Also see --> Subsequent Texas AG Enforcement Action against Debt Collectors
No new opinions from the Texas Supreme Court this Friday, but the AG is bound to make news instead by suing Midland Funding LLC, Midland Credit Management, Inc. and Encore Capital Group, Inc. for using robo-signed affidavits and obtaining thousands of default judgments for breach of contract without producing the contracts or much else, relying instead on false affidavits to establish their credit card debt collection claims, which were bought in bulk and with little or no documentation from major card issuers.
The lawsuit was filed by the Texas Attorney General on behalf of the State of Texas and in the public interest in Harris County earlier today and was randomly assigned to Hon. Josefina Rendon, presiding judge of the 165th District Court. The petition against the Midland entities and their corporate parent alleges violations of the DTPA and the Texas Debt Collection Act (TDCA). It seeks injunctive relief in addition to substantial monetary penalties and restitution [disgorgement] of funds collected by fraudulent means from victimized consumers.
The Texas Debt Collection Act is the state-law counterpart to the federal FDCPA and is part of the Texas Finance Code. It has a tie-in with the Texas DTPA (Deceptive Trade Practices Act).
This is not the first consumer protection lawsuit by a state attorney general against a major debt collector/assignee of charged-off credit card debt.
In March 2011, Minnesota's Attorney General, Lori Swanson, also brought an action against Midland for defrauding Minnesota courts and citizens by filing false and deceptive “robo-signed” affidavits—generated at its offices in St. Cloud, Minnesota—to collect on old consumer debts that it purchased from credit card companies and others for about three cents on the dollar.
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| Portal of Modern Harris County Civil Courthouse (which houses probate, county, and district courts) |
NO. 201140626
STATE OF TEXAS, Plaintiff,
v.
MIDLAND FUNDING LLC, MIDLAND CREDIT MANAGEMENT, INC., and ENCORE CAPITAL GROUP, INC., Defendants.
IN THE DISTRICT COURT OF HARRIS COUNTY, TEXAS
[165th] JUDICIAL DISTRICT
PLAINTIFF'S ORIGINAL PETITION
AND APPLICATION FOR TEMPORARY AND PERMANENT INJUNCTION
AND APPLICATION FOR TEMPORARY AND PERMANENT INJUNCTION
TO THE HONORABLE JUDGE OF SAID COURT:
Plaintiff the STATE OF TEXAS, acting by and through Attorney General of Texas Greg Abbott, complains of MIDLAND FUNDING, LLC, MIDLAND CREDIT MANAGEMENT,INC., and ENCORE CAPITAL GROUP INC., Defendants, and for cause of action would respectfully show as follows:
[...]
9.1 Defendants are one of the largest third party consumer debt collector companies in the country. Defendants purchase large portfolios of consumer debts from issuers of consumer credit such as VISA, Mastercard, Bank of America, Bank One, and Citibank, comprising millions of consumer accounts, such as credit card debts and defaulted auto loans and cellular phone plans.
IX. FACTUAL BACKGROUND
Defendants pay pennies on the dollar for these accounts. In 2010 alone, Defendants paid $362 million to acquire consumer debt portfolios with a face value of $10.9 billion for an average price of approximately 3.3 cents per dollar of debt acquired. For 2010 alone, Defendants reported -$49 million in profits. Every year, Defendants purchase hundreds of thousands of accounts involving Texas consumers.
9.2 When Defendants purchase these consumer debt portfolios, generally these accounts have been "charged off' by the original creditors. The original creditors or their agents have exhausted their own debt collection efforts and determined that the account needs to be "charged off', which allows for the creditor to take the loss as a tax deduction.
9.3 The electronic portfolios of these charged off accounts acquired by Defendants contain limited categories of information about the debt. Typically, Defendants do not acquire the underlying credit agreements, payment history, or statements (or "media") but retain the right to purchase the documentation from the original creditor at a later date.
9.4 Defendants' collection activities prefer "efficiency" and profits over compliance with Texas debt collection laws. Defendants chum out millions of collection letters and millions of telephone calls from its call centers in Arizona, Minnesota and India, often using incomplete and/or inaccurate electronic information purchased from original creditors. Consumers complain Defendants have targeted the wrong person for collection or are attempting to collect debts that have been fully or partially paid or settled. Consumers also complain that Defendants pursue them for collection of old debts for which they do not have any records and are beyond the statute of limitations and credit reporting periods. Defendants' form collection letters contain very little information about the debt, no supporting documentation, and no proof that ownership of the debt has been transferred to Defendants. When a citizen contacts Defendants to dispute a debt or the amount of the balance owed, or to ask for additional information, little or nothing is done to investigate or verify the legitimacy of the debt.
9.5 Consumers complain that when they tell Defendants they do not owe the debt Defendants refuse to provide documentation to verify the debt and turn the tables on the consumer to prove the debt is not owed or not owed in the amount alleged. Consumers complain that this practice has resulted in loss of credit rating, inability to refinance their homes, and even loss of job opportunities, in addition to the aggravation of being harassed by a debt collector who refuses to verify the debt. Some consumers pay Defendants just to avoid a false report to the credit reporting agencies or avoid the harassment of a lawsuit. The Better Business Bureau reports that over 15,000 consumers have filed complaints regarding Defendants' collection practices.
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| Typical Midland Affidavit from a more recent case [not from AG's law suit] |
9.6 When a consumer does not respond to collection efforts, Defendants may refer the account to law firms to file a lawsuit on their behalf. Since 2002, Defendants have filed over 60,000 debt collection lawsuits in Texas courts.
9.7 These lawsuits vary slightly depending upon the law firm that is engaged by Defendants; however, typically Defendants' debt collection lawsuit includes a boilerplate form petition, with Midland Funding as named plaintiff, for breach of contract and makes demand for principal, interest, costs, and attorneys' fees. The petition often contains gross errors such as alleging (falsely) that Midland Funding sold goods or services to the consumer, or stating that a copy of the credit agreement is attached to the petition (but is not). The boilerplate petition contains requests for admissions that often include obviously false statements or self-serving legal conclusions such as admit or deny
• that true and correct copies of the terms and conditions of the use of the credit account are attached to the Original Petition (no such terms and conditions are attached);
• that the plaintiff [Midland Funding] extended credit to the consumer (which is contradicted by the face of the petition which states that Midland Funding is the assignee of the original creditor);
• that defendant [the consumer] has no defense to this suit, and judgment should be granted as prayed for;
• the affidavit attached to the petition is fully legal and correct.
9.8 Defendants typically attach a one page form "affidavit" or sworn statement to the petition. Under Texas law an affidavit is a written, factual statement signed by the person making it, sworn to before an officer authorized to administer oaths, and officially certified by the officer under seal of office. Tex. Gov't Code §312.011(l). The affidavit must show that it was made by a person who is competent to testify. Tex. R. Evid. 601(a). The affidavit must be based on the affiant's personal knowledge and must state that the facts in it are true. Tex. R. Evid. 104(b), 602. If statements made in an affidavit are false, they may be grounds for perjury.
9.9 A typical mass-produced form affidavit used by Defendants against Texas citizens prior to 2009 is called a "Form 425 (Texas) Affidavit." (A sample is attached as Ex. A hereto.) In Form 425, the affiant swears under oath (i) that the affiant has ''personal knowledge" of the "facts herein" from his or her review of records of Midland Credit Management, (ii) that the underlying "claim" is "within the personal knowledge" of the affiant, and (iii) that the affiant has "personal knowledge of relevant financial information" concerning the underlying account, including that the defendant failed to make payments on the account, that demand has been made, and that the affiant retained attorneys in the case to collect the debt.
9.10 These form affidavits attached to Defendants' form petitions are used by Defendants to "prove up" the debt when moving for default judgment or summary judgment against the consumer. In granting default judgment or summary judgment in a liquidated damages case, the courts rely upon affidavits as evidence that the plaintiff has actually verified the debt is owed by the consumer who is being sued, that the balance owed is correctly stated, and that any interest or other charges are correctly stated according to the underlying credit agreement.
9.10 From 2002 through 2009, it is undisputed that Defendants filed thousands of false affidavits in their collection suits throughout Texas. Three Midland Credit employees have testified in depositions that during their employment, they signed 300 to 400 form affidavits per day at their offices in Minnesota, that they did little to nothing to review the contents of their affidavits before signing, that they did not review any documentation regarding the account before signing, that they did not review any exhibits before signing, and that they did not sign the affidavits before a notary. They also testified that they did not have any contact of any kind with the debtor. One employee testified that he simply picked up stacks of affidavits off of the computer, signed them (hundreds at a time) and forwarded them to the notary for signature and to be mailed to the law firm filing the lawsuit. The employees/affiants also testified that they had no knowledge about the sale of the debt portfolios from the original creditors to Midland Funding, how Midland Funding came to be the successor in interest on the debt, or how Midland Funding retained its attorneys (although they attest to having personal knowledge in their affidavits).
9.12 The end result of these robo-signed affidavits is that the default judgments and summary judgments entered by the courts are based on affidavits that are false. The courts are misled into concluding that the affiant has actually verified the debt, the correct balance owed, the interest rate that is applicable, and the identity of the debtor, when in fact none of it has been verified by the affiant. Since approximately 90% of all of Defendants' collection cases result in a default judgment against an unrepresented person, the affidavits themselves are rarely challenged. These mass-produced judgments are then used by Defendants as leverage against unrepresented individuals.
9.13 Thus, for years, Defendants have affirmatively and systematically deceived the Texas courts and undermined the fairness of the justice system on a massive scale. Through Defendants' illegal practices, a great deal of the State's judicial resources have been expended helping the Defendants to obtain dubious judgments based on incomplete information and supported by false and fraudulent affidavits. Defendants use these fraudulent affidavits as leverage against consumers, taking unfair advantage of their lack of knowledge about their legal defenses. The practical end result of Defendants' scheme is that Defendants are asserting judgment liens against Texans which were fraudulently obtained and in some cases were obtained against individuals who complain they do not owe the debt at all or owe an amount that is less than the amount of the judgment.
[...]
X. FALSE, MISLEADING, AND DECEPTIVE ACTS
AND PRACTICES
10.1 Defendants, in the course of acts and/or omissions as alleged above, have in the course of trade and commerce engaged in false, misleading, and deceptive acts and practices declared unlawful in §17.46(a) and §§17.46(b) of the DTPA. Such acts include:A. Engaging in false, misleading, or deceptive acts in the conduct of any trade or commerce, as alleged more specifically herein, in violation of § 17.46(a) of the DTPA;
B. Causing confusion or misunderstanding as to the source, sponsorship, approval, or certification of goods or services, as alleged more specifically herein, in violation of § 17 .46(b) (2) of the DTP A;
C. Causing confusion or misunderstanding as to the affiliation, connection, or association with, or certification by another, as alleged more specifically herein, in violation of §17.46(b)(3) of the DTPA;
D. Representing that an agreement confers or involves rights, remedies, or obligations which it does not have or involve or which are prohibited by law as set forth herein in violation of §17.46(b )(12) of the DTPA.
XI. VIOLATIONS OF THE TEXAS FINANCE CODE
11.1 Defendants, in the course of acts and/or omissions as alleged above, have engaged in acts in violation of Tex. Fin. Code §392.404. Such acts include:
A. Misrepresenting the character, extent, or amount of a consumer debt in violation of Tex. Fin. Code §392.404(a)(8);
B. Representing that a consumer debt may be increased by the addition of attorney's fees, investigation fees, service fees, or other charges if a written contract or statute does not authorize the additional fees or charges in violation of Tex. Fin. Code §392.404(a)(12) ;
C. Using any other false representation or deceptive means to collect a debt or obtain information concerning a consumer in violation of Tex. Fin. Code §392.404(a)(19).
NOTE: The Attorney General's Original Petition and Application for injunctive relief can be accessed by following the link provided in the press release announcing the civil action against debt buyers/collectors Midland and Encore on the OAG's website. A snippet from the announcement with hotlinked title follows below. The Harris County District Clerks online docket management system does not reflect a date for a temporary injunction hearing:
Friday, July 8, 2011
Attorney General Abbott Charges Encore Capital Group with Violating Texas Debt Collection Laws
State’s enforcement action cites Encore for employing unlawful tactics against debtors, relying upon “robo-signers” to sign thousands of false affidavits
HOUSTON – Texas Attorney General Greg Abbott today charged Encore Capital Group, Inc. with falsifying and robo-signing affidavits, attempting to collect debts based upon inaccurate or incomplete account information, and employing unlawful and deceptive debt collection tactics. The State’s enforcement action cites the defendants for committing multiple violations of Texas debt collection laws and the Texas Finance Code. Encore, which is one of the nation’s largest debt collection companies, and its subsidiaries – Midland Funding, LLC and Midland Credit Management, Inc. – are named as defendants in the case.
According to state investigators, Midland Funding purchased debt portfolios from a broad spectrum of creditors for pennies on the dollar. As the purchaser of the debt, the defendants attempted to collect the money that was allegedly owed to various creditors. However, the defendants’ debt collection letters contained very little information about the debt they were attempting to collect, provided no supporting documentation, and included no proof that they actually acquired the debt from the original creditor. When Texans contacted the defendant to dispute the legitimacy of an alleged debt or seek additional information, the defendants made little or no effort to investigate or verify whether their collection efforts were proper.
MEDIA RESPONSE
to Texas Attorney General Greg Abbott's Judicial Enforcement Action against Encore Group, Inc, Midland Credit et al so far (as of Friday 6PM)
Texas Charges Encore Capital with Breaking State Debt Collection Laws
KUHF-FM - Andrew Schneider - 39 minutes ago
Texas Attorney General Greg Abbott is charging Encore Capital Group, as well as subsidiaries Midland Funding and Midland Credit Management, with violating Texas' debt collection laws. Andrew Schneider has more. Attorney General Abbott is charging the ... Debt collector Encore sued by Texas
Thomson Reuters News & Insight - 2 hours ago
NEW YORK, July 8 (Reuters) - Encore Capital Group Inc was sued by the state of Texas on allegations it used illegal and deceptive tactics to collect debts from consumers. Greg Abbott, the state attorney general, announced the lawsuit three days before ... Debt-collection firm faces accusations from state
Austin American-Statesman (blog) - 2 hours ago
By American-Statesman Staff
Friday, July 8, 2011, 03:10 PM Texas Attorney General Greg Abbott has accused one of the nation's largest debt-collection companies of committing multiple violations of the state's debt collection laws and the Texas ... Debt Collector Charged by Texas Attorney General's Office for Violating State ...
News/Talk 790 KFYO - Cole Shooter - 3 hours ago
A debt collection group and its subsidiaries have been charged with violating Texas' debt collection laws. Texas Attorney General Greg Abbott today charged Encore Capital Group and subsidiaries Midland Funding, LLC and Midland Credit Management with ... Texas AG files suit against debt collector
Legal News Line - Bryan Cohen - 3 hours ago
HOUSTON (Legal Newsline) - Texas Attorney General Greg Abbott charged Encore Capital Group on Friday with state debt collection law violations. The alleged violations include attempting to collect debts based upon inaccurate or ... Attorney General Charges Debt Collector
Examiner.com - 5 hours ago
HOUSTON – Texas Attorney General Greg Abbott today charged Encore Capital Group, Inc. with falsifying and robo-signing affidavits, attempting to collect debts based upon inaccurate or incomplete account information, and employing unlawful and deceptive ... Encore Capital Group Accused of Falsifying Affdavits (ECPG)
Investor's Business Daily - 5 hours ago
Jul 08, 2011 (SmarTrend(R) News Watch via COMTEX) -- Texas Attorney General Greg Abbott charged Encore Capital Group (ECPG) with falsifying and robo-signing affidavits, attempting to collect debts based upon inaccurate or incomplete account information ...
TEXT OF TX ATTORNEY GENERAL'S PRESS RELEASE ANNOUNCING LAW SUIT AGAINST MIDLAND AND ENCORE CAPITAL GROUP FOR DECEPTIVE DEBT COLLECTON PRACTICES INVOLVING FRAUDULENT AFFIDAVITS
Friday, July 8, 2011
Attorney General Abbott Charges Encore Capital Group with Violating Texas Debt Collection Laws
State’s enforcement action cites Encore for employing unlawful tactics against debtors, relying upon “robo-signers” to sign thousands of false affidavits
HOUSTON – Texas Attorney General Greg Abbott today charged Encore Capital Group, Inc. with falsifying and robo-signing affidavits, attempting to collect debts based upon inaccurate or incomplete account information, and employing unlawful and deceptive debt collection tactics. The State’s enforcement action cites the defendants for committing multiple violations of Texas debt collection laws and the Texas Finance Code. Encore, which is one of the nation’s largest debt collection companies, and its subsidiaries – Midland Funding, LLC and Midland Credit Management, Inc. – are named as defendants in the case.
According to state investigators, Midland Funding purchased debt portfolios from a broad spectrum of creditors for pennies on the dollar. As the purchaser of the debt, the defendants attempted to collect the money that was allegedly owed to various creditors. However, the defendants’ debt collection letters contained very little information about the debt they were attempting to collect, provided no supporting documentation, and included no proof that they actually acquired the debt from the original creditor. When Texans contacted the defendant to dispute the legitimacy of an alleged debt or seek additional information, the defendants made little or no effort to investigate or verify whether their collection efforts were proper.
Court documents filed by the State indicate the defendants sometimes even used incomplete or inaccurate account information, targeted the wrong individuals for collection and attempted to collect debts that had been fully or partially paid. As a result, some Texans unnecessarily suffered financial hardships, such as improperly decreased credit ratings, loss of job opportunities or the ability to refinance their home.
When individuals refused to comply with Midland Funding’s improper collection efforts, the defendants hired attorneys to sue the accused debtors. Court documents reveal that the defendants’ lawyers filed breach of contract lawsuits demanding principal, interest and attorneys’ fees. The defendants have filed more than 60,000 lawsuits in Texas since 2002. According to state investigators, the defendants’ lawsuits contained inaccurate information and used false statements to claim they were owed certain debts.
To protect Texans from being sued for debts they did not actually incur, the law may require that debt collectors verify the validity of their claims through “sworn affidavits.” However, the defendants submitted falsified affidavits, which the courts relied upon as proof that the debt collector properly verified the identity of the debtor and the amount owed.
The State’s investigation revealed that the defendants also employed “robo-signers” to supply the legally required verification. Court documents filed by the State indicate the defendants’ robo-signers routinely signed more than 300 affidavits per day and did not actually review the underlying credit agreements or the alleged debtor’s payment history. In sworn testimony provided to state investigators, the defendants’ robo-signers acknowledged that they also had no personal knowledge of the original debt or the defendant’s acquisition of the debt portfolios – which was contrary to the information contained in sworn affidavits that these defendants filed with the courts.
Because the court presumed the falsified affidavits were truthful, judges relied upon them to issue judgments against debtors. As a result, the Attorney General charged the defendants with defrauding the Texas judicial system by knowingly submitting false affidavits to state courts. Because 90 percent of the defendants’ lawsuits named individuals who were not represented by counsel, these purported debtors did not have lawyers to challenge the legitimacy of the defendants’ claims. As a result, default judgments were improperly entered against them based upon the defendants’ falsified affidavits.
The State’s enforcement action seekS to establish a restitution trust fund for money that the defendants unlawfully coerced from Texans. The Attorney General also seeks civil penalties of up to $20,000 per violation of the Texas Deceptive Trade Practices Act, as well as penalties that apply under the Texas Finance Code for third-party debt collectors who violate state law.
Texans who believe they have been deceived by improper or unlawful business practices may call the Office of the Attorney General’s toll-free complaint line at (800) 252-8011 or file a complaint online at www.texasattorneygeneral.gov.
TEXT OF PRESS RELEASE FROM MINNESOTA AG'S ACTION AGAINST MIDLAND
Press Release - Monday, March 28, 2011
ATTORNEY GENERAL LORI SWANSON CHARGES ONE OF NATION’S LARGEST “DEBT BUYERS” WITH DEFRAUDING MINNESOTA COURTS AND CITIZENS BY FILING “ROBO-SIGNED” AFFIDAVITS
Minnesota Attorney General Lori Swanson today in a legal filing accused one of the nation’s largest “debt buyers” of defrauding Minnesota courts and citizens by filing false and deceptive “robo-signed” affidavits—generated at its offices in St. Cloud, Minnesota—to collect on old consumer debts that it purchased from credit card companies and others for about three cents on the dollar.
The debt buyer—Midland Funding, LLC and its administrative arm, Midland Credit Management, Inc. (collectively Midland)—has purchased $54.7 billion in old consumer debt from credit card companies and other companies. In 2009, it filed 245,000 lawsuits against individual citizens nationwide, and it has filed over 15,000 lawsuits against citizens in Minnesota courts since 2008. Midland pays for its debt acquisitions with hundreds of millions in financing from some of the nation’s largest banks, including several that sell old debt to it.
“The company put its thumb on the scale of justice to unfairly tilt the collection process in its favor,” said Attorney General Swanson.
The Attorney General said that debt buyers cast a wide net to find people who may owe old bills and often pursue the wrong person altogether or pursue people who paid the bills long ago. In some cases, debt buyers pursue people solely because they have the same or similar name or address as the real debtor. The Attorney General said that Midland has created false and unreliable mass-produced, “robo-signed” affidavits as supposed “proof” of consumer debts in lawsuits against individual citizens in order to obtain judgments against or extract payments from mostly unrepresented citizens, some of whom had no knowledge of any alleged debt.
Midland and its publicly-traded parent corporation, Encore Capital Group, Inc., have paid more than $1.8 billion to obtain 33 million customer accounts with a face value of about $54.7 billion, or an average cost of about three cents on the dollar, according to Encore’s 2010 Form 10-K. Midland and Encore buy electronic portfolios containing billions of dollars of old, charged-off consumer debt from credit card companies, banks, telecommunications firms, and other creditors. These include Bank of America, JPMorgan Chase, Citibank, Wells Fargo, HSBC, Providian, and Verizon Wireless, among others. Several of these banks, including Bank of America, JPMorgan Chase, and Citibank, also provided Midland with financing to pursue its debt acquisitions and collections. For example, Encore currently has a $410 million revolving credit line to acquire consumer debt from many of the same banks that have sold debt to Midland, including JPMorgan Chase, Bank of America, and Citibank.
The Attorney General 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 filed the robo-signed affidavits in state courts in Minnesota and around the country to obtain judgments against individual citizens.
“Robo-signing” is the practice of signing off on mass-produced, computer-generated legal documents without reading them or verifying the accuracy of the contents in order to speed up the collection process. In recent months, the mortgage industry has come under intense national scrutiny for supporting mortgage foreclosures in court with “robo-signed” affidavits. Like the mortgage industry, some debt buyers, including Midland, have used false, robo-signed affidavits to support their debt collections lawsuits.
Because acquired debt portfolios involve old debt and because debt buyers typically only acquire an electronic file about the debt and not actual copies of underlying charge slips, account statements, signed contracts, etc., citizens regularly are hounded by debt buyers for payment of bills they do not owe. In some cases, debt buyers sue people solely because they have the same or similar name or address as the real debtor, while in other cases they pursue people for bills paid back long ago. The National Consumer Law Center (NCLC) has estimated that one out of ten lawsuits filed by debt buyers are premised on bad or incorrect information.
As noted above, since 2008, Midland filed over 15,000 lawsuits in Minnesota state courts against individual Minnesota citizens, obtaining default judgments against unrepresented citizens an estimated 98 percent or more of the time. A default judgment is obtained when the subject of the lawsuit does not have an attorney and does not appear in court to contest the lawsuit. Some citizens sued by Midland state that they did not contest the lawsuit because they were not served with it, could not afford an attorney, or did not recognize the name of the debt buyer, since they had never done business with it. Midland filed false, robo-signed affidavits as supposed “proof” of the debt so as to leverage individual citizens into settlements or to persuade courts to enter default judgments against citizens on old debts. The affidavits, however, did not constitute “proof” of the debt because they were robo-signed by people who did not read them and/or who had absolutely no knowledge about the alleged debts to which they attested.
Numerous Midland employees have admitted in sworn testimony to signing up to 400 false affidavits per day, either without reading them, without personal knowledge of their contents, and/or without verifying the accuracy of the information to which the affidavits attest. The robo-signed affidavits were then filed in court to “prove” the alleged debt to the court.
In today’s legal filing, the Attorney General’s Office took the first step in filing a lawsuit against Midland by seeking clarification from a federal court in Ohio that a pending class action settlement was not intended to bar the State’s governmental enforcement action against Midland.
Midland and Encore have their primary place of business in San Diego, California. They operate a business office in St. Cloud, Minnesota at which many of the robo-signed affidavits were generated. In 2010, Encore paid $362 million to acquire portfolios of charged-off credit card, bank, and telecommunication customer accounts with face values of $10.9 billion, for an average price of about 3.3 cents per dollar of debt acquired, according to its 2010 Form 10-K. Encore states in its 2010 Form 10-K that it has “one of the industry’s largest distressed consumer databases containing information regarding approximately 20 million consumer accounts.” In 2010, Midland and Encore subsidiaries called and sent collection letters to over 8.5 million Americans, according to the company’s 2010 Form 10-K.
The debt buying industry formed about 20 years ago, in the wake of the savings and loan scandal, and has exploded in recent years. In the 1980’s, the government liquidator of failed savings and loans auctioned off for collection over $450 billion in failed S&L assets to the private sector. Seeing a new market niche, debt buyers thereafter began to purchase other kinds of debt. In 1993 debt buyers purchased an estimated $6 billion in old debt, but by 2005 that figure spiked to over $100 billion, according to the NCLC. The Federal Trade Commission has estimated that the country’s nine largest debt buyers have acquired 75 percent of all purchased debt. The four largest publicly-traded debt buyers (including Encore) reportedly purchased almost $20 billion in receivables in 2009, according to published reports.
Attorney General Swanson said that creditors and collectors are within their rights to collect debt in a lawful fashion but may not resort to illegal behavior to do so.
The Attorney General’s website, www.ag.state.mn.us has a publication entitled “Debt Buyers” that has more information for citizens about their legal rights and options if pursued by a debt buyer. For more information or to file a complaint with the Attorney General’s Office, people may call (651) 296-3353 or (800) 657-3787. People may also download a Consumer Complaint Form from the Attorney General’s website.
RELATED TERMS: robo-signed affidavits, summary judgment affidavits, affidavits of claim, personal knowledge requirement, authentication of business records, third-party records, authenticity and admissibility, business records exceptions to the hearsay rule, evidentiary issues, challenge to affidavit, motion to strike testimony by affidavit
Friday, July 8, 2011
Attorney General Abbott Charges Encore Capital Group with Violating Texas Debt Collection Laws
State’s enforcement action cites Encore for employing unlawful tactics against debtors, relying upon “robo-signers” to sign thousands of false affidavits
HOUSTON – Texas Attorney General Greg Abbott today charged Encore Capital Group, Inc. with falsifying and robo-signing affidavits, attempting to collect debts based upon inaccurate or incomplete account information, and employing unlawful and deceptive debt collection tactics. The State’s enforcement action cites the defendants for committing multiple violations of Texas debt collection laws and the Texas Finance Code. Encore, which is one of the nation’s largest debt collection companies, and its subsidiaries – Midland Funding, LLC and Midland Credit Management, Inc. – are named as defendants in the case.
According to state investigators, Midland Funding purchased debt portfolios from a broad spectrum of creditors for pennies on the dollar. As the purchaser of the debt, the defendants attempted to collect the money that was allegedly owed to various creditors. However, the defendants’ debt collection letters contained very little information about the debt they were attempting to collect, provided no supporting documentation, and included no proof that they actually acquired the debt from the original creditor. When Texans contacted the defendant to dispute the legitimacy of an alleged debt or seek additional information, the defendants made little or no effort to investigate or verify whether their collection efforts were proper.
Court documents filed by the State indicate the defendants sometimes even used incomplete or inaccurate account information, targeted the wrong individuals for collection and attempted to collect debts that had been fully or partially paid. As a result, some Texans unnecessarily suffered financial hardships, such as improperly decreased credit ratings, loss of job opportunities or the ability to refinance their home.
When individuals refused to comply with Midland Funding’s improper collection efforts, the defendants hired attorneys to sue the accused debtors. Court documents reveal that the defendants’ lawyers filed breach of contract lawsuits demanding principal, interest and attorneys’ fees. The defendants have filed more than 60,000 lawsuits in Texas since 2002. According to state investigators, the defendants’ lawsuits contained inaccurate information and used false statements to claim they were owed certain debts.
To protect Texans from being sued for debts they did not actually incur, the law may require that debt collectors verify the validity of their claims through “sworn affidavits.” However, the defendants submitted falsified affidavits, which the courts relied upon as proof that the debt collector properly verified the identity of the debtor and the amount owed.
The State’s investigation revealed that the defendants also employed “robo-signers” to supply the legally required verification. Court documents filed by the State indicate the defendants’ robo-signers routinely signed more than 300 affidavits per day and did not actually review the underlying credit agreements or the alleged debtor’s payment history. In sworn testimony provided to state investigators, the defendants’ robo-signers acknowledged that they also had no personal knowledge of the original debt or the defendant’s acquisition of the debt portfolios – which was contrary to the information contained in sworn affidavits that these defendants filed with the courts.
Because the court presumed the falsified affidavits were truthful, judges relied upon them to issue judgments against debtors. As a result, the Attorney General charged the defendants with defrauding the Texas judicial system by knowingly submitting false affidavits to state courts. Because 90 percent of the defendants’ lawsuits named individuals who were not represented by counsel, these purported debtors did not have lawyers to challenge the legitimacy of the defendants’ claims. As a result, default judgments were improperly entered against them based upon the defendants’ falsified affidavits.
The State’s enforcement action seekS to establish a restitution trust fund for money that the defendants unlawfully coerced from Texans. The Attorney General also seeks civil penalties of up to $20,000 per violation of the Texas Deceptive Trade Practices Act, as well as penalties that apply under the Texas Finance Code for third-party debt collectors who violate state law.
Texans who believe they have been deceived by improper or unlawful business practices may call the Office of the Attorney General’s toll-free complaint line at (800) 252-8011 or file a complaint online at www.texasattorneygeneral.gov.
TEXT OF PRESS RELEASE FROM MINNESOTA AG'S ACTION AGAINST MIDLAND
Press Release - Monday, March 28, 2011
ATTORNEY GENERAL LORI SWANSON CHARGES ONE OF NATION’S LARGEST “DEBT BUYERS” WITH DEFRAUDING MINNESOTA COURTS AND CITIZENS BY FILING “ROBO-SIGNED” AFFIDAVITS
Minnesota Attorney General Lori Swanson today in a legal filing accused one of the nation’s largest “debt buyers” of defrauding Minnesota courts and citizens by filing false and deceptive “robo-signed” affidavits—generated at its offices in St. Cloud, Minnesota—to collect on old consumer debts that it purchased from credit card companies and others for about three cents on the dollar.
The debt buyer—Midland Funding, LLC and its administrative arm, Midland Credit Management, Inc. (collectively Midland)—has purchased $54.7 billion in old consumer debt from credit card companies and other companies. In 2009, it filed 245,000 lawsuits against individual citizens nationwide, and it has filed over 15,000 lawsuits against citizens in Minnesota courts since 2008. Midland pays for its debt acquisitions with hundreds of millions in financing from some of the nation’s largest banks, including several that sell old debt to it.
“The company put its thumb on the scale of justice to unfairly tilt the collection process in its favor,” said Attorney General Swanson.
The Attorney General said that debt buyers cast a wide net to find people who may owe old bills and often pursue the wrong person altogether or pursue people who paid the bills long ago. In some cases, debt buyers pursue people solely because they have the same or similar name or address as the real debtor. The Attorney General said that Midland has created false and unreliable mass-produced, “robo-signed” affidavits as supposed “proof” of consumer debts in lawsuits against individual citizens in order to obtain judgments against or extract payments from mostly unrepresented citizens, some of whom had no knowledge of any alleged debt.
Midland and its publicly-traded parent corporation, Encore Capital Group, Inc., have paid more than $1.8 billion to obtain 33 million customer accounts with a face value of about $54.7 billion, or an average cost of about three cents on the dollar, according to Encore’s 2010 Form 10-K. Midland and Encore buy electronic portfolios containing billions of dollars of old, charged-off consumer debt from credit card companies, banks, telecommunications firms, and other creditors. These include Bank of America, JPMorgan Chase, Citibank, Wells Fargo, HSBC, Providian, and Verizon Wireless, among others. Several of these banks, including Bank of America, JPMorgan Chase, and Citibank, also provided Midland with financing to pursue its debt acquisitions and collections. For example, Encore currently has a $410 million revolving credit line to acquire consumer debt from many of the same banks that have sold debt to Midland, including JPMorgan Chase, Bank of America, and Citibank.
The Attorney General 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 filed the robo-signed affidavits in state courts in Minnesota and around the country to obtain judgments against individual citizens.
“Robo-signing” is the practice of signing off on mass-produced, computer-generated legal documents without reading them or verifying the accuracy of the contents in order to speed up the collection process. In recent months, the mortgage industry has come under intense national scrutiny for supporting mortgage foreclosures in court with “robo-signed” affidavits. Like the mortgage industry, some debt buyers, including Midland, have used false, robo-signed affidavits to support their debt collections lawsuits.
Because acquired debt portfolios involve old debt and because debt buyers typically only acquire an electronic file about the debt and not actual copies of underlying charge slips, account statements, signed contracts, etc., citizens regularly are hounded by debt buyers for payment of bills they do not owe. In some cases, debt buyers sue people solely because they have the same or similar name or address as the real debtor, while in other cases they pursue people for bills paid back long ago. The National Consumer Law Center (NCLC) has estimated that one out of ten lawsuits filed by debt buyers are premised on bad or incorrect information.
As noted above, since 2008, Midland filed over 15,000 lawsuits in Minnesota state courts against individual Minnesota citizens, obtaining default judgments against unrepresented citizens an estimated 98 percent or more of the time. A default judgment is obtained when the subject of the lawsuit does not have an attorney and does not appear in court to contest the lawsuit. Some citizens sued by Midland state that they did not contest the lawsuit because they were not served with it, could not afford an attorney, or did not recognize the name of the debt buyer, since they had never done business with it. Midland filed false, robo-signed affidavits as supposed “proof” of the debt so as to leverage individual citizens into settlements or to persuade courts to enter default judgments against citizens on old debts. The affidavits, however, did not constitute “proof” of the debt because they were robo-signed by people who did not read them and/or who had absolutely no knowledge about the alleged debts to which they attested.
Numerous Midland employees have admitted in sworn testimony to signing up to 400 false affidavits per day, either without reading them, without personal knowledge of their contents, and/or without verifying the accuracy of the information to which the affidavits attest. The robo-signed affidavits were then filed in court to “prove” the alleged debt to the court.
In today’s legal filing, the Attorney General’s Office took the first step in filing a lawsuit against Midland by seeking clarification from a federal court in Ohio that a pending class action settlement was not intended to bar the State’s governmental enforcement action against Midland.
Midland and Encore have their primary place of business in San Diego, California. They operate a business office in St. Cloud, Minnesota at which many of the robo-signed affidavits were generated. In 2010, Encore paid $362 million to acquire portfolios of charged-off credit card, bank, and telecommunication customer accounts with face values of $10.9 billion, for an average price of about 3.3 cents per dollar of debt acquired, according to its 2010 Form 10-K. Encore states in its 2010 Form 10-K that it has “one of the industry’s largest distressed consumer databases containing information regarding approximately 20 million consumer accounts.” In 2010, Midland and Encore subsidiaries called and sent collection letters to over 8.5 million Americans, according to the company’s 2010 Form 10-K.
The debt buying industry formed about 20 years ago, in the wake of the savings and loan scandal, and has exploded in recent years. In the 1980’s, the government liquidator of failed savings and loans auctioned off for collection over $450 billion in failed S&L assets to the private sector. Seeing a new market niche, debt buyers thereafter began to purchase other kinds of debt. In 1993 debt buyers purchased an estimated $6 billion in old debt, but by 2005 that figure spiked to over $100 billion, according to the NCLC. The Federal Trade Commission has estimated that the country’s nine largest debt buyers have acquired 75 percent of all purchased debt. The four largest publicly-traded debt buyers (including Encore) reportedly purchased almost $20 billion in receivables in 2009, according to published reports.
Attorney General Swanson said that creditors and collectors are within their rights to collect debt in a lawful fashion but may not resort to illegal behavior to do so.
The Attorney General’s website, www.ag.state.mn.us has a publication entitled “Debt Buyers” that has more information for citizens about their legal rights and options if pursued by a debt buyer. For more information or to file a complaint with the Attorney General’s Office, people may call (651) 296-3353 or (800) 657-3787. People may also download a Consumer Complaint Form from the Attorney General’s website.
RELATED TERMS: robo-signed affidavits, summary judgment affidavits, affidavits of claim, personal knowledge requirement, authentication of business records, third-party records, authenticity and admissibility, business records exceptions to the hearsay rule, evidentiary issues, challenge to affidavit, motion to strike testimony by affidavit
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