressler case in New Jersey where the judge looked at the attorney's review of a particular case and found that it was only 4 seconds long. That attorney reviewed on average 300-400 cases per day (but much more on that day).

The court said:

"The case law is sparse, and it is possible for reasonable people to disagree as to what constitutes reasonable attorney review. But whatever reasonable attorney review may be, a four-second scan is not it."

See: http://law.justia.com/cases/federal/district-courts/new-jersey/njdce/2:2011cv07593/268761/59/

I've never really understood what a collection attorney is supposed to do in reviewing these suits. They sue John Doe because their client's computer records say John Doe owes X dollars, the balance has been accelerated because payment has not bee received since Y date and the SOL isn't until Z date. What insights is the attorney supposed to glean from her "meaningful review" of the case?

It's the same robosigning we saw in the mortgage industry. It's been going on for years. Too bad only the collapse of the economy made the courts actually do something about this. The number of cases that failed on the same issue before the collapse are legion.

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