In January 2016, the CFPB entered into a Consent Order with the Hanna Law Firm. This Consent Order was monumental in some respects as it provided significant details regarding the practice of law involving debt collection matters. This article will discuss some of the major impacts of the Consent Order on collection law firms.
Meaningful Involvement
The first impact and arguable positive outcome of the Order is a bright line definition of meaningful involvement. Recall, it was less than two years ago when the Pressler court enshrined meaningful involvement without telling us anything more than finding a four second review was insufficient. Specifically, the Order discussed the type of documentation in need of review at the time an account was placed with a law firm for collection.
Documentation Required
The Order sets forth the expectation that attorneys will review documentation that, at a minimum, discloses the consumer’s name, the last four digits of the account number associated with the debt at charge off, the claimed amount, and any contractual terms and conditions applicable to the debt. It mandates a signed contract or a statement showing a purchase, payment or other use of the account. Where the client is a debt buyer the attorney must see a chronological listing of all prior owners of the debt, the date of each transfer, a certified or authenticated copy of each bill of sale and such documentation must contain a specific reference to the particular debt at issue. Additionally, Hanna (and by extension, all of us) is required to document their review of the account level documents, the statute of limitations, bankruptcy status and verify the consumer’s identity and address to insure proper venue.
Moving Forward
Interestingly, Hanna was partially sued for relying on their client’s affidavits. A reflexive response is it appears the CFPB was expecting Hanna to somehow audit the client’s affidavit process. However, when you read the Hanna Consent Order and that of PRA and Midland together, the CFPB was not expecting clairvoyance; their requirement for “Original Account- Level Documentation” confirms the collective intent of these Orders was to create downward and upward pressure among all the actors in the debt collection process to provide and receive documentation.
Real World Implications
The Hanna Consent Order should force you to take a very close look at your placement process. It discusses requirements that must be met, in my opinion, prior to sending out your initial demand letters. While these requirements may differ significantly from your state code of civil procedure, you need to determine the risk you intend to take in deciding how strictly you wish to adhere to the terms of the Consent Order. While we all await new rules in our industry, most people believe these rules will be very similar to the terms we see today. In addition, it is important to talk to your clients about the Consent Order. First, you should review the manner in which documentation is sent to your office. Depending on the volume of files your office handles, this process could be debilitating. Second, it is imperative you review your contracts with your clients to determine how the current terms are impacted by the Consent Orders. Third, to engage in truly meaningful involvement, there needs to be a discussion about pre-Order client timelines for demand letters and suit dates. In other words, this review process will be more onerous on your staff and more time consuming. You and your client’s IT teams will have to work to set up interfaces to assure the account level documents are received as a single placement, to assure your staff is not sifting through a 200 page document dump or clicking on many sets of suit documents to find what they need. Fourth, is staffing. Do you have the staff in place to not only upload the data but the attorneys necessary to assure a meaningful review?
Conclusions
In many respects, the post-Order world is not so new; all of us were already documenting pleading approvals and placements. All of us wanted more information and documents upfront – document production pre-suit is a major factor contributing to or reaching settlement of the case. However, the joke will be on anyone who thinks it’s just business as usual. A smart firm will use this opportunity to tighten processes, improve efficiency and to garner additional protections for your firm.
Fred N. Blitt, Esq., is a partner with Blitt and Gaines, PC in Illinois and Couch, Conville and Blitt in Louisiana. He is past president of NARCA.