Debt buyer and collector EOS CCA (associated with EOS Holdings, Inc., Collecto Inc. and their wholly-owned subsidiary debt buyer, US Asset Management, all of which will be called “EOS” here) bought debts from AT&T in 2012. According to the CFPB, EOS paid $35.4 million for debts with a face value of $2.3 billion, about two cents for every dollar. It was the largest portfolio EOS had ever purchased. Understanding that you get what you pay for, it turns out that many of the accounts, at least 10,000, had already been paid, and many were disputed. For many more AT&T could not give EOS any proof of the debt.
In fact, this particular portfolio was so bad that EOS decided to report to the CRAs that all debts in the portfolio were disputed (even though they weren’t). After collection attempts, EOS later changed its mind and deleted all of the disputes on debts in the portfolio (even for the debts that were disputed). EOS continued to report that the debts were owed and collected on disputed accounts.
Finally, the CFPB took action against EOS, filling a lawsuit and a consent order on the same day. The Consent Order requires EOS to stop reporting the disputed debts from the AT&T portfolio, but it also imposes additional requirements on EOS’s general collection practices for 5 years, most notably:
- EOS must not claim or imply that a consumer owes money unless EOS sees account-level documents from the original creditor that substantiate the claim if (a) the debt is disputed, (b) the debt is part of portfolio which was sold without “meaningful” warranties of accuracy or (c) (as in the case of the AT&T portfolio) they know the portfolio to be inaccurate.
- EOS is prohibited from reselling any debts that it has bought.
TRANSLATION: It is still permissible for a creditor to sell and for a debt buyer to purchase disputed debts, and portfolios that have broad disclaimers of accuracy and reliability, and debts which are known to be inaccurate. And in the absence of any dispute, it is permissible to collect on accounts for which there is no account-level documentation. However, for a period of 5 years, EOS is prohibited from reselling any debts it has purchased.
The prohibition on the resale of debts is now a familiar part of CFPB consent orders – the same term appeared in settlements with the two largest debt buyers: Portfolio Recovery Associates and Encore / Midland Funding, LLC. These recent CFPB consent orders probably signal the rules that the CFPB will eventually propose to regulate debt buyers, so these kinds of terms may ultimately come to bind all large debt buyers permanently.
Although the inclusion of affirmative warranties of accuracy and reliability is a huge step forward, such warranties will be meaningless if they are not publicly available so that they can be verified by consumers and the courts as part of the adversary process. So long as the key terms of debt-selling agreements are kept secret it will be difficult to know what the warranties actually are, or whether the accounts sold conform to the warranties. This is why I have called repeatedly for a requirement to make forward flow agreements available to the public and to the courts. It is just plain wrong for a bank or creditor to sell accounts with a disclaimer of warranties of accuracy or reliability, only to see the debt buyer then argue in court that the records are in fact accurate and reliable. But in fact and in practice, this is exactly what happens every single day across the country.
It is great that the CFPB is mandating better practices through its consent orders. But what is needed is a requirement to make the purchase and sale contracts between creditors and debt buyers public. At a minimum, the representations and warranties must be public. Without more transparency as to exactly what the new warranties are, the fraud will continue, unchecked by consumers or courts.