CFPB Hits Nation's Two Largest Debt Buyers with $79M Penalty
Citibank has joined a growing list of banks and vendors that have paid a stiff penalty for allegedly using deceptive marketing and billing tactics in selling credit card add-on products. It agreed to pay $770 million in fines and restitution charges, falling just short of a record fine issued last year.
The Consumer Financial Protection Bureau imposed up to $79 million in penalties and refunds Wednesday in enforcement actions against the country’s two largest debt buyers.
San Diego-based Encore Capital Group and Norfolk, Va.-based Portfolio Recovery Associates were also ordered to stop reselling debt and stop collecting debts they cannot verify, among other mandated reforms to their business practices.
The consumer agency alleges that the two companies attempted to collect debt that was unsubstantiated or inaccurate. The firms also filed lawsuits against consumers without having the documentation necessary to prove their allegations, according to the CFPB.
“Encore and Portfolio Recovery Associates threatened and deceived consumers to collection on debts they should have known were inaccurate or had other problems,” CFPB Director Richard Cordray said in a press release. “Now, the two biggest debt buyers in the market must refund millions and overhaul their practices.”
Specifically, a consent order with Encore requires the firm to pay up to $42 million in consumer refunds and a $10 million penalty, and to stop collections on more than $125 million worth of debts.
The consent order with Portfolio Recovery Associates requires the company to pay $19 million in consumer refunds and an $8 million penalty, and to stop collections on more than $3 million worth of debts.
The agency is also requiring both companies to ensure the accuracy of the allegations in lawsuits they file. In addition, the firms are barred from suing or threatening to sue on debt that is legally uncollectible.
Encore Capital Group said that it disagreed with the CFPB's actions but that it had to put the issue behind it.
"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, 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."
PRA Group, which owns Portfolio Recovery Associates, said the agreement would not “materially impact operations” and will allow it to move on without “time-consuming litigation.”
"It was time to end this drawn-out process and eliminate the threat of litigation, so we can focus with renewed vigor on serving our customers and growing our business,” said Steve Fredrickson, PRA Group's chairman and chief executive. “Given the circumstances, we went the extra mile to achieve closure, despite our objection to the CFPB's characterization of PRA's business practices.”