A.G. Schneiderman Obtains Settlement From Major Debt Buyer Who Filed Thousands Of Time-Barred Debt Collection Actions

Encore Capital Group Inc. Will Vacate More Than 4,500 Improperly Obtained Judgments Totaling Nearly $18 Million; Reform Practices; And Pay $675,000 In Penalties And Costs

Schneiderman: We Will Continue To Pursue Debt Collectors And Lenders Who Improperly Take Advantage Of Courts And Hardworking New Yorkers

NEW YORK – Attorney General Eric T. Schneiderman today announced that his office has obtained a settlement from Encore Capital Group, Inc. (“Encore”), a major debt buyer, for bringing improper debt collection actions against thousands of New York consumers. For years, Encore sued New York consumers and obtained uncontested default judgments against consumers who failed to respond to the lawsuits, even though the underlying claims were untimely under New York law. Under the settlement, Encore will seek to vacate more than 4,500 improperly obtained judgments totaling nearly $18 million. Encore will also reform its debt collection practices and pay civil penalties and costs in the amount of $675,000.

“New York has laws in place to ensure no one can prey on consumers, and debt collectors are required to follow those rules,” said Attorney General Schneiderman. “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.”

Encore is a debt buyer that purchases unpaid consumer debts such as credit card debts from the original creditor or from other debt buyers at deeply discounted prices. Encore’s subsidiaries, which include Midland Credit Management, then attempt to collect on the debt. Through its subsidiaries, Encore is one of the most active debt collection plaintiffs in New York State, filing tens of thousands of debt collection actions each year.

It is unlawful for a debt collector to bring suit against a consumer when the claims are outside of the applicable statute of limitations. Under New York law, in order for an action to be timely filed, it must be commenced not only within New York’s statute of limitations, but also within the statute of limitations of the state where the cause of action accrued, if other than New York. In debt collection actions, a cause of action accrues where the original creditor of the debt resides. For example, while New York’s statute of limitations to collect on a debt is generally six years, if the original creditor on the debt was located in Delaware, which has a three-year statute of limitations, the shorter statute of limitations would govern the action.

The Attorney General’s investigation found that, despite the clear requirements of New York law, Encore brought debt collection claims that were untimely under the statutes of limitations where the causes of action accrued. Because most consumers fail to respond when they are sued by a debt collector, Encore obtained default judgments in its favor based on these time-barred claims.

In addition to seeking to vacate more than 4,500 improperly obtained judgments and paying $675,000 in civil penalties and costs, Encore has agreed to several important reforms of its current practices in New York. These include:

  • Disclosing in written or oral communication about a debt that is outside the statute of limitations that the company will not sue to collect on the debt.
  • Disclosing in written or oral communications about a debt that is outside the date for reporting the debt provided for by the federal Fair Credit Reporting Act that, because of the age of the debt, the company will not report the debt to any credit reporting agency.
  • Alleging certain information relevant to the statute of limitations in any debt collection complaint, such as the name of the original creditor and the date of the consumer’s last payment on the debt.

In addition to filing time-barred debt collection actions, Encore was also engaged in a practice that is often referred to as “robosigning”: Encore employees signed hundreds of affidavits submitted in support of debt collection actions each day without reviewing the affidavits 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.

This settlement is a part of the Attorney General’s continuing efforts to combat unlawful and abusive debt collection activity. In May 2014, Attorney General Schneiderman obtained settlements from two major debt buyers, Portfolio Recovery Associates and Sherman Financial Group, who filed time-barred debt collection cases. Those settlements resulted in the vacature of more than 3,000 improperly obtained judgments. More information on those settlements is available here.

In addition, in September 2014, New York’s Court System adopted a comprehensive set of reforms related to consumer debt collection actions that incorporate many of the recommendations of the Attorney General’s Office. More information on those reforms is available here.

Consumers facing default judgments arising from debt collection actions brought by Encore or its subsidiaries (including Midland Credit Management) who believe that the default judgment was improperly obtained because the claim was time-barred should contact the Attorney General’s Office within ninety days. Such judgments may be eligible for vacature pursuant to the settlement.

This case was handled by Special Counsel Carolyn Fast, Special Assistant Attorney General Stephen Mindell, and Bureau Chief Jane Azia, all of the Consumer Frauds and Protection Bureau, and Executive Deputy Attorney General for Economic Justice Karla Sanchez.

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