West Virginia Attorney General Darrell McGraw announced Thursday that his office has sued two divisions of Encore Capital Group, claiming the company participated in fraudulent collection practices and used false affidavits in lawsuits.
Midland Credit Management and Midland Funding LLC are both affiliates of Encore Capital, a San Diego-based debt buyer. The lawsuit filed against them alleges the companies obtained default judgments against West Virginia consumers through robo-signed affidavits.
According to the lawsuit, Midland frequently used “false” and “unreliable” mass-produced affidavits as alleged “proof” in lawsuits against consumers. They did this in order to obtain judgments against or extract payments from mostly unrepresented consumers, some of whom who had no actual knowledge of an alleged debt.
In some cases, McGraw said, Midland sued consumers simply because they had the same or similar name or address as the real debtor. In other cases, they harassed people for bills previously repaid.
McGraw’s office wants to force Midland to repay money obtained from consumers, as well as to pay $5,000 to the state for each violation of its consumer-protection law. It further wants to stop Encore Capital Group from collecting in West Virginia until the court case is resolved.
According to Collections & Credit Risk, Midland is considered one of the largest debt buyers in the country, having purchased, in recent years, more than $54.7 billion in stale consumer debt.
They typically purchase old credit card debt that has been charged-off by the original creditor for about three cents on the dollar.
In February, Encore Capital Group reported its gross collections reached $761.2 million in 2011, up 26% from the previous year. Its net income totaled $61 million on $467.4 million in revenue.
According to the lawsuit, McGraw alleged that debt buyers like Midland typically acquire only an electronic file about the debt and not actual copies of underlying applications, account statements or charge slips.
“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,” McGraw stated in a prepared release. “Companies such as Midland rely upon this fear and typically drop their lawsuits if consumers know their rights.”
The National Consumer Law Center, a nonprofit advocacy organization, has estimated that approximately 10% of lawsuits filed by debt buyers such as Midland are predicated on false, incorrect, or misleading information.
The West Virginia Attorney General’s office initiated an investigation into Midland after receiving complaints from dozens of consumers that they received repeated telephone calls attempting to collect on debt they did not owe.
Some consumers also complained that they had been sued for accounts they never possessed.
In response to growing complaints about stale debt, the Consumer Financial Protection Bureau proposed last month a regulation that would let it examine the books of collectors such as Midland as part of its program to supervise nonbank financial companies.
Despite a phone message left for Encore Capital officials, they were not immediately available for comment on the lawsuit.