CFPB files lawsuit against Encore Capital Group alleging debt collection violations

The current CFPB case follows an earlier 2015 settlement whose terms ECG allegedly violated


The consumer protection agency is citing Encore Capital Group and its subsidiaries for violations of fair debt collection practices and seeking damages and penalties, including remedies for consumers.

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The Consumer Financial Protection Bureau has filed a lawsuit against Encore Capital Group and its subsidiary companies, following up on previous action it took against Encore Capital Group and another debt buying business in September 2015.

The Sept. 8, 2020 complaint by the CFPB, filed in the Southern District of California, alleges that the San Diego-based Encore Capital Group and its subsidiaries (Midland Funding, Midland Credit Management and Asset Acceptance Capital Corp.) did not adhere to the terms of the earlier 2015 consent order with the CFPB. The businesses also went against the Fair Debt Collection Practices Act (FDCPA) and the Consumer Financial Protection Act (CFPA), the CFPB said.

Therefore, the CFPB is seeking “injunctions against them, as well as damages, redress to consumers, disgorgement of ill-gotten gains and civil money penalties.”

Encore Capital Group and its associate firms engaged in the following practices, according to the CFPB complaint:

  • Suing consumers without having proper documentation
  • Not providing consumers with required disclosures and documentation (even after they asked for the documentation)
  • Suing consumers for debts on which the statute of limitations had run out without making the necessary disclosures
  • Not notifying consumers about possible international-transaction fees that they could have avoided by choosing alternate payment methods

Responding to the CFPB lawsuit, Greg Call, Encore Capital Group’s general counsel, noted in a media release, “Our efforts in 2015 to implement the CFPB’s new requirements under the consent order were quite thorough and effective, but for a very small percentage of transactions our execution was not immediately perfect. We have long since refined our processes, making the necessary changes to improve our operations, and provided appropriate relief for impacted accounts over three years ago.”

The 2015 consent order called for Encore Capital Group and Portfolio Recovery Associates, another large debt buyer not named in the current CFPB lawsuit, to pay $79 million in refunds and penalties in a crackdown aimed at cleaning up the debt collection market.

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 at that time.

Under consent orders, Encore Capital Group and Portfolio Recovery Associates were to 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 would give relief to tens of thousands of consumers being hounded by collectors or collection lawsuits, the CFPB said. The companies were also to stop reselling debt they owned 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 the 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 2015 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.

In a news release, Cordray called the companies’ debt collection practices “illegal and obnoxious.” In additional prepared remarks, he made clear the CFPB 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 FDCPA.

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 required 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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