Research and Statistics

CFPB orders debt buyers to pay refunds, reform practices


Encore Capital Group and Portfolio Recovery Associates will pay a combined $18 million in fines and provide $61 million in refunds

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The nation’s two largest debt buyers will pay $79 million in refunds and penalties in a crackdown aimed at cleaning up the debt collection market, the U.S. Consumer Financial Protection Bureau announced Wednesday.

Whether they are debt buyers or sellers, “All players in the collections market need … to ensure they are collecting the right amount from the right consumer,” CFPB Director Richard Cordray said.

Under consent orders, Encore Capital Group and Portfolio Recovery Associates will pay a combined $18 million in fines and provide $61 million in refunds,  while also stopping collection on another $127 million in consumer accounts. The combined moves will give relief to tens of thousands of consumers being hounded by collectors or collection lawsuits, the CFPB said. The companies must also stop reselling debt they own to other companies.

“Encore and PRA demanded payments and filed lawsuits on debts that they knew very little about, and they did so without reviewing the appropriate documentation,” Cordray said.

According to CFPB, the companies bought debts they knew were flawed or expired, used robo-signed documents to bolster their collection claims, then filed shoddy court cases knowing they would probably win by default anyway when consumers failed to show up.

When asked by a concerned manager how Portfolio Recovery knew the amounts it demanded were correct, the vice president for collections said, “We don’t,” according to the CFPB order. “Ninety percent of our cases are default judgments. We show the judge the math and if no one disputes, we get our judgment,” the official was quoted as saying. The orders resulted from investigations by the CFPB’s enforcement unit.

As for Encore, it bought more than 10,000 accounts from a bank knowing that interest rates were inflated, and continued collection attempts without reviewing account documents to correct the information, according to the order.

Both companies hired law firms staffed by a few lawyers who managed to file thousands of court cases, falsely claiming to have reviewed account documents and determined their accuracy.

Encore and PRA demanded payments and filed lawsuits on debts that they knew very little about, and they did so without reviewing the appropriate documentation to make sure they were collecting the right amount from the right consumer.

— Richard Cordray
Consumer Financial Protection Bureau

In a news release, Cordray called the companies’ debt collection practices “illegal and obnoxious.” In additional prepared remarks, he made clear Wednesday’s actions were meant to send a message to the debt collection industry.

“As these companies are the two largest debt buyers in the country, they now will be leading change in the marketplace,” Cordray said, “as they must overhaul their debt collection practices and reform the ways they collect debts through lawsuits.”

No wrongdoing admitted
Jan Stieger, executive director of the debt buyers’ association DBA International, said she believes the conduct cited by the CFPB orders is already largely a thing of the past as industry standards have tightened. “We certainly wouldn’t condone anybody collecting debt that isn’t accurate, that they don’t have documentation for, that they can’t substantiate,” she said.

The companies agreed to the orders without admitting wrongdoing. The CFPB charged that the conduct violated the Dodd-Frank Act and Fair Debt Collection Practices Act.

The ripples of the crackdown will reach hundreds of thousands of consumers, the CFPB said, who will be spared the shakedown tactics outlined in the agency’s orders. Encore and Portfolio Recovery together own the rights to collect more than $200 billion in unpaid credit card bills, phone bills and other consumer accounts.

The scale of the companies’ operations means changes will affect many consumers. PRA files about 3,000 lawsuits a week, with 160,000 filed in 2012, according to the regulatory order. At Encore, collections totaled over $5 billion from 2009 to 2015. As part of the payback to consumers, Encore must give up judgments  it won on the false claim that disputed debt was assumed to be valid.

Foreshadows of new debt collection rules
The orders set out new consumer protection practices the companies must undertake as they collect debts. The CFPB is working on a comprehensive rule to update debt collection practices. While that rule remains on the drawing board, the requirements imposed on these debt buyers provide a road map for the industry.

“Industry members who sell, buy, and collect debt would be well served by carefully reviewing the terms of these orders,” Cordray said in remarks to reporters.

The orders require the companies to:

  • Stop collecting debts that can’t be verified by account documents.
  • Only file lawsuits backed by documentation showing the debt is accurate and enforceable.
  • Inform consumers of the original creditor and the original amount of the debt, and offer to provide account documents before filing suit.
  • Stop suing or threatening to sue on debt that has passed state statutes of limitations, and inform consumers of the debt’s legal status during noncourt collection attempts.

Encore Capital and Portfolio Recovery have been the targets of class-action lawsuits based on the conduct outlined in the CFPB orders. Refunds won by those lawsuits are separate from the refunds to be paid under regulatory orders, the CFPB said.

Steady drumbeat of criticism for debt collectors
Regulators have been critical for years of the debt buying and debt collection industry, the source of tens of thousands of consumer complaints annually. A report by the Federal Trade Commission in 2010 described the debt collection system as broken, “because consumers are not adequately protected in either debt collection litigation or arbitration.” In 2013, an FDIC study said debt collectors often erred because they were armed with skimpy information, resulting in 1 million consumers a year protesting they were being contacted for debts they didn’t owe.

And in 2014, according to the CFPB, debt collectors generated 39,420 complaints, more than any other consumer financial industry. Encore Capital (2,503 complaints) and Portfolio Recovery (1,154 complaints) were complained about more than any other debt collector.

See related:10 tips for dealing with debt collectors

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