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Bad debt cases ended


timesunion.com | January 11, 2015

By Brian Nearing

The state attorney general wiped out $18 million in outdated bad debt judgments against thousands of New Yorkers in a settlement with one of the nation's largest debt collectors, which illegally sued debtors over old claims and filed unverified "robosigned" legal paperwork to support its efforts.

California-based Encore Capital Group agreed to vacate court judgments against 4,500 New Yorkers for debts that were too old to be sued over, pay a $675,000 state penalty, and start telling debtors when debts are too old to be pursued in court.

Attorney General Eric Schneiderman said on Friday: "Today's settlement ensures that thousands of New Yorkers will see millions in relief from debts that were not enforceable in the first place. We will continue to take action against any company that abuses the power of the court system at the expense of hardworking families."

It is the largest debt collection settlement ever reached against a single company, according to the attorney general's office.

Between 2007 and 2012, Encore or its affiliates filed more than 239,000 debt collection lawsuits in the state, where debts older than six years are "time barred" and cannot be sued for in court. However, if the state where the original creditor resides has a shorter limit, like Delaware, where many financial companies are incorporated and which has a three-year limit, then that state's limit applies to debt actions filed in New York.

Encore is one the largest buyers of consumer debt in the nation, according to the settlement.

In 2012 and 2013, the company bought about $103 billion in unpaid consumer debt, primarily from credit card companies, for about $1.8 billion, or less than two cents on the dollar.

"We are pleased to have addressed and resolved the Attorney General's concerns in a manner that supports consumers' interests," said company spokeswoman Lisa Margolin-Feher.

The settlement strikes judgments obtained by Encore between November 2008 and June 2014; in some cases, people were making payments to Encore, but under the settlement can stop making payments. Under the settlement, people who have been paying would have to pursue recovery of that money on their own.

Company affiliates include Midland Credit Management, Midland Funding, Midland Funding of Delaware, Midland Funding of NCC-2 Corp., and MRC Receivables Corp.

The Attorney General's investigation found Encore brought debt collection claims that were outdated under other state laws. Because most consumers did not respond to legal notices, Encore received default judgments in its favor based on these claims.

Under the settlement, Encore will release any "pending garnishments, levies, liens, restraining notices, or attachments" stemming from faulty judgments. The company also agreed to cease attempts to collect such debt, and not to report the debt to consumer credit reporting agencies.

The investigation also found that Encore was also engaged in a practice that is often referred to as "robosigning," where employees signed hundreds of affidavits in support of debt collection without reviewing the documents and without possessing personal knowledge, as alleged in the affidavits, about the claimed debts and the amounts owed.

The settlement requires Encore to institute reforms to ensure that "robosigning" does not occur and to ensure that all sworn statements filed in debt collection actions are reviewed prior to execution.

Consumers facing default judgments from Encore or its subsidiaries who believe the claim was time-barred should contact the attorney general's office within 90 days. Such judgments may be eligible for removal under the settlement.


Back to January 2015 Archive

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