W.Va. AG's lawsuit stuns debt-buying company

Jessica M. Karmasek Mar. 12, 2012, 11:50am


SAN DIEGO (Legal Newsline) - Encore Capital Group Inc. says a lawsuit filed by West Virginia Attorney General Darrell McGraw last week was a "surprise."

The defendants in the case, Midland Funding LLC and Midland Credit Management Inc., are both wholly-owned subsidiaries of Encore.

The company, which is headquartered in San Diego, is considered a leader in "distressed consumer debt buying and recovery." According to its website, Encore purchases portfolios of defaulted consumer receivables from major banks, credit unions, and utility providers and partners with individuals as they repay their obligations and work toward financial recovery.

On Thursday, McGraw's office announced it was suing Midland Funding, a Delaware corporation, and its sister corporation, Midland Credit, based in Kansas, for using false affidavits to obtain default judgments against state consumers.

In addition, the attorney general said he was suing the two corporations for failing to include information required by law when suing a consumer in magistrate or circuit court for an alleged debt.

"The suit in substantial part echoes old claims that were asserted and redressed in connection with litigation filed against the companies in 2008," Encore said in a statement Thursday.

"The filing and press release were a surprise to Encore and the Midland defendants, and the companies have since reached out to the Attorney General's Office to initiate discussions in response."

Encore said it is "confident" in the "integrity and accuracy" of its collections processes and in the "validity" of the data supporting the underlying debts it owns.

"The company has been in business for nearly 57 years and has built a strong track record of operating with integrity and honesty, and partnering with consumers to successfully resolve their financial obligations," it said.

"The Midland defendants feel strongly that the allegations in the West Virginia suit inaccurately portray both Midland's practices and the applicable legal standards."

Midland is considered one of the nation's largest "debt buyers," having bought about $54.7 billion in old consumer debt in recent years.

The company typically buys debt that has been charged-off by the original creditor -- usually old credit card debt -- for about three cents on the dollar.

In other words, Midland pays about $3 for every $100 of debt it buys, McGraw's office explained.

The attorney general said because debt buyers like Midland usually only acquire an electronic file about the debt and not actual copies of the underlying charge slips, account statements, etc., consumers are hounded regularly by the companies for payments of bills they do not owe.

In fact, in some cases, debt buyers sue people solely because they have the same or similar name or address as the real debtor. In other cases, they pursue people for bills repaid years ago, McGraw said.

According to the Attorney General's Office, Midland frequently uses "false" and "unreliable" mass-produced affidavits as supposed "proof" of consumer debts in lawsuits against individual citizens.

The company does this in order to obtain judgments against or extract payments from mostly unrepresented consumers, some of whom had no knowledge of any alleged debt, McGraw's office alleges.

The National Consumer Law Center has estimated that one out of 10 lawsuits filed by debt buyers are premised on bad or incorrect information.

"Unfortunately, many consumers are frightened or unaware of their rights when they are sued and fail to respond to these groundless lawsuits, leaving them subject to judgments on debts that cannot be proved. Companies such as Midland rely upon this fear and typically drop their lawsuits if consumers know their rights," McGraw said Thursday.

The Attorney General's Office began its investigation into Midland's business practices after receiving complaints from consumers that they had received repeated telephone calls from the company, trying to collect debts they did not owe.

Some consumers also complained they had been sued for debts they did not owe on credit cards they never had.

Encore CEO Brandon Black said Thursday the company is committed to working with consumers "honestly" and "with integrity" to help them "regain their financial footing."

"Our Consumer Bill of Rights goes well beyond what is required by law to ensure that we do so," he said in a statement.

"We look forward to having continued discussions with the Attorney General's Office and establishing Encore as a model for doing business in West Virginia."

From Legal Newsline: Reach Jessica Karmasek by email at jessica@legalnewsline.com.

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