After a Fulton county court garnished Eduardo Austin’s wages to collect more than $3,300, the software developer thought he was done paying an old credit card debt from his college days.
But three years later the same Marietta law firm that came after him sued anew, winning an order to garnish his wages again for the same debt. Austin fought back, filing a lawsuit in federal court in Atlanta that seeks class-action status.
“There’s probably thousands of people this is happening to,” said Austin, 33.
The law firm, Frederick J. Hanna and Associates, has been hit with scores of lawsuits and hundreds of complaints over the years. They claim the firm often flouts federal and state consumer protection laws when collecting old debts.
Last week Austin gained a new ally — the fledgling Consumer Financial Protection Bureau, set up after the financial collapse to help police the financial industry.
The CFPB filed a suit alleging the Hanna firm is a veritable factory churning out thousands of poorly researched lawsuits aimed at intimidating victims into paying debts they sometimes already paid or don’t legally owe.
The case is among more than a dozen actions against mortgage firms, banks, payday lenders and other financial institutions the CFPB has accused of misdeeds this year alone. Last month, the CFPB was involved in a $968 million settlement with SunTrust over the Atlanta bank’s mortgage and foreclosure practices during the financial crisis.
Its suit against the Hanna firm turns the spotlight on the murky world of debt collection, an industry that mushroomed during the credit bubble of the past decade. In the glare is Hanna and Associates, founded by a South Georgia native who got his law degree from the now-defunct Woodrow Wilson School of Law in Atlanta.
The Hanna firm collected millions of dollars a year, the agency said, by filing more than 350,000 lawsuits in Georgia alone from 2009 to 2013, even though it had no more than 16 attorneys at the time. One lawyer filed more than 138,000 lawsuits in two years.
Such “high-volume litigation tactics” often run afoul of federal consumer protections, the agency said. Relying on incorrect or deceptive debt claims that are poorly researched by the lawyers, the Hanna firm intimidated people in some cases into repeat or inflated payments, the agency said.
Many of the firm’s 400 employees work in call centers, trying to collect old debts. Many of the non-lawyer staff work with an “automated system,” the agency said, to decide which debt claims are worth a lawsuit. Those are forwarded in “mail buckets” to a handful of attorneys, who typically “spend no more than one minute reviewing and signing” the lawsuits, the CFPB said.
Mountain of old debt
The reason for this mass-production approach to lawsuits, said experts, is that there is more than $100 billion of old, unpaid credit card bills, car loans, mortgages, medical bills and other consumer debt. When the lenders give up on collecting the debts themselves, they sell them or turn them over to firms like Hanna’s.
Debt buyers, including a Hanna subsidiary, typically pay pennies on the dollar for huge portfolios of such debt.
Critics say the set-up gives debt investors and collectors enormous incentives to churn through old claims, trying to collect as cheaply and quickly as possible. While a majority of the debts are legitimate, the high volumes also lead to costly mistakes that traumatize some victims.
The CFPB wants the court to bar Hanna’s debt collection practices and seeks civil penalties and restitution for affected consumers.
In an emailed statement, the Hanna firm said it “completely cooperated” with the CFPB’s year-long probe, adding, “We were completely blind-sided and obviously disappointed by the Bureau’s decision to file suit. We strongly deny the allegations of the complaint and, moreover, the overall mis-characterization of our law firm by the Bureau as a ‘mill’ or ‘factory.’ “
Mike Bowers, a former Georgia Attorney General representing the Hanna firm, said the firm shared data with the agency showing that it “does not run a sloppy operation.” He also said the CFPB “does not have the authority to bring this lawsuit.”
A trade group for debt collection lawyers is now pushing bills in Congress that would exempt attorneys from the federal Fair Debt Collections Practices Act that the CFPB based its lawsuit on.
“How and in what manner collection attorneys … discharge their professional responsibilities is a task mandated by our state [courts] and not by the executive branch of the federal government,” the trade group said.
Bowers used a similar argument to fight an investigation of the Hanna firm in Georgia by the Governor’s Office of Consumer Protection. In a 2010 ruling, four of the seven Georgia Supreme Court justices sided with the Hanna firm, saying only the Supreme Court and the State Bar have authority to investigate lawyers’ debt collection practices under state law. The state agency dropped its investigation.
Justice Harold Melton and two others disagreed with the ruling. Debt collecting “has nothing to do with the practice of law,” he wrote, and lawyers shouldn’t get a free pass to ignore Georgia’s consumer debt protections.
Founded in 1981
Frederick Hanna founded the firm in 1981 and grew it into a 400-employee operation that operates out of a grocery-store sized office in Marietta. It collects debts for banks and credit card issuers such as JP Morgan Chase, Bank of America and Capital One, and it represents companies that buy portfolios of old consumer debt.
A 2013 article in the Atlanta Legal Aid Society’s newsletter describes Hanna as a compassionate man who was the biggest donor to a Cobb County group that that provides free legal representation to needy clients.
Hanna told the newsletter he came from a working class family in Douglas, in south Georgia, and decided to become a lawyer after graduating from Valdosta State. His firm’s success has enabled him to live in a 6,500-square-foot house with a small lake where guests ride swan boats, the newsletter said.
The CFPB lawsuit and other cases give another picture of Hanna and Associates’ tactics.
In 2011, Hanna’s firm made headlines in a local legal publication when it paid a $120,000 settlement after twice suing a former Georgia Tech professor, Jonathan Houghton, who had suffered a traumatic brain injury and then run up an unpaid credit card debt.
Houghton’s lawyer, Keegan Federal, said he had told Hanna’s firm that a court had ruled Houghton incompetent to manage his affairs before he ever incurred the debt. By law, that meant it was noncollectable.
Hanna dropped the first case but later “filed the exact same lawsuit again,” added Federal, even accusing a family member of faking Houghton’s injury. The case settled just before trial.
In a 2011 case, Oconee County residents William and Ronda Carey accused Hanna and its Georgia Receivables subsidiary of suing them in 2010 to collect a debt they had already paid. The Careys’ suit said they told a Hanna employee they had paid the $20,397 debt in 2009, but that the worker said “she didn’t care.”
Hanna got a court order to garnish the Careys’ wages, but the Careys sued back and the case was settled.
Many claims dropped
As part of its high-volume strategy, the CFPB said, Hanna often drops cases when challenged. The firm dropped 40,000 of the 78,000 lawsuits it filed in Georgia in 2009, the agency said.
But most people don’t even show up in court to challenge lawsuits charging them with old debts, and debt collectors automatically win a default judgment, said Atlanta attorney Steven Koval.
“People are intimidated,” he said. “You’re getting sued for $25,000 and you have no idea how they come up with the number. Often, the company doesn’t either.”
Depending on the type of debt and the state, collectors can’t legally sue to collect debts after they’re 2-10 years old.
In Eduardo Austin’s case, the judge threw out Hanna’s second suitand ordered the firm to refund the $270 in wages wrongly garnished.
But Austin, angry by then, filed the lawsuit. Austin’s attorney, Koval, said about 2,000 other people in Fulton County were also sued by Hanna for interest on already-paid debts, which he hopes will gain his case class-action status.
“There were too many for this to be a one-off” mistake, Koval said.
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Credit: Jason Getz / Jason.Getz@ajc.com