Consumer Bureau Cracks Down on Illegal Debt Collectors

A key federal regulator took two steps to ensure that 2016 would bring an important change for consumers harassed by illegal debt collector actions.

The Consumer Financial Protection Bureau, which regulates financial deals, ordered EZCorp, Inc. to refund $7.5 million to 93,000 consumers and pay an additional $3 million in penalties for illegal debt on high-cost payday and installment loans.

This is the third case where the CFPB, just 3 years old this month, has taken action against a large national payday lender.

CFPB found that EZCORP collected debts with a litany of illegal actions that included visits to homes and/or workplaces. Even worse, by requiring payments via electronic fund transfers, consumers often wound up with multiple charges. The required electronic withdrawals from consumer accounts frequently triggered additional overdraft fees charged by banks. CFPB's investigation that began in July determined multiple violations of the Electronic Fund Transfer Act and the Dodd-Frank Wall Street Reform Act's ban on unfair or deceptive acts or practices.

Days later on December 28, CFPB filed a proposed settlement in federal court that once approved, will stop a Georgia-based law firm and its principals from flooding courts with lawsuits that were as faulty as they were prevalent in harming consumers. Some consumer advocates believe that this first-of-its-kind suit and settlement together set a significant precedent.

This second enforcement action culminated a July 2014 lawsuit brought by CFPB against a Georgia-based law firm, Frederick J. Hanna and Associates, for operating an illegal debt collection lawsuit mill. Specifically, CFPB charged the firm with two major violations:

• Intimidating consumers with deceptive court filings that enabled the firm to churn out hundreds of thousands of lawsuits over a four-year period from 2009 to 2014; and
• Introducing faulty or unsubstantiated evidence to support its lawsuits, resulting in the collection of millions of dollars each year – often from consumers who may not have owed debts.

“The Hanna firm relied on deception and faulty evidence to coerce consumers into paying debts that often could not be verified or may not be owed,” said CFPB Director Richard Cordray. “Debt collectors that use the court system for purposes of intimidation should reconsider how their practices are harming consumers.”

With court approval, Hanna and Associates and its principals will:

• Pay a $3.1 million penalty;
• End illegal collection and intimidation tactics;
• Be banned from filing or threatening lawsuits without substantial and specific documentation on the affected consumer's debt; and
• Stop the use of deceptive court documents to support its cases.

In addition, three of the law firm's clients – JP Morgan Chase, Portfolio Recovery Associates and Encore Capital Group must also revamp their debt collection practices and then refund millions to harmed consumers. These actions stem from separate collection cases.

“People struggling to pay their bills should not also fear harassment, humiliation or negative employment consequences because of debt collectors,” concluded Cordray. “Borrowers should be treated with common decency...[W]e will not tolerate illegal debt collection practices.”

Here's hoping that more deceptive and illegal lending practices are brought to an end in 2016.

Charlene Crowell is a communications manager with the Center for Responsible Lending. She can be reached at [email protected].