Minnesota Attorney General Lori Swanson's office on Thursday sued debt collection giant Encore Capital Group Inc. for allegedly using fraudulent "robo-signed" affidavits in lawsuits against consumers.
The complaint, filed in Hennepin County court in Minnesota, said employees of Encore's Midland Funding LLC and Midland Credit Management Inc. units testified under oath to having signed up to 400 affidavits a day without reading them.
Encore, in San Diego, buys discounted debt from credit card companies and collects on the accounts.
At yearend, Encore had invested about $1.76 billion to buy 33 million accounts with a face value of $54.7 billion, or about 3 cents on the dollar.
Swanson alleged the Midland units often forced "individual citizens to prove they do not owe money instead of themselves substantiating that the citizens actually owe the money."
The suit seeks a halt to improper practices, and fines of $25,000 per violation and for contempt of court.
The complaint further alleges that Midland "aggressively filed thousands of lawsuits against individual citizens for collection of old, purchased debt, often supporting those lawsuits with robo-signed affidavits generated at its St. Cloud offices."
"Midland has perverted the justice system by filing robo-signed affidavits in court and hounding citizens for debt they don't owe," Swanson said.
Encore's chief executive officer, Brandon Black, said in an email that the company reworked its affidavit process in 2009.
He said he believes the company practices are "legally sound," and that the firm will work with Swanson to resolve the matter.
Black added that "because 95% of consumers ignore letters sent by the company, the legal channel is often the only remaining option."
All 50 states are investigating robo-signing and other improper practices by banks, specifically within the mortgage industry.
Swanson was allowed to pursue the legal action after Ohio Federal District Court Judge David Katz issued an order saying that a $5.2 million class-action settlement in that jurisdiction did not prevent Minnesota's legal action.
In March, when Swanson took the first step toward filing her suit by asking Judge Katz for such a clarification, Encore said it took her allegations "very seriously."
"The complaint appears largely to restate concerns raised in a 2008 lawsuit against the company, which was recently settled in principle," Encore said then in a statement to Collections & Credit Risk, a sister publication of American Banker.
It was that case that caused Encore to change its affidavit process the following year, the company said.
Also in March, Encore published a Consumer Bill of Rights to demonstrate "the company's commitment to treating consumers with respect and integrity, and calling on the entire industry to adopt the same best practices."
In that document, Encore pledged to:
• Contact consumers "in a timely and effective manner," resolve accounts "quickly and honestly," and make sure company practices "promote settlement and preserve dignity";
• Stop trying to collect "when permanent hardship is demonstrated";
• Suspend interest and fees for consumers who make timely payments on a plan;
• Guard consumer information;
• "Avoid litigation whenever possible";
• Refrain from reselling defaulted consumer accounts "in the normal course of business."
