HOUSTON (CN) – After paying pennies on the dollar to acquire billions of dollars in debts, Encore Capital Group had employees robo-sign “thousands of false affidavits” to win default judgments against tens of thousands of Texans, the state attorney general says.
Texas charged Encore and its subsidiaries Midland Funding and Midland Credit Management with “defrauding the Texas judicial system,” and violating debt collection laws. All three defendants work out of a principal office in San Diego, Calif.
“Defendants purchase large portfolios of consumer debts from issuers of consumer credit such as VISA, Mastercard, Bank of America, Bank One and Citibank, comprising millions of consumer accounts, such as credit card debts and defaulted auto loans and cellular phone plans,” according to the complaint in Harris County Court.
“Defendants pay pennies on the dollar for these accounts. In 2010, alone defendants paid $362 million to acquire consumer debt portfolios with a face value of $10.9 billion for an average price of approximately 3.3 cents per dollar of debt acquired.”
It paid off: Encore reported $49 million in profits in 2010, Texas says.
The defendants buy credit accounts that have been “charged off” as tax write-offs by the original creditor when they exhaust their own collection efforts for the debt, the state says.
The portfolios the creditors sell to Encore contain limited information about the debts, and Encore “typically” does not acquire underlying documentation, which it would have to pay for, according to the complaint.
“Defendants’ collection activities prefer ‘efficiency’ and profits over compliance with Texas debt collection laws,” the attorney general’s office says. “Defendants churn out millions of collection letters and millions of telephone calls from its call centers in Arizona, Minnesota and India, often using incomplete and/or inaccurate electronic information purchased from original creditors. Consumers complain defendants have targeted the wrong person for collection or are attempting to collect debts that have been fully paid or partially paid or settled.
“Consumers also complain that defendants pursue them for collection of old debts for which they do not have any records and are beyond the statute of limitations and credit reporting periods.”
When consumers tell Encore they do not owe the debt, its collectors “turn the tables on consumer to prove the debt is not owed or not owed in the amount alleged. Consumers complain that this practice has resulted in loss of credit rating, inability to refinance their homes, and even loss of job opportunities, in addition to the aggravation of being harassed by a debt collector who refuses to verify the debt,” the complaint states.
“The Better Business Bureau reports that over 15,000 consumers have filed complaints regarding defendants’ collection practices,” Texas adds.
Encore files lawsuits when consumers do not respond to its collection efforts, and has filed more than 60,000 in Texas since 2002.
Encore used robo-signers to sign false affidavits as evidence, falsely claiming that they verified debts to win default judgments against consumers, according to the complaint.
“From 2002 to 2009, it is undisputed that defendants filed thousands of false affidavits in their collection suits throughout Texas,” Texas says. “Three Midland Credit employees have testified in depositions that during their employment, they signed 300 to 400 form affidavits per day at their offices in Minnesota, that they did little to nothing to review the contents of their affidavits before signing, that they did not review any documentation regarding the account before signing, that they did not review any exhibits before signing, and that they did not sign the affidavits before a notary.”
Texas seeks civil penalties against Encore and the Midland companies of $20,000 per violation of the Deceptive Trade Practices Act, and $250,000 for defendants committing unlawful acts to get money from people older than 65. It also wants Encore to pay back all “identifiable persons” it defrauded.
And the state seeks a permanent injunction to stop the defendants from concealing, destroying or moving any company records.