Encore Capital Units Sued by West Virginia Over Practices

West Virginia sued two units of debt buyer Encore Capital Group Inc., claiming the firms used false affidavits in lawsuits and took part in fraudulent debt-collection practices.

State Attorney General Darrell McGraw said in a statement he sued Midland Funding LLC and sister company Midland Credit Management, both part of San Diego, California-based Encore Capital. The suit, filed today in state court in Charleston, alleges that the two firms robo-signed affidavits when obtaining default judgments against West Virginia consumers.

“Many consumers are frightened or unaware of their rights when they are sued and fail to respond to these groundless lawsuits, leaving them subject to judgments on debts that cannot be proved,” McGraw said in the statement.

Last month, the Consumer Financial Protection Bureau proposed a regulation that would let it examine the books of debt collectors such as Encore Capital as part of its program to supervise nonbank financial companies.

“Encore is confident in the integrity and accuracy of its collections processes and in the validity of the data supporting the underlying debts it owns,” the company said in a statement. “The Midland defendants feel strongly that the allegations in the West Virginia suit inaccurately portray both Midland’s practices and the applicable legal standards.”

Debt Buyers

McGraw said Midland is one of the oldest debt purchasers, having bought about $54.7 billion in old consumer debt in recent years. It pays about $3 for every $100 in debt it buys, he said. The National Consumer Law Center estimates that one out of 10 lawsuits filed by debt buyers is based on incorrect information, he said.

The state wants the court to force the companies to repay money they got from West Virginia consumers and $5,000 to the state for every violation of its consumer-protection law. It also wants to halt the companies from making collections in the state until the case is resolved.

Encore Capital in a Feb. 9 statement said its gross collections were $761.2 million last year, up 26 percent from 2010. Its net income for the year was $61 million on $467.4 million in revenue. Its market capitalization is $543 million.

The case is State of West Virginia v. Midland Funding LLC, 12C-4-33, Circuit Court of Kanawha County, West Virginia (Charleston).

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