Two of the nation's largest debt collectors must refund nearly $60 million to consumers and stop trying to collect on another $128 million in debts, after an action filed by federal regulators Wednesday.
San Diego-based Encore Capital Group and Virginia-based Portfolio Recovery Associates are accused of pressuring consumers with false statements and churning out lawsuits using robo-signed court documents by the Consumer Financial Protection Bureau.
The two firms and their affiliates purchased a mammoth amount of debt resulting from unpaid bills — together, more than $200 billion in defaulted consumer debts on credit cards, phone bills and other accounts, according to the CFPB. Encore and Portfolio purchase the right to collect on the debts for pennies on the dollar, then attempt to collect the original amount from consumers.
The CFPB says both firms misled and harassed consumers. Encore is accused of calling debtors before 8 a.m. or after 9 p.m.; Portfolio is accused of misleading consumers into consenting to receive robo-dialed calls to their cellphones.
Encore is also accused of telling consumers the burden of proof was on them to show a debt claim was invalid.
To settle the allegations, Encore must pay up to $42 million in consumer refunds and a $10 million penalty, and stop collection on over $125 million worth of debts. Portfolio must pay $19 million in consumer refunds and an $8 million penalty, and stop collecting on over $3 million worth of debts. Going forward, both firms are also barred from reselling debts to third parties.
"Encore and Portfolio Recovery Associates threatened and deceived consumers to collect on debts they should have known were inaccurate or had other problems," said CFPB Director Richard Cordray. "Now, the two biggest debt buyers in the market must refund millions and overhaul their practices. We will continue to take action to protect consumers from illegal and obnoxious debt collection practices."
In a statement, Encore said it disagreed with the CFPB's findings, but agreed to the settlement to put the matter to rest.
"After rigorously and thoroughly scrutinizing seemingly countless aspects of our business for more than a year, the CFPB ultimately identified only two key issues warranting consumer refunds," said Kenneth A. Vecchione, Encore's President and Chief Executive Officer. "While we disagree with the CFPB's positions on these two issues, we chose to agree to a settlement so we can move forward. We also believe the CFPB is imposing yet-to-be-adopted rules to past practices. This outcome is not about current law or rules already on the books, but instead about the CFPB subjecting companies to its own interpretations that have never been codified or adopted."
Portfolio echoed Encore's statement.
"It was time to end this drawn out process and eliminate the threat of litigation," said Steve Fredrickson, chairman and chief executive officer of PRA Group, Inc., which operates Portfolio. "Given the circumstances, we went the extra mile to achieve closure, despite our objection to the CFPB's characterization of PRA's business practices…We remain confident that our business practices serve as a model for the industry, frequently going above and beyond applicable legal requirements."
Cordray urged other debt collectors to be aware of the terms of the settlement, and another recent case filed against JPMorgan.
"These cases paint a broader picture about how (the CFPB) is working to clean up the debt collection industry," Cordray said.
Allegations made by the CFPB against the two firms include:
- Attempts to collect on unsubstantiated or inaccurate debt: Encore and Portfolio Recovery Associates stated incorrect balances, interest rates, and payment due dates in attempting to collect debts from consumers. The companies purchased large portfolios of consumer debt with balances that sellers claimed were "approximate" or that otherwise did not reflect the correct amount owed by the consumer. Sellers also warned the companies that some of the debts they were buying may not have the most recent consumer payments deducted from the balance. Some sellers also represented that documents were not available for some of the accounts. The companies continued purchasing from these sellers and then collecting on that debt without first conducting any investigation to determine whether the debts were accurate and enforceable.
- Misrepresentation of intention to prove debts they sued consumers over: Encore and Portfolio Recovery Associates regularly attempted to collect on debts by suing consumers in state courts across the country. In numerous cases, the companies had no intention of proving these debts. They placed tens of thousands of debts with law firms staffed by only a handful of attorneys and in many cases made no effort to obtain the documents to back up their claims. Instead, the companies relied on consumers not filing a defense and winning the lawsuits by default.
- Reliance on misleading, robo-signed court filings to churn out lawsuits: Encore and Portfolio Recovery Associates filed affidavits that contained misleading statements in debt collection lawsuits across the country. For example, they both used affidavits that misrepresented that the affiants had reviewed original account-level documentation confirming the consumers' debts when they had not. The companies also submitted affidavits with documents attached that they claimed were the consumers' specific account contracts or records when they weren't. These shortcuts allowed the companies to churn through lawsuits without doing the research and due diligence required to obtain a legitimate judgment.
- Suing or threatening to sue consumers past the statute of limitations: From at least July 21, 2011, to March 31, 2013, Encore sent thousands of letters offering a time-limited opportunity to "settle" without revealing that the debt was too old for litigation. From January 2009 to March 2012, Portfolio Recovery Associates sent similar letters to consumers. Both of the companies also filed cases past the applicable statute of limitations.
- Encore falsely told consumers the burden of proof was on them to disprove the debt: In sworn affidavits, Encore falsely told consumers and courts that the debt should be assumed to be valid because the consumer had not disputed it within a certain time period. In fact, Encore had the burden to first prove the debt was owed and accurate before the consumer had to challenge it.
- Portfolio Recovery Associates falsely claimed an attorney had reviewed the file and a lawsuit was imminent: The company's collectors, who identified themselves as from the "Litigation Department," misrepresented to consumers that litigation against them was planned, imminent or even underway. In reality, in many cases, an attorney had not reviewed the account and the company had not decided whether to file suit.
- Encore made harassing collection calls to consumers: Encore called consumers repeatedly or continuously with the intent to annoy, abuse or harass them into paying. Encore's subsidiary, Asset Acceptance, made thousands of calls to consumers before 8 a.m. or after 9 p.m. and called hundreds of consumers more than 20 times in a two-day period.
- Portfolio Recovery Associates misled consumers into consenting to receive auto-dialed cell phone calls: For approximately a year, and ending in August 2013, Portfolio Recovery Associates told consumers that they could only prevent collection calls to their cell phones before 9 a.m. if they consented to receive calls on their cell phones from a dialer. The company penalized representatives who failed to adhere to this policy.
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