Earlier this month the Consumer Financial Protection Bureau (“CFPB”), the agency in charge of regulating consumer protection in the financial sector, ordered two of the largest debt collection agencies in the country to pay a combined penalty of $79 million for violating debtors’ rights under the Fair Debt Collection Practices Act (“FDCPA”). The two collection agencies Encore Capital Group (“Encore”) and Portfolio Recovery Associates, (“Portfolio”) must pay both refunds and penalties to its debtors and cease collection efforts on debts totaling $128 million.
When the CFPB first began investigating the collection agencies practices, it discovered that the agencies were collecting on debts that could not be validated. In many instances, the listed amounts of the debt or the interest sought to be charged was erroneous. The collection agencies provided false documentation to debtors upon request and filed lawsuits against debtors that refused to pay by using what is known as “robo-signed” court documents.
The CFPB ordered Encore to repay the $42 million owed to its debtors and an additional $10 million as a penalty while Portfolio must repay $19 million and an $8 million penalty. Both agencies are ordered to take all necessary steps to change their practices. In the course of its investigation, the CFPB discovered several illegal practices conducted by the collection agencies.
First, the two collection agencies attempted to collect debt from consumer that there they knew or should have known was inaccurate and unenforceable. The collection agencies inflated balances and interest rates and ignored previous payment histories when contacting debtors for payment. Debt sellers stated that when they sold the debt to the collection agencies they were notified that the amounts owed were approximate and out of date.
Second, the CFPB found that Encore and Portfolio filed numerous lawsuits against debtors without ever proving the validity of the debts. During the course of litigation, the collection agencies hired understaffed law firms to file suit and relied on robo-signed court filings and false documents as evidence. Furthermore, collectors sued and/or threatened to sue debtors with knowledge that the debt was beyond the statute of limitations. Then forced consumers to make payment on old debts, essentially bringing the debt back to life.
Third, the collection agencies failed to investigate consumer disputes. Upon receipt of dispute letters, collectors either completely ignored requests for validation of the debt or failed to forward necessary supporting documentation to the law firms that were conducting the investigation. Lastly, both collection agencies placed repeated and harassing calls to debtors for payment. Portfolio specifically notified debtors that they could only refuse to receive collection calls before 9:00 a.m. if they consented to receive collection calls on their cell phone.