State Attorney General Sues Encore Capital; Debt Buyer Responds

West Virginia Attorney General Darrell McGraw announced Thursday that he has filed a lawsuit against Midland Funding and Midland Credit Management, subsidiaries of Encore Capital Group (Nasdaq: ECPG).

McGraw issued a press release indicating that the suit was “for using false affidavits when obtaining default judgments against West Virginia consumers and for failing to include information required by law when suing a consumer in magistrate or circuit court for an alleged debt,” echoing allegations made by a number of state attorneys general.

The announcement detailed some of the business practices of Encore, giving a rudimentary overview of how debt buying works and noting that “Midland will use false and unreliable mass-produced affidavits as supposed ‘proof’ of consumer debts in lawsuits against individual citizens.”

Encore, and its Midland subsidiaries, have been previously accused of using so-called robo-signing techniques to churn out debt validation affidavits for use in debt collection lawsuits.

The lawsuit, filed in the Circuit Court of Kanawha County (W.Va.) seeks a temporary injunction against Midland’s debt collection activities in the state until the matter is resolved, for all judgments Encore received in the state to be voided and the company repay any money consumers may have paid, and a $5,000 per-violation fine to be levied against the debt buyer.

San Diego-based Encore said late Thursday that the lawsuit was a surprise, and that it has reached out to McGraw’s office to initiate discussions in response.

“We are committed to working with our consumers honestly and with integrity to help them regain their financial footing,” said Encore CEO Brandon Black. “Our Consumer Bill of Rights goes well beyond what is required by law to ensure that we do so. We look forward to having continued discussions with the Attorney General’s office and establishing Encore as a model for doing business in West Virginia.”

Encore also noted that “the Midland defendants feel strongly that the allegations in the West Virginia suit inaccurately portray both Midland’s practices and the applicable legal standards,” and that the suit filed in West Virginia echoes old claims that were asserted and redressed in connection with litigation filed against the companies in 2008.

Indeed, the West Virginia suit attached as an exhibit a lawsuit filed by Minnesota Attorney General Lori Swanson that made similar allegations. In Encore’s response to the Minnesota suit, it noted that many of the practices at issue had already been addressed and amended, and a national lawsuit on the matter was settled in 2011 after a lengthy battle.