Minnesota Attorney General Lori Swanson announced Monday that she is preparing to file a lawsuit against Midland Funding LLC, a subsidiary of publicly traded debt buyer Encore Capital Group (Nasdaq: ECPG).

In the release, Swanson mentioned a prior case in Ohio over some of the collection litigation practices she cited in her action.

Encore Capital Group today released a comprehensive statement (printed in full below) that addresses the prior case and the changes made in the company’s legal strategy in 2009.

Encore’s full statement:

In 2008, a lawsuit titled Brent v. Midland Credit Management, Inc. was filed in the United States District Court for the Northern District of Ohio. The complaint alleged that wholly-owned Encore subsidiaries Midland Credit Management and Midland Funding used flawed affidavits in connection with collection efforts.

In August 2009, the federal judge presiding over the Brent litigation issued a ruling in the matter. In it, the judge did not challenge the validity of the underlying debt or the consumer’s underlying financial obligation to repay it. The court did, however, identify what it considered to be areas for improvement in Midland’s affidavit process. During 2009, following that ruling, the company conducted a full review of its affidavit process and enhanced it, consistent with the court’s decision.

“Even as it existed at the time of the court’s ruling in 2009, our process accurately reflected the individual who incurred the debt, the amount owed, and our ownership of the account. The company has also invested millions of dollars in sophisticated technology and analytics to ensure that we pursue litigation only when we believe the consumer has the financial ability to repay the debt. Nevertheless, our company took the court’s concerns very seriously and we transformed our processes in this key area. As a result, we believe Encore Capital has been defining the industry’s best practices,” Brandon Black, Encore Capital’s Chief Executive Officer, said.

Despite the fact that the company made these improvements, the Ohio legal case lingered into 2011 as the company continued to challenge the underlying assertions. At the same time, mortgage companies began receiving increased public attention regarding their affidavit processes, and copycat lawsuits making similar affidavit allegations were filed against Encore and its subsidiaries. After carefully considering the time and resources required to address these matters, Encore decided it was in the best interest of the company and its shareholders to reach a conclusion of the affidavit-related claims on a nationwide basis.

In February of this year, the company agreed to settle the Brent litigation and several related actions. On February 14, 2011, Encore disclosed this development in its fourth quarter and full-year 2010 earnings release and discussed it in more detail on the earnings conference call later that day. This settlement, which remains subject to final court approval, does not establish any wrongdoing by Encore or its subsidiaries; however, as part of the settlement, Encore and its subsidiaries, Midland Credit Management and Midland Funding, committed to maintaining affidavit production practices that were significantly enhanced beyond those addressed in the court’s 2009 ruling.

Encore remains focused on developing best-in-class practices for all interactions with its consumers. As part of its demonstrated commitment to conduct business ethically and in ways that support consumers’ financial recovery, the company introduced an industry-first Consumer Bill of Rights on March 21, 2011. The Consumer Bill of Rights, which can be viewed at www.encorecapital.com, is a groundbreaking code of ethics detailing Encore’s commitment to working with consumers as they repay their financial obligations. An entire section of the Bill of Rights is dedicated to the fair and reasonable use of litigation when resolving outstanding obligations. Moreover, the Bill of Rights describes significant, additional benefits for the company’s consumers, including articles dedicated to resolving accounts quickly and honestly, establishing forgiveness and hardship guidelines, and outlining collection practices promoting settlement and preserving consumer dignity.

On March 28, 2011, the Minnesota Attorney General’s office issued a press release and filed documents in connection with the Brent litigation, echoing old claims made in the Brent matter and indicating the intent to file a lawsuit against Midland Credit Management and Midland Funding. The Attorney General’s office did not contact either Encore or Midland prior to issuing its press release. The company has since contacted the Attorney General’s office to discuss the allegations.

In response to the Attorney General’s announcement, Encore CEO Brandon Black said, “We want to be extremely clear that Encore Capital and its subsidiaries, Midland Credit Management and Midland Funding, fully addressed these issues in 2009. We are committed to working with our consumers to help them regain their financial footing, as evidenced by our recent enactment of the Consumer Bill of Rights that goes well beyond what is required by law. We look forward to having substantive discussions with the Attorney General’s office and establishing Encore as a model for doing business in the State of Minnesota.”

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