Lawsuits Target Debt Collection 'Mill', Loan Forgiveness Scheme

Federal and state authorities on Monday sought to rein in three companies accused of exploiting consumers struggling to pay off their debts.

The Consumer Financial Protection Bureau filed a federal lawsuit against the Georgia-based law firm Frederick J. Hanna & Associates and its three principal partners, accusing the firm of running an illegal "debt collection lawsuit mill."

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

But a statement by the firm said it was "disappointed" by the bureau's action and it denied all wrongdoing.

"Our law firm takes great pride in its commitment to compliance with all consumer protection laws and state civil procedure and evidentiary laws," said Joseph C. Cooling, a managing partner for the firm, said in an email to American Banker. "At all times, our firm has faithfully followed the long established legal rules and guidelines set forth under Georgia civil procedure and as established by federal judicial precedent with regard to the Fair Debt Collection Practices Act.

At issue in the lawsuit is the automated process the firm allegedly uses to file debt-collection suits. The CFPB alleged that the firm used "high-volume litigation tactics" to collect debts for banks and credit card issuers, including JPMorgan Chase (JPM), Bank of America (BAC), Capital One (COF) and Discover (DFS). As a result, the bureau said the firm failed to exercise "independent professional judgment" in seeking a legal remedy to outstanding debts, thereby violating the Fair Debt Collection Practices Act.

The firm filed over 350,000 lawsuits between 2009 and 2013, the agency said, noting that the attorneys spent "less than a minute" reviewing each lawsuit.

"The non-attorney support staff produce the lawsuits and place them into mail buckets, which are then delivered to attorneys essentially waiting at the end of an assembly line," the CFPB said in the lawsuit.

The CFPB is seeking compensation for victims, a civil fine and an injunction against the company and its partners.

Meanwhile, Illinois Attorney General Lisa Madigan filed separate lawsuits against two student loan servicers alleging they imposed illegal fees on late student loan borrowers and deceptively marketed debt solutions.

Madigan contends that the two companies – Chicago-based First American Tax Defense and Frisco, Texas-based Broadsword Student Advantage – advertised bogus debt forgiveness programs that cost as much as $1,200 in upfront fees to ease consumers' student loan problems. The companies, she alleges, also falsely identified themselves as affiliated with the U.S. Department of Education.

"These companies illegally charge fees for services that student loan borrowers can obtain themselves through government programs at no cost," Madigan said in a news release Monday.

Attempts to reach the two companies on Monday were unsuccessful.