Encore Capital Group Promises Not to Sue on Time-Barred Debt, Not to Robo-Sign (in New York)

“Pennies on the dollar” is perhaps an overstatement.  According to Paragraph 4 of a January 6, 2015 settlement agreement reached with the New York State Attorney General, Encore Capital Group, Inc. (which is publicly traded and is the parent of junk debt buyer Midland Funding, LLC) “paid approximately $1.2 billion to acquire portfolios, primarily charged-off credit card portfolios, with a face value aggregating $84.9 billion.”  When you do the math (1.2 billion divided by 84.9 billion), that comes out to about 1.4 cents on the dollar — i.e. less than two pennies on the dollar.

As part of the settlement, Encore promises that it will stop suing to collect debts which are barred by the statute of limitations in New York. The full text of the settlement is Here.

Debt buyers routinely sue consumers after the statute of limitations has run, both in Maryland and around the country.  The FTC’s study of the large debt buyers found that 30% of debts purchased were at least three years old and therefore were likely beyond the statute of limitations in Maryland and some other states.

Encore entities filed law suits and obtained thousands of judgments on time barred debts:

Based on data produced by ECG, the OAG has determined that ECG obtained, and in some instances continues to collect on, judgments in over 4500 Time-Barred Actions between November 1, 2008 and June 2014.

Encore’s promise in the settlement to stop suing on time barred debts is ironic, because suing to recover debts barred by the statute of limitations is already violation of the Fair Debt Collection Practices Act. However, the settlement with the New York Attorney General covers a good deal more. It prohibits Encore entities from suing in cases where the statute of limitations has been reset by a partial payment of the debt by the consumer – normally such debts can be sued upon. In addition the settlement tries to fix some of Encore’s internal processes, which lead to default judgments being entered in cases where they should be denied:

ECG will not execute any affidavit, declaration, or other sworn statement . . . unless the affiant has first reviewed the . . . sworn statement to confirm that the information and statements contained therein are truthful, accurate, and complete.

 ECG will not execute any affidavit, declaration, or other sworn statement . . . unless the . . . sworn statement is based on the affiant’s own personal knowledge or upon business records of ECG that the affiant has personally reviewed.

* * *

 ECG will not commence or cause to be commenced a Debt Collection Action unless ECG or its counsel reasonably believes that the causes of action asserted therein are within the applicable statute(s) of limitations of both New York and the jurisdiction in which the cause of action accrued, if other than New York.

The settlement also requires Encore entities to state in their pleadings and applications for default judgment that the alleged debt is not statute-barred. Encore must also train its personnel on these procedures and show the Attorney General’s Office a copy of the training materials.

While the settlement attempts to reach into Encore itself to fix bad practices, the settlement also requires that Encore try to vacate the judgments that were based on statute barred debts and end any further collection activities on those debts. Unfortunately, the settlement does not require Encore to return any money it has already obtained from consumers in those cases. Consumers remain free to sue Encore on their own.

Suing on time barred debt is only one of many problems identified in studies of the debt buying industry. Some of the settlement’s terms are clearly aimed at other industry abuses, in particular “robo-signing” by debt buyer employees. Robo-signing and a simple failure to provide adequate proof in such collection lawsuits, together with collection of time barred debts were listed as significant problems in the Center for Responsible Lending’s 2014 study. Encore itself sums up the industry’s problems in a statement in a recent quarterly report filed with the Securities and Exchange Commission:

The Company, along with others in its industry, is routinely subject to legal actions . . . The violations of law investigated or alleged in these actions often include claims that the Company lacks specified licenses to conduct its business, attempts to collect debts on which the statute of limitations has run, has made inaccurate assertions of fact in support of its collection actions and/or has acted improperly in connection with its efforts to contact consumers.

This latest settlement with a major debt buyer represents some small measure of progress, long overdue.  While the settlement will help lots of people, it allows the wrongdoer to keep its ill-gotten gains unless and until some consumer(s) successfully sue to get the money back.