Decision on Motion to Dismiss in CFPB v Hanna

In June, Georgia Watch observed and reported on the Motion to Dismiss hearing in Consumer Financial Protection Bureau (CFPB) v. Frederick J. Hanna & Associates, et al. in the United States District Court for the Northern District of Georgia before the Honorable Judge Amy Totenberg.  The CFPB brought this case in July 2014 against Hanna & Associates due to their high volume of debt collection suits in Georgia.  The CFPB contends that Defendants’ practice of filing suits against Georgia consumers violated the Fair Debt Collection Practices Act (“FDCPA”) and the Consumer Financial Protection Act (“CFPA”).  According to the suit, the attorneys at Hanna & Associates typically spent less than one minute reviewing each consumer case before filing an action in court, which inevitably led to many Georgia consumers being sued for debts they may not have owed or for which creditors’ had insufficient documentation.

On July 14, 2015, Judge Totenberg issued a decision denying Defendants’ Motion to Dismiss, thus allowing the CFPB’s case against Hanna & Associates to proceed.  The Court’s decision includes two important findings regarding the CFPB’s ability to regulate attorneys engaged in high volume debt collection practices.

  1. The first question answered by the Court was whether the practice-of-law exclusion in the CFPA bars the CFPB from enforcing this federal consumer protection law against debt collection firms like Hanna & Associates.

The Court concludes that the practice-of-law exclusion does not bar the CFPB’s CFPA claims against Hanna & Associates.  The Court relied on the plain language of the statute and found that the CFPA unambiguously creates a “carve-out” for the regulation of debt collection activities by attorneys against consumers.  The Court further found that the debt-collection acts of filing a breach of contract lawsuit and litigating that suit are acts excepted from the CFPA’s practice-of-law exclusion, thus allowing the CFPB to bring their CFPA claims against Hanna & Associates.

  1. The Court went on to decide if the “meaningful attorney involvement” standard, which determines whether a communication from a lawyer may be false or misleading, applies here where Defendants have engaged in the mass filing debt collection lawsuits.

The Court finds that Hanna & Associates’ practice of filing debt collection lawsuits without any meaningful involvement by an attorney may plausibly violate federal laws protecting consumers against false or misleading debt collection communications.  As the Court articulates in its decision, “the least sophisticated consumer is likely to believe when served with a debt collection complaint that a lawyer has reviewed his account and determined that the creditor has a valid claim.”  The Court acknowledges that the receipt of a lawsuit could intimidate even a sophisticated consumer who is likely to assume the suit is a valid one.

The Court declined, at this time, to answer whether the statute of limitations should be one or three years.

The denial of the Motion to Dismiss is a victory for consumers.  The Court’s decision clarifies the CFPB’s enforcement powers against debt collection law firms like Hanna & Associates. Additionally, it allows the CFPB to continue arguing its case in an effort to prevent law firms from acting like debt collection mills.