Encore, PRA Reach Settlement with the CFPB, Agree to Hefty Fines

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The CFPB announced today that it has taken action against two of the biggest debt buyers in the U.S., Encore Capital Group and Portfolio Recovery Associates (PRA). The Bureau cited both buyers for what it termed illegal debt collection activities, including purchasing debts they should have known were inaccurate and/or not legally enforceable and attempting to collect on that debt through unlawful means.

“Encore and Portfolio Recovery Associates threatened and deceived consumers to collect on debts they should have known were inaccurate or had other problems,” said CFPB Director Richard Cordray. “Now, the two biggest debt buyers in the market must refund millions and overhaul their practices. We will continue to take action to protect consumers from illegal and obnoxious debt collection practices.”

The Bureau ordered Encore to refund customers up to $42M, to stop efforts to collect on $125M in debts and to pay a $10M penalty. PRA is on the hook for $19M in refunds, must stop collections on $3M in debts and pay an $8M penalty.

In complying with terms of the settlement, both buyers will refund “tens of thousands” of consumers, per the CFPB estimates. The CFPB would not say what specifically triggered its investigation into the debt buyer giants, and would only say that the actions and settlements followed from an agency investigation into the buyers’ practices.

The CFPB action against the two buyers dovetails with forthcoming agency rules on debt collection and industry participants looking for trends in regulation and enforcement action should take a hard look at these actions, Cordray noted.

Both the actions and the new rules “are efforts to address certain common problems, such as data integrity, the substantiation of debts, and collection of time-barred debt,” Cordray said. “Industry members who sell, buy, and collect debt would be well served by carefully reviewing the terms of these orders, as well as our recent resolution with JP Morgan Chase.”

According to CFPB charges:

  1. Both Encore and PRA bought debts they should have known were inaccurate or could not be legally enforced. In some cases, the debt sellers let the buyers know they were getting potentially faulty debt. In other cases, the “past practices of debt sellers or consumer disputes” should have tipped off the buyers that they were buying inaccurate or unenforceable debt.
  2. Both Encore and PRA continued to buy debt from sellers without checking to make sure the debts were accurate and enforceable. The agency specifically notes that the companies entered into contracts to buy debts that “deliberately imposed significant limitations on their access to account-level documents” – documents that could have helped them verify those debts in question.
  3. Both firms used misrepresentation and other unlawful tactics to pressure consumers to pay. The CFPB alleges, for example, that PRA told consumers that accounts had been reviewed by an attorney and that litigation was imminent when it was not. The CFPB accuses Encore, through its subsidiary, Asset Acceptance, of placing excessive numbers of phone call s to consumers outside the time periods permitted by debt collection laws. Both firms, per the CFPB, allegedly claimed to consumers that their debts were legally enforceable when, in fact, they were not and in using robo-signed, inaccurate court filings to propagate lawsuits.

Both buyers expressed relief that the CFPB action has been finalized and, at the same time, took issue with the Bureau’s characterization of their business practices.

Steve Fredrickson, chairman and chief executive officer of PRA Group, Inc., said, “It was time to end this drawn-out process and eliminate the threat of litigation so we can focus with renewed vigor on serving our customers and growing our business. Given the circumstances, we went the extra mile to achieve closure, despite our objection to the CFPB’s characterization of PRA’s business practices.”

“We remain confident that our business practices serve as a model for the industry, frequently going above and beyond applicable legal requirements,” he added. “Moreover, we are proud of our practices and leadership in the industry, and we are glad to have reached an agreement with the CFPB.”

Encore issued a stronger statement, insisting that it acted “in accordance with all relevant laws.”

“After rigorously and thoroughly scrutinizing seemingly countless aspects of our business for more than a year, the CFPB ultimately identified only two key issues warranting consumer refunds,” Encore’s President Kenneth Vecchione said. “While we disagree with the CFPB’s positions on these two issues, we chose to agree to a settlement so we can move forward. We also believe the CFPB is imposing yet-to-be-adopted rules to past practices. This outcome is not about current law or rules already on the books, but instead about the CFPB subjecting companies to its own interpretations that have never been codified or adopted.”

The whole industry will soon have to live by these standards and it was to Encore’s advantage to have to comply early, Vecchione insists.

“This outcome does not change the way we think about our long-term growth prospects,” he said. “If anything, it strengthens our competitive position in the marketplace because we believe this settlement, which we are largely compliant with, will become de facto standards for the entire sector.”

insideARM Perspective

The fact that this action was a possibility did not come as a surprise.  insideARM reported on the CFPB investigations in our August 11, 2015 stories on both PRA Group’s and Encore’s second quarter results. Both had mentioned the CFPB investigations in their 10Q filings.

What was a surprise were the dollar amounts of the fines and refunds to consumers. Encore had mentioned exposure “in excess of $35 million”, but PRA Group had not provided any such guidance.

In our view the most significant takeaway for the ARM industry from this story is Director Cordray’s comment in the announcement:  “Industry members who sell, buy, and collect debt would be well served by carefully reviewing the terms of these orders, as well as our recent resolution with JP Morgan Chase.”

The Encore consent order can be found here.

The Portfolio Recovery Associates consent order can be found here

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Posted in Accounts Receivable Management, CFPB, Collection Laws and Regulations, Debt Buying, Debt Collection, Debt Recovery, Featured Post .

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  • avatar nascar says:

    “Encore issued a stronger statement, insisting that it acted ‘in accordance with all relevant laws.’”

    In other words, from Encore’s perspective, laws which protect consumers from unscrupulous debt collection practices are irrelevant.

  • avatar bill-jones says:

    insideARM has always took the stance that it is only a few bad apples that give the industry a black eye. Well, this is another example that most of the orchard is rotten, not a big surprise. This is on top of Encores previous issues with several state AG’s and Portfolio’s other legal issues the past year.

    I love the quote …”we chose to agree to a settlement so we can move forward.” Yeah right! You can’t spin a $10 million fine, $42 million in paybacks, and leaving $125 million on the table for current accounts as a move forward settlement. Also, from the quotes, I do hope Encore’s arrogance and self assessment of no wrong doing is not a PR mouthpiece but still their culture. I have my eye on another vacation home and would like to pay cash. Keep on violating Encore and Portfolio, Daddy needs a new house !!!!!

  • avatar todd bean says:

    “We remain confident that our business practices serve as a model for the industry.”

    100% true, and why you are paying out millions in fines, refunds, and having to abandon collection efforts on millions of dollars in accounts.

  • avatar BHA LLC says:

    i see no smoking gun. as usual they run roughshod over existing law and norms and make mundane practices seem illegal.

    fdcpa requires you send a notice stating if you don’t dispute the bill in writing within 30 days of this notice we ill assume the debt is valid.

    all contract i have ever seen state docs may not be available and we don’t guarantee the accuracy of the data…
    all debt buyers wish this wasn’t eh case ..they would prefer all the docs came with the account and could be easily review able. this is an issuer problem. should not be held against the buyer.
    and finally. most people want to pay their bills, and did so when they got contacted.
    how many people disputed the bill, paid anyway?

  • avatar BHA LLC says:

    you buy an account…you expect they sent you the right info.
    if the debtor states that’s not the case…you order docs…and put collection activity on hold..if they come you continue collection efforts . if they don’t come you close the account and update the cb to disputed by consumer..creditor disagrees

    if you send a letter stating you owe 1300 according to our records..if you dispute that notify us in writing…(fdcpa rule) if they send in the money…they accept the bill as owed.

    they gave leeway of 45 days? whats wrong with that?
    they signed contracts drawn up by the creditors? whats wrong with that?
    ahhhh they thought they were obnoxious!!! i get it
    if you stop paying your bills, and someone calls you and demands payment in a firm assertive manner….guided by the fdcpa and over 40 years of law.
    that can be overruled by a newly creative entity that reinterprets things a completely new way , the other parties are “obnoxious”. i find the comments by the cfpb and the previous poster to be more obnoxious

  • avatar todd bean says:

    “you buy an account…you expect they sent you the right info.”

    And that’s why you get to pay out millions to consumer attorneys, because you assume, instead of knowing the law.

    “Held that a law firm that pursued a time-barred debt collection action violated the Fair Debt Collection Practices Act (FDCPA), even though the firm relied on its client’s initial representation that the action was not time-barred.” McCollough v. Johnson, Rodenburg & Lauinger, LLC, 2011 WL 746892 (9th Cir. 2011).

    “if they send in the money…they accept the bill as owed.”

    Wrong again, you never give up your right to dispute the bill, and the validity of the underlying debt is irrelevant as it relates to the manner of collecting the debt.

    I can pay the bill and turn around and sue you for violating the FDCPA and use the amount I just paid you as actual damages.

    Disagreeing with the law and thinking it’s not fair and too hard to comply with the law does not give you a pass when you get caught breaking a strict liability statute.

  • avatar Newb Collector says:

    I think the point, Todd, is that you can’t have a fair and just law when the rules are changing in the middle of the game.

    It’s like the CFPB said in the Hanna case, Time does not run against the King (which I find the use of the word King to be an interesting choice,) apparently neither does a fair and just game, since the “King” wants to keep changing the rules.

  • avatar Raymond says:

    This is not the end. Next will be FCRA violations. Next will be proofs of claim already filed and SOL issues on past inventories. Next will be State Attorney Generals. Next will be other debt buyers who may be in the same boat as Encore and PRA because changing practices going forward and not revisiting current and past practices including account receivable inventories means there is still a leak in the boat so I suggest investing in more life jackets may be a good idea. Any one remember the Sears debacle many years ago?

  • avatar bill-jones says:

    Yes BHA, I’m the clown. All I hear is crying from the ARM industry about “vague” or changing laws and unfair practices and I need a “new line”. Stuff it up your rear baby! Collectors destroyed it for themselves, not over zealous consumer rights attorneys or the fed/state goats. You guys are no different then Vinny the collector breaking legs. The financial industry as a whole is totally in the hole and you guys are below that. BTW, my credit reports are immaculate – but that is after I had to sue the crap out of three collection agencies for illegally poisoning my credit history because I had the same name and lived in the same town as the legitimate debtor. These “clowns” showed nothing but ignorance and no effort at all to verify. They just wanted to file their suits and get a summary judgment -quick and easy, who cares about spending 30 seconds making sure they have the right person – which a SSN check would have done. Yes, these “clowns” payed dearly and had no clue the dragon they woke up. My career is in engineering in which I have two masters degrees. I had enough money from these suits to go to law school and in my free time, I fight the ARM industry. This “part time” work has been very profitable for me and yes, I will say I need a new house -but in reality, most of it goes into getting the word out and going after these default judgment churning machines.

  • avatar bill-jones says:

    Newb Collector – if you honestly believe that laws are changing in the middle of the game, you need to hit the showers. This is like a degenerate gambler bitching that the game is rigged but still plays. You find the term “Time does not run against the King”, or at least the use of the word “king” an interesting choice? Um, this is an old term ( nullum tempus occurrit regi) that has been used for years and used many of times by fed/state govts to plead their case that they are exempt from operations. What I find interesting from reading all the ARM crying is that to go to battle, one most know their enemy. I see plenty of ads on this site offering “seminars” and white papers on compliance issues, but to be honest, you guys are missing the big picture and think you can get by from reading “Cliff Notes”. If a collector needs to attend a seminar that breaks down new rulings, regulations, etc, you’re already behind the eight ball. What is released is not “ground breaking” and if you need someone to digest and present it, you’re still at the starting line after the race is half over. It is very apparent why most lawyers hired by collection agencies graduated at the bottom of their classes

  • avatar BHA LLC says:

    I was probably a little too hard on you bill….instead i should have offered to sell you one of my 7 vacation homes that i paid cash for maybe even owner finance you one at a good rate just so you know we are not all bad guys.

    i think most of us just want clear concise , workable solutions.

    as an industry
    we’ve put the diclaimers on our letters…we’ve recorded all calls for review.
    we’ve tried to be compliant.
    these publicly traded companies have been proactive in helping to write the very rules that are being used against them.
    and believe me none of us small guys are crying over them they made 40mm last month…this aint gonna hurt them it’s not real money. its gonna hurt the small business who doesn’t have the funds to pay back every one who paid them

  • avatar BHA LLC says:

    I hate to be real boring.
    we don’t sue
    we mark our letters to as per fdcpa..we added the statue requirement

    we let them dispute at any time.

    if we cant get dosc we close the case. if we purchased it..forever..if its on contingency..we send it back to the client as a dispute

    for the record most disputes can be handled by treating the person like a human being, explaining what you can …and settling the account for less…IN MOST CASES

  • avatar BHA LLC says:

    we have found most people want to pay their bills, but have run into hardship. and disputes are a small , small portion of those that don’t pay.

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