On 28 December 2015, the Consumer Financial Protection Bureau and a large Atlanta debt collection law firm, Frederick J. Hanna & Associates, P.C. (including several individual attorney defendants), entered into a Stipulated Final Judgment and Order (“Order”) with respect to Hanna’s debt collection lawsuit practices that the CFPB alleged violated the Fair Debt Collection Practices Act.  Among the allegations made were that the law firm’s attorneys did not review the consumers’ loan history records before filing collection complaints, did not thoroughly review the complaints before signing and filing them, and filed supporting affidavits from the firm’s creditor clients without verifying that the affidavits were properly created.

While the defendants neither admitted nor denied they had violated the law, the law firm agreed to implement a rigorous set of procedures designed to satisfy the CFPB that the firm files only legitimate and timely collection actions, and agreed to pay a civil money penalty of $3,100,000.00.  Of more significance to creditors (including loan servicers), however, is the part of the Order that places the Hanna firm in the position of an auditor of its clients’ affidavit preparation and execution processes.

For several years now, loan servicers have conducted periodic audits of their default services law firms (firms that engage in the foreclosure and debt collection practice areas) as part of their enhanced compliance programs.  The national mortgage settlements, individual enforcement cases and, most importantly, the ever-growing dominance of the CFPB in the field of consumer financial protection, have driven the need for loan servicers to enhance their oversight of all their agents and representatives who deal with consumers.  For the first time, with the Hanna case, the CFPB has indicated that oversight is a two-way street.  Recognizing the CFPB’s penchant for regulating by enforcement, it seems clear that the Order was intended for a wider audience than the management of the Hanna law firm.  

In addition to the detailed requirements the Order imposed on the Hanna law firm with respect to the firm’s attorneys’ file review and pleading preparation responsibilities, the Order requires the law firm annually to “review and analyze the processes and procedures employed by any entity that employs affiants executing and submitting affidavits for use in Collection Suits initiated by [the law firm] to reasonably ensure compliance with Paragraph 10 of the Order.”  Order, ¶ 11.  Paragraph 10 provides a series of prohibitions directed to the law firm with respect to the use of affidavits provided to the law firm by its clients.

The Order is a clear signal from the CFPB that all law firms that practice in the field of debt collection, which has widely been interpreted by federal courts to include residential foreclosure practice, must, at least annually, make a reasonable effort to review and analyze the processes and procedures their creditor and mortgage servicer clients employ with respect to company employees who execute affidavits that are submitted to their law firms for use in foreclosure and collection proceedings.  This will require law firms to solicit information and documentation from their clients to satisfy themselves that their clients have implemented controls with respect to the following:

•That affiants who attest to personal knowledge of the details of consumer debt possess such knowledge;

•That affidavits are properly notarized in accordance with applicable state law;

•That statements contained in affidavits are accurate;

•That any attachments to affidavits relate to the specific consumers who are the subjects of the affidavits;

•That affiants do not misrepresent they have reviewed original account-level, or other documentation, if that is not the case; and

•That affiants do not misrepresent that they have personally reviewed affidavits when that is not the case. 

Creditors and loan servicers are strongly encouraged to cooperate with their foreclosure and debt collection counsel when they receive requests to validate their affidavit preparation and attestation policies and procedures.  As the CFPB expands its examination activity beyond lenders and loan servicers to the law firms that represent those entities (which has already commenced), the law firms will be expected to document that they have annually reviewed their clients’ affidavit management and control measures.