Archive for 'debt buyer'

Debt Collection Default Judgment Legislation Introduced in Minnesota

Tuesday, January 22nd, 2013 at 6:57 pm  
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On January 14, legislation was introduced in Minnesota that would mandate that debt buyers who seek to obtain summary judgments against consumers in court provide the court with documentation about the debt. Introduced as H.F. 80 in the House of Representatives and S.F. 33 in the Senate, the bill would require debt buyers to provide the court with evidence of a contract between the consumer and the creditor; evidence establishing that the consumer owes the debt; evidence that the debt amount listed is accurate, and enumeration of fees, interest, and interest rates; evidence that the debt was included in a bill of sale from the previous owner to the debt buyer; proof that the consumer was properly notified of the lawsuit and didn’t respond; and proof that the consumer was properly notified of the default motion hearing.

The House version of the bill was referred to the House Judiciary, Finance and Policy Committee; the Senate version of the bill was referred to the Senate Judiciary Committee. If passed and signed into law, the legislation would take effect on August 1, 2013. You can obtain a copy of the actual bill here.

A Peek into the Business of Debt Buying

Monday, January 7th, 2013 at 6:56 pm  
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As we’ve often discussed, there are a three primary types of debt collectors. The first consists of debt collectors who are employees of original creditors (e.g., the hospital employee who calls about a medical bill); the second consists of third-party debt collectors (e.g., the company to which the hospital outsources collections); and the third consists of debt buyers (e.g., the company that buys the hospital’s debt for pennies on the dollar when its own collectors and third party collectors have been unsuccessful).

Seeking Alpha has an interesting analysis of one of the country’s largest debt buyers, Portfolio Recovery Associates (NASDAQ: PRAA). In fact, Portfolio Recovery Associates is the third-largest debt buyer, after Sherman Financial and Encore Capital, and before Asset Acceptance. The analysis looks at the trend of consumers paying down their debt, and concludes that there may be less debt for Portfolio Recovery to buy in the future. Yet it counterbalances that by saying consumers are likely to revert to old behaviors and that smaller or newer debt buyers “flame out,” leaving companies like Portfolio Recovery holding steady.

The article also pulls the curtain back on how Portfolio Recovery is diversifying, for example by expanding into the U.K. by purchasing a debt collection agency and by moving into bankruptcy collections. Ultimately, the author predicts that Portfolio Recovery will have revenue growth of nine percent and return on equity of 20 percent.

Court Rules that Debt Buying Class Action Can Proceed

Monday, March 12th, 2012 at 4:18 pm  
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In Grant-Hall v. Cavalry Portfolio Services (No. 11 C 1832), the U.S. District Court in Illinois, Eastern Division, has ruled that consumers have a right to sue debt buyers and their attorneys for violating Section 8b of the Illinois Collection Agency Act. Section 8b mandates that debt collectors must have documentation that proves they are entitled to pursue legal action against a consumer in order to sue a consumer in court. Typically, this means that, when filing a lawsuit against a consumer, the debt buyer must attach a copy of the documentation that specifically includes the date that the delinquent account was assigned and how much the debt collector paid for it.

In the ruling, the judge pointed out that Cavalry Portfolio Services did not include the proper documentation when filing suit against the consumer – even though Cavalry claimed it had the documentation. Although Cavalry used four other arguments for dismissing the case, the ruling found those without merit. Those arguments were that the documentation requirement violates the Commerce Clause, that Section 8b doesn’t give private parties the right to sue, that the plaintiffs’ complaint did not argue that there were actual damages incurred, and that Cavalry is not liable for the conduct of the law firms it uses.

The lawsuit also alleged that Cavalry Portfolio Services and the law firms it used violated the Illinois Consumer Fraud Act and the federal Fair Debt Collection Practices Act. The ruling found that the plaintiff’s complaint adequately pleads a deceptive practices claim, and that Cavalry’s claim that it cannot be held liable for the law firms’ actions was meritless because of the debt collector’s “active and direct” participation in the actions of the law firms.

Further, the plaintiffs’ suit alleges violations of the Fair Debt Collection Practices Act, namely the provisions that relate to the false representation of the legal status of a debt and using deceptive means to collect a debt. The ruling found precedent for the argument, saying, “Cavalry allegedly brought debt collection actions against Plaintiffs even though it lacked the documentation required by Section 8b of the ICAA, thus giving the ‘false impression’ that it had the ‘legal status’ necessary under Section 8b to file the suits.” The court also rejected the defendants’ argument that the FDCPA does not apply to law firms.

What does this mean for Illinois residents? If the debt collector who sues you doesn’t have the proper documentation, it means that you may have a cause of action under the Illinois Collection Agency Act and the Illinois Consumer Fraud Act.

There are several debt collection agencies and debt buyers that file a high volume of cases against Illinois consumers. In Cook County, for instance, 14 debt collection agencies stand out as filing numerous lawsuits for allegedly outstanding debts. They are:

Asset Acceptance
Cavalry Portfolio Services
Equable Ascent Financial
Global Acceptance
LHR
LVNV Funding
Midwest Receivable
Monterey Financial
National Credit Adjusters
Palisades Collections
Portfolio Recovery
Regional Acceptance
Security Credit
Stellar Recovery

In addition, it appears that Midland Funding likely files a high volume of lawsuits in Cook County.

On several occasions, we’ve talked about debt collectors’ strategy of filing numerous lawsuits against consumers. For some debt collectors, this has become a business model, in that they are using the taxpayer-funded court system as a collection method rather than collection tactics that would cost the companies money. Requiring debt collectors to attach documentation to the lawsuits filed, as Illinois does, is critical in protecting consumers’ rights. This is because, all too often, debt buyers go after the wrong people – those whose names, addresses, or phone numbers are similar to the person owing the debt. Sometimes, debt buyers file suit for debts that are past the statute of limitations, or against those who have already paid off a debt. Without the proper documentation, judgments can be granted to debt buyers against unsuspecting consumers, who find out after the fact that their wages are being garnished or their bank accounts are being emptied for a debt that isn’t theirs. The court’s decision in Grant-Hall v. Cavalry Portfolio Services is important in ensuring that consumers have an avenue of redress when they’re caught in the crossfire.

Encore Capital Group Investors Investigate Directors

Tuesday, February 28th, 2012 at 5:00 am  
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In early February, debt buyer Encore Capital Group (Nasdaq: ECPG) announced that its 2011 profit rose to $61 million – an increase of almost 25% over 2011. A few days later, The Shareholders Foundation issued a press release announcing that some members of Encore Capital Group’s board were being investigated by a law firm on behalf of Encore’s shareholders. The release said that the investigation revolves around potential breaches of fiduciary duties, namely allegations that the debt buyer engaged in business practices that violated the Fair Debt Collection Practices Act and state statutes. The release goes on to cite a number of actions taken against Encore Capital Group and its subsidiaries, Midland Credit Management and Midland Funding. Those include various class action lawsuits, an action by the Texas Attorney General, and the North Carolina Department of Justice.

Asset Acceptance Settles with FTC for $2.5 Million

Monday, January 30th, 2012 at 6:29 pm  
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Asset Acceptance has been a notorious debt buyer, with a track record of going after consumers for debts that have passed the statute of limitations. Now, the Federal Trade Commission has announced that Asset Acceptance has agreed to pay a $2.5 million civil penalty for their bad behavior.

The FTC alleged that Asset Acceptance had violated the Fair Debt Collection Practices Act, the Fair Credit Reporting Act, and that FTC Act. According to the press release issued by the FTC, the regulatory agency’s complaint charged the debt buyer with:

* Misrepresenting that consumers owed a debt when it could not substantiate its representations;
* Failing to disclose that debts are too old to be legally enforceable or that a partial payment would extend the time a debt could be legally enforceable;
* Providing information to credit reporting agencies, while knowing or having reasonable cause to believe that the information was inaccurate;
* Failing to notify consumers in writing that it provided negative information to a credit reporting agency;
* Failing to conduct a reasonable investigation when it received a notice of dispute from a credit reporting agency;
* Repeatedly calling third parties who do not owe a debt;
* Informing third parties about a debt;
* Using illegal debt-collection practices, including misrepresenting the character, amount, or legal status of a debt; providing inaccurate information to credit reporting agencies; and making false representations to collect a debt; and
* Failing to provide verification of the debt and continuing to attempt to collect a debt when it is disputed by the consumer.

As part of the settlement, Asset Acceptance agreed to a number of other conditions. According to the FTC press release:

The proposed settlement order resolving the agency’s charges also requires that when consumers dispute the accuracy of a debt, Asset Acceptance must investigate the dispute, ensuring that it has a reasonable basis for its claims the consumer owes the debt, before continuing its collection efforts. The proposed order also bars the company from placing debt on consumers’ credit reports without notifying them about the negative report.

Appeals Court Rules Against Arrow Financial Services

Monday, October 3rd, 2011 at 11:05 pm  
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The U.S. Court of Appeals for the Ninth Circuit ruled against Arrow Financial Services in the class action suit Gonzales v. Arrow Financial Services. The debt buyer purchased time-barred debts owed to health clubs, and then the debt collection agency sent 40,000 California consumers letters in an attempt to collect those debts. Because the debts were more than seven years old, the Fair Credit Reporting Act says that Arrow Financial Services could not report the debts to credit bureaus like TransUnion, Experian, and Equifax. Yet in the collection letters sent to consumers, Arrow Financial Services included the sentence, “Upon receipt of the settlement amount and clearance of funds, and if we are reporting the account, the appropriate credit bureaus will be notified that this account has been settled.” On the reverse side of the letter, it said, in part, “As required by law, you are hereby notified that a negative credit report reflecting on your credit records may be submitted to a credit reporting agency if you fail to fulfill the terms of your credit obligations.”

Gonzales sued Arrow Financial Services for violating the Fair Debt Collection Practices Act, and in 2007, a district court found in his favor. In a subsequent jury trial, the jury awarded Gonzales and other class members a combined total of $225,500. In its appeal, Arrow Financial Services argued that, because the letter contained the word “if” (“if we are reporting the account”), the consumer could not interpret the letter as saying the debt buyer would or could report the account. The appellate court disagreed, saying, “At the outset, we emphasize that a literally true statement can still be misleading.”

Why Debt Collection Agencies Should Stop Whining

Wednesday, May 11th, 2011 at 5:00 am  
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The debt collection industry rakes in big money, yet one hears persistent whining from its trade association. The whining includes a constant stream of complaints about the ways in which the Fair Debt Collection Practices Act and resulting caselaw makes it difficult for debt collectors to do their job. Seemingly, it’s just terribly inconvenient for them to refrain from harassing and abusing consumers. Another ubiquitous strain of whining relates to consumers (and fair debt attorneys) who sue debt collection agencies that violate the FDCPA. Consumers are painted as acting in bad faith, and fair debt attorneys are portrayed as simply evil. You see, it costs so much for debt collection agencies to mount a defense against FDCPA violations. Debt collection industry publications position debt collectors as the victims of pesky government regulations and frivolous lawsuits, both of which make it hard for the poor debt collection agencies to make a buck.

Juxtapose this whining against some publicly traded debt collection agencies’ reported earnings, and a different picture emerges. For example, debt buyer Portfolio Recovery Associates (NASDAQ: PRAA) recently released its first quarter earnings. The company collected a “record” $166.7 million during the first three months of 2011, resulting in a net income of $23.1 million. The company’s collections represented a 40% increase over Q1 in 2010, and its net income a 56% increase in Q1 in 2010. During the first quarter, Portfolio Recovery Associates bought $1.49 billion (yes, billion) worth of debt for the low, low price of $107.9 million. That’s a little less than 8 cents on the dollar. Mind-boggling. Even more so its “productivity” measure, i.e.,. “a record $241 per collector hour paid…as measured by cash collections per collector hour paid. “

It’s time for the debt collection industry to stop whining. They’re clearly laughing all the way to the bank.

Minnesota Attorney General Goes After Midland Credit Management

Tuesday, March 29th, 2011 at 4:04 pm  
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robosignOn Monday, Minnesota Attorney General Lori Swanson took the first step toward filing suit against Midland Credit Management when she asked a federal court to clarify that a pending class action settlement didn’t preclude the state from pursuing an enforcement action against Midland.

In a press release issued by her office, Attorney General Swanson charged that Midland defrauded Minnesotans and Minnesota courts by robo-signing affidavits, which where then filed in order to obtain judgments against consumers. She specifically went after Midland as a debt buyer, and noted that Midland Funding and Midland Credit Management have bought $54.7 billion in old debt, and have filed 245,000 lawsuits against consumers since 2009. In Minnesota, the company has filed over 15,000 lawsuits since 2008, and has obtained default judgments against consumers in 98 percent or more of the cases. Default judgments are typically awarded when the consumer doesn’t appear in court to defend himself or herself – either because he or she isn’t aware that there’s a pending lawsuit or because the consumer doesn’t understand that there is recourse available. The AG’s press release noted, “Some citizens sued by Midland state that they did not contest the lawsuit because they were not served with it, could not afford an attorney, or did not recognize the name of the debt buyer, since they had never done business with it.”

At issue in the Attorney General’s filing is “robo-signing,” which her office’s press release describes as “the practice of signing off on mass-produced, computer-generated legal documents without reading them or verifying the accuracy of the contents in order to speed up the collection process.” Debt collection agencies must provide courts with proof – in the form of affidavits – that the consumer named in the lawsuit actually owes the money According to the AG’s press release, “The affidavits, however, did not constitute “proof” of the debt because they were robo-signed by people who did not read them and/or who had absolutely no knowledge about the alleged debts to which they attested.”

The AG’s actions are yet another step in Minnesota’s journey to make debt buyers and debt collectors act in good faith and abide by the law. In its investigative reporting series, “Hounded,” the Minneapolis Star-Tribune did an outstanding job highlighting the ways in which debt collectors routinely flout the Fair Debt Collection Practices Act. U.S. Senator Al Franken (D-MN) introduced the End Debt Collector Abuse Act in the last Congress. Minnesota is sending a clear message to debt buyers and debt collection agencies that they need to clean up their act; let’s hope that other states are as dogged in their enforcement efforts as Attorney General Swanson.

Connecting the Dots Between Mortgage Foreclosure Abuses and Debt Collection Abuse

Wednesday, November 3rd, 2010 at 1:33 pm  
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creditcardsA New York Times article effectively makes the case that debt buyers’ practices have long mirrored the recent headline-grabbing abusive practices by banks that have been too quick to foreclose on homeowners. The article brings up an important point: why do banks who cut corners with paperwork cause an uproar, while debt buyers who have been cutting corners for years still scurry in the shadows?

The Times shines a light in those dark corners, revealing that an employee at Asset Acceptance said under oath that he had to sign hundreds of legal documents a day that attested to him having reviewed and verified the records of consumers who owed debts. Similarly, a woman who worked for Asta Funding said under oath that she had signed 2,000 affidavits per day declaring that she had validated consumer debts. The Times estimated that her work volume translated to about one affidavit every 13 seconds. Hardly enough time to look up a consumer’s name, much less validate a debt.

As we’ve said on many occasions, achieving success in the debt buying arena is simply a numbers game. Debt buyers purchase written-off debt for pennies on the dollar, and then try and collect from consumers. Sometimes they contact the right people, sometimes they harass the wrong people into paying, and other times they try and collect even when the statute of limitations has run out.

The Times illustrates this numbers game beautifully, citing JPMorgan Chase as an example. Chase was getting ready to sell 23,000 accounts for 13 cents on the dollar. The debt had a face value of $200 million, and Chase expected to get $26 million. Even if the debt buyer collected a quarter of the outstanding debt, he would be able to make close to 100% profit.

The article makes a larger point, which is that the veracity of the data Chase was planning to sell was questionable. Indeed, when an employee brought errors to the attention of her manager, she was urged to ignore them. When the employee went to Chase’s legal counsel, she was fired.

When inaccurate data gets into the hands of debt buyers, they seem to run with it. Debt buyers essentially swear to having verified the debt, when they most often rubber stamp whatever data is on the computer screen. Because debt with greater substantiation is more expensive than debt that just has the consumer’s name, address, and dollar amount, debt buyers really have to dig to validate the debt. And that’s not cost-effective. Instead, they often simply file lawsuits against consumers and obtain default judgments – even if they have the wrong information or the consumer doesn’t realize he or she is being sued.

Debt Collector Hudson & Keyse Files for Bankruptcy

Wednesday, September 22nd, 2010 at 5:26 pm  
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According to the News-Herald, debt buyer and collection agency Hudson & Keyse have filed for bankruptcy. The Ohio-based company owes creditors an estimated $63 million, but has less than $300,000 in assets. It shuttered its operations on September 1, laying off its final 40 employees.

It’s reported that the company purchased massive amounts of consumer debt in 2007, and typically got consumers to pay through refinancing their mortgages. When the real estate market tanked in 2008, Hudson & Keyse found that it couldn’t collect using that method. One can’t help but wonder if the company found itself on the receiving end of debt collection calls.