The Country’s Two Largest Debt Buyers Must Refund Consumers $61M Over Illegal Collection Practices

Encore Capital Group and Portfolio Recovery Associates are two of the biggest names in the debt-buying game, and according to federal regulators they have often used deceptive and harmful tactics to collect their newly acquired debts. Now, as a result of these actions, the companies must refund consumers $61 million and pay $18 million in penalties.

The Consumer Financial Protection Bureau today announced action against Encore Capital Group and Portfolio Recovery Associates after an investigation found the debt collection companies allegedly pressured consumers to pay unsubstantiated or out-of-date debts with false statements and churned out lawsuits using robo-signed court documents.

According to the CFPB consent orders, San Diego-based Encore [PDF] – the largest debt buyer and collector in the U.S. – and Norfolk, VA-based Portfolio Recovery Associates [PDF] – the second largest debt buyer and collector in the country – purchased more than $200 billion in delinquent or charged-off debts related to credit cards, phone bills, and other accounts that were often inaccurate, lacking documentation, or unenforceable.

Despite warnings from the original debt issuer that accounts may be out-of-date or lacking proper documentation, the CFPB alleges Encore and PRA regularly attempted to collect payments from consumers without first conducting any investigation to determine whether the debts were even enforceable.

As a result, when attempting to collect these purchased debts from consumers, Encore and PRA stated incorrect balances, interest rates, and payment due dates.

The CFPB alleges that in attempts to collect debts, Encore and PRA often unlawfully collected debts through lawsuits and threats of legal action, although they had no intention of actually proving the debts were legitimate.

“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,” the order states. “Instead, the companies relied on consumers not filing a defense and winning the lawsuits by default.”

In some instances, the companies relied on misleading, robo-signed court filings to make their cases.

According to the CFPB, both companies allegedly 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.”

In some cases, the companies sued or threatened to sue consumers past the statute of limitations.

From at least July 2011 to March 2013, Encore sent thousands of letters offering a time-limited opportunity to “settle” debts without revealing the debt was actually too old for litigation.

Likewise, from at least January 2009 to March 2012, PRA sent similar letters to consumers.

Investigators also found that Encore and PRA made inaccurate sworn statements about the validity of debts they were attempting to recover.

Encore, in sworn affidavits, 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. However, Encore had the burden to first prove the debt was owed and accurate before the consumer had to challenge it.

PRA allegedly pressured consumers into making payments by claiming that an attorney had reviewed the file and a lawsuit was imminent, when that simply wasn’t the case, the CFPB says.

In addition to failing to verify debts and using lawsuits – or the threat of lawsuits – to pressure consumers into submitting payments, the CFPB found that both companies engaged in a plethora of other illegal collection practices.

In the case of Encore, the CFPB found the company 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, the consent order states.

The company was also found to have called consumers repeatedly or continuously with the intent to annoy, abuse, or harass them into paying.

In fact, 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.

PRA was also found to mislead consumers into consenting to receive auto-dialed cell phone calls.

From approximately August 2012 to August 2013, PRA 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.

Customers who failed to adhere to this policy were often penalized by the company, the CFPB alleges.

Under the CFPB’s consent orders, 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, while PRA must pay $19 million in consumer refunds and an $8 million penalty, and stop collecting on over $3 million worth of debts.

Additionally, the companies are required to stop reselling debts they buy and stop collecting debts they can’t be verify.

The companies must also overhaul their litigation processes by ensuring accuracy when filing lawsuits, provide consumers information before filing suit, and providing accurate affidavits.