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State: Debt buyer violated laws

The state of Texas sued the nation’s largest bad-debt buyer Friday, accusing Encore Capital Group and two subsidiaries of an unstated number of violations of the state’s regulations on third-party collection practices and the state’s deceptive trade practices act.

The state of Texas sued the nations largest bad-debt buyer Friday, accusing Encore Capital Group and two subsidiaries of an unstated number of violations of the states regulations on third-party collection practices and the states deceptive trade practices act.

The complaint, filed in Harris County District Court in Houston, contends San Diego-based Encore and subsidiaries Midland Funding and Midland Credit Management falsified supporting affidavits to support breach of contract suits filed to collect delinquent debts, and using unlawful and deceptive collection tactics.

The state legal document says Midland Funding and Midland Credit Management have filed more than 60,000 lawsuits for collection in Texas courts.

An Avalanche-Journal check of Lubbock County court filings revealed the two Encore subsidiaries have filed about 450 suits here since 2004.

Encore is a publicly traded company listed on the Nasdaq Stock Market Inc. The stock closed Friday at $26.53 a share, down $4.65 from Thursdays closing price on a volume of 1.4 million shares. Much of that drop came after the Texas legal filing was announced.

Encore issued a statement saying the Texas complaint appears to largely restate concerns raised in a 2008 lawsuit against the company, and that the debt collection firm looks forward to working toward a resolution with Texas Attorney General Greg Abbotts office.

The 2008 lawsuit referred to in that statement is a nationwide class action lawsuit pending in federal court in Toledo, Ohio. U.S. District Judge David A. Katz is scheduled to conduct a fairness hearing today on a $5.7 million settlement offer to the lawsuits 1.4 million class members.

Abbott is one of 38 state attorneys general who, along with the Federal Trade Commission, wants Katz to throw the settlement out. Theyve argued the terms are paltry, and would leave most of the class members worse off than before.

According to national media accounts, a Sandusky, Ohio, law firm representing the plaintiffs would receive $1.5 million in fees, named plaintiffs would receive about $8,000 each and Encore would discharge their debts in full. Payments to would be capped at $10 each to the unnamed class members, who would also have to give up rights under federal and state debt collection laws to contest the use of affidavits in their debt collection suits.

The outcome of the federal class action case would not affect the states suit in Houston.

The attorney generals suit seeks an injunction to halt Encores practices, asks the court to order creation of a restitution fund to pay back all money illegally collected from Texans, and to pay up to $20,000 in penalties per violation under the Texas Deceptive Practices Act, plus $250,000 if any of the people illegally sued were over 65 when they were sued, and unstated penalties for violations of the states regulations on third-party debt collectors.

Debt-collection companies buy charged-off accounts from credit card issuers and other lenders for very small amounts and can then try to collect the full value of the debt.

However, in some cases, they buy only basic information from the original creditor, rather than the full file on the borrower.

As a result, the Texas lawsuit says, in some cases, collection actions were taken using incorrect or incomplete information, leading to lawsuits against people who had either paid off the debt or at least paid part of it, people who had either paid off the debt have been sued, along with people who had paid.

One of the issues is Midlands practice of using robo-signed affidavits to support the suit. The affidavits, which under Texas law have to be signed in the presence of an officer authorized to administer oaths, such as a notary public, state that the signer has personal knowledge of the facts leading to the allegations in a lawsuit.

From 2002 through 2009, it is undisputed that Defendants filed thousands of false affidavits in their collection suits throughout Texas, the Texas pleading states, citing depositions from three Midland employees in Minnesota who said they signed as many as 300 to 400 affidavits per day in their offices, that they never signed in front of notary, and they never read any documents regarding the accounts connected with the suits.

One employee testified that he simply picked up stacks of affidavits off of the computer, signed them (hundreds at a time) and forwarded them to the notary for signature and to be mailed to the law firm filing the lawsuit, the Texas suit states.

In the prepared statement, Encores chief executive officer, Brandon Black, said the company changed its affidavit practices in 2009, as a result of the 2008 lawsuit and the company believes that its current practices are legally sound.

In March, shortly after submitted the settlement in the federal case, Encore issued its Consumer Bill of Rights, a four-page list of conditions for how it would handle debt-collection practices in the future.

Encore and its subsidiaries strive to work with consumers to help them resolve their debt, but because 95 percent of consumers ignore letters sent by the company, the legal channel is often the only remaining option, Blacks statement says.

According to the Texas lawsuit, about 90 percent of the defendants sued by the two Midland firms in Texas failed to respond to the lawsuits, leading to Texas courts entering default and summary judgments in favor of Midland.

The practical end result of Defendants scheme is that Defendants are asserting judgment liens against Texans which were fraudulently obtained and in some cases were obtained against individuals who complain they do not owe the debt at all or owe an amount that is less than the amount of the judgment, the suit contends.

On the Web

Background info you can download:

â–  The Texas Attorney Generals lawsuit: https://www.oag.state.tx.us/newspubs/releases/2011/070811encore_pop.pdf

â–  Encore Capital Groups March 2011 customer bill of rights: http://www.encorecapital.com/wp-content/uploads/2011/03/Consumer-Bill-of-Rights.pdf

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