Attorney General Peter Kilmartin announced today that Rhode Island joined 41 states and the District of Columbia in reaching a $6 million settlement with Encore Capital Group Inc. and its subsidiaries Midland Credit Management, Inc. and Midland Funding, LLC, one of the nation's largest debt buyers.
Debt buying involves buying and selling overdue debts from creditors and other account owners. Often purchased for pennies on the dollar, debt buyers seek to recover the full balance from consumers through collection attempts by phone and mail. Debt buyers, including Midland, also take consumers to court to collect the debts they purchase. However, people are often unable to afford attorneys to defend the allegations and cases result in default judgments, hurting credit and putting people in jeopardy of having their wages garnished.
The settlement resolves the States' investigation into Midland's collection and litigation practices. Much like the conduct witnessed during the mortgage crisis, the agreement settles claims that Midland signed and filed affidavits in state courts in large volumes without verifying the information printed in them, a practice commonly called robo-signing.
"Midland and its subsidiaries employed predatory debt collection practices for years, leaving consumers to fight the measures in Court or paying more than they owed," said Attorney General Peter F. Kilmartin. "This settlement restores order to the Company's debt collection processes and provides monetary payments to impacted consumers."
The settlement requires Midland to reform its affidavit signing and litigation practices. Midland must carefully verify the information in affidavits and present accurate documents in court proceedings. When Midland files a lawsuit, it must have account documents about the debt before they file the case, including the amount of the debt, proof of an agreement, and an explanation about why any additional fees are justified.
The settlement offers protections to Midland's debtor-consumers even if these consumers are not being sued. All consumers must receive accurate information about valid debts. If a consumer disputes a debt that Midland is collecting, the settlement requires Midland to review original account documents before it continues its collection efforts. Midland must provide these substantiating documents to the consumer for no charge. The settlement requires Midland to maintain proper oversight and training over its employees and the law firms that it uses for debt collection. The agreement prohibits Midland from reselling debt for two years.
As part of the settlement, Midland will completely eliminate or reduce the judgment balances of 123 Rhode Island consumers for a value of approximately $205,000 in cases where Midland used an affidavit against them in court between 2003 and 2009. Midland will notify impacted consumers by mail of the balance reduction and that no further action is necessary from the consumer. In addition, Midland will set aside $25,000 per state to compensate consumers who may have paid Midland money that the consumer did not owe and will pay the State $72,308 for consumer protection education.