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 also were ordered to stop reselling debt and stop collecting debts they cannot verify, among other mandated reforms to their business practices.

The CFPB found that Encore and Portfolio Recovery Associates bought debts that were potentially inaccurate, lacking documentation or unenforceable. Without verifying the debt, the companies allegedly collected payments by pressuring consumers with false statements and churning out lawsuits using robo-signed court documents. 

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.

“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.”

The CFPB found that Encore and Portfolio Recovery Associates attempted to collect debts that they knew, or should have known, were inaccurate or could not legally be enforced based on contractual disclaimers, past practices of debt sellers or consumer disputes. The companies also filed lawsuits against consumers without having the intent to prove many of the debts, winning the vast majority of the lawsuits by default when consumers failed to defend themselves. The alleged practices violated the Fair Debt Collection Practices Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act. 

Encore's subsidiaries also named in Wednesday's action include Midland Funding LLC, Midland Credit Management and Asset Acceptance Capital Corp. 
Encore 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."

Steve Fredrickson, chairman and CEO of PRA Group, said, "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. 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," he said.  During the course of its negotiations with the CFPB's enforcement unit, PRA - according to company officials - worked with the CFPB's rulemaking division to provide input on potential areas for industry-wide reform. 

"We take great pride in the fact that we have helped lift up this entire industry by adopting stringent protocols for our employees and working with regulators to raise industry standards," Fredrickson said. "We believe the new rules we have agreed to as a part of this settlement will create more confidence among regulators and our clients that people who have debts are treated fairly and with respect. That said, we intend to continue to work with the CFPB going forward to bring about meaningful industry-wide reforms."According to the CFPB, Encore and Portfolio Recovery Associates together have purchased the rights to collect more than $200 billion in defaulted consumer debts on credit cards, phone bills and other accounts.

Under the Dodd-Frank Act, the CFPB has the authority to take enforcement action. Terms of the CFPB orders released Wednesday require Encore and Portfolio Recovery Associates to: 

  • Stop reselling debts: The companies are prohibited from reselling the debts they buy to other debt collectors. This will protect consumers from the potential harm that results when debt collectors continue to sell and resell debts that may be inaccurate or lack the business records and information needed to collect them. 
  • Refund millions of dollars to consumers:

    • Encore must pay up to $42 million in refunds: The company must provide refunds where it collected payments by misrepresenting that it could sue on a time-barred debt or by misrepresenting in court that a debt was assumed valid because the consumer did not previously dispute it.
    • Portfolio Recovery Associates must pay $19 million in refunds:The company must provide refunds where it collected payments by misrepresenting that an attorney had reviewed a debt or that collectors were calling on behalf of attorneys, and where it collected payments on judgments that it should not have obtained because they were barred by the statute of limitations from suing to collect the debt. 
  • Cease collections on millions of dollars of debt:

    • Encore must stop collecting on $125 million of debt: The company must release or move to vacate all judgments and dismiss all lawsuits where it misrepresented that a debt was assumed valid, and stop any attempts to enforce or collect on these judgments. The face value of this debt is estimated at over $125 million.

    • Portfolio Recovery Associates must stop collecting on $3 million of debt: The company must release or move to vacate all judgments and dismiss all pending lawsuits it filed past the statute of limitations and stop any attempts to enforce or collect on those judgments, estimated to have a face value of $3.4 million.
  • Stop collecting debts they can’t verify: Encore and Portfolio Recovery Associates can’t collect unsubstantiated debt. Under the order, they must review original account-level documents verifying a debt before collecting on it when, for example, a consumer has disputed it, the seller didn’t promise it was accurate or valid, or the debt was part of a portfolio they knew included unsupportable or inaccurate information. 
  • Ensure accuracy when filing lawsuits: The companies cannot file lawsuits to enforce debts unless they have specific documents and information showing the debt is accurate and enforceable. 
  • Provide consumers information before filing suit: Encore and Portfolio Recovery Associates must provide consumers with information about a debt, such as the name of the creditor and charge-off balance, and offer to provide consumers with original documents relating to the account before they are allowed to file a lawsuit or threaten to file suit to collect the debt. 
  • Use accurate affidavits: The companies cannot use affidavits to collect debts unless the statements contained in the affidavits specifically and accurately describe the signer’s knowledge of the facts and the documents attached. 
  • Reform collection of older debts: Encore and Portfolio Recovery Associates are prohibited from suing or threatening to sue to collect on time-barred debt. They also cannot collect on such debt unless they disclose to consumers that they can’t sue to collect it.

Breaking down the allegations, the CFPB found that Encore and Portfolio Recovery Associates allegedly:

  • Attempted to collect on unsubstantiated or inaccurate debt: Encore and Portfolio Recovery Associates allegedly 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 allegedly 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.

The companies also allegedly collected debts through lawsuits and threats of legal action in unlawful ways, according to the CFPB. Specifically, the companies:

  • Misrepresented their intention to prove debts they sued consumers over: Encore and Portfolio Recovery Associates allegedly 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.
  • Relied on misleading, robo-signed court filings to churn out lawsuits: Encore and Portfolio Recovery Associates allegedly 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. 
  • Sued or threatened to sue consumers past the statute of limitations:From at least July 21, 2011 to March 31, 2013, Encore allegedly 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. 
  • Pressured consumers to make payments using misrepresentations:Encore and Portfolio Recovery Associates allegedly made other inaccurate statements to consumers to press them to make additional payments. Specifically:
    • 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.

Other Illegal Collection Practices

  • Encore disregarded or failed to adequately investigate consumers’ disputes: If a consumer disputed their debt more than 45 days after Encore started collecting, Encore would require the consumer to produce specific documents or other “proof” to support their dispute or it would not conduct the legally-required investigation of the issues raised by the consumer. 
  • Encore farmed out disputed debts to law firms without forwarding required information: In numerous instances, Encore assigned disputed debt to law firms and third-party debt collectors without informing them that the debt was disputed. As a result, law firms evaluating Encore accounts for litigation did not know which accounts were disputed. 
  • 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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