Yesterday, the Consumer Financial Protection Bureau (CFPB) filed a lawsuit against Encore Capital Group, Inc. and its subsidiaries—Midland Funding, LLC and Midland Credit Management, LLC—for allegedly violating terms of the 2015 consent order between the parties, specifically as it relates to collection litigation disclosures and time-barred debts. Read on for a summary of the claims made against the Encore defendants.


Account-Level Documentation Disclosure and Requests

The 2015 consent order required Encore and its subsidiaries, prior to filing collection litigation, to provide consumers with a disclosure that the companies would provide original account-level documentation at no cost to the consumer within 30 days of a request. The complaint alleges that the defendants failed to state that the documentation would be provided at no cost in 750,000 incidents since the effective date of the consent order, and failed to state that such documentation would be provided within 30 days upon request in 25,000 incidents.

The complaint also alleges that, after consumers requested the account-level documentation, the defendants failed to provide them in 250 incidents. 

Time-Barred Debt Issues

The 2015 consent order prohibited the defendants from filing collection litigation on accounts that were time-barred by the applicable statute of limitations. It also required that the defendants provide a specific time-barred debt disclosure if defendants were engaging in non-legal collection efforts on such accounts. The complaint alleges that the defendants failed to do both of these. Specifically, the complaint alleges that the defendants sued on 100 time-barred debt accounts since the 2015 consent order and failed to provide the time-barred debt disclosure in 425,000 letters. Of the latter, 845 consumers made payments totaling $125,000.

International Transaction Fees

The complaint also alleges that the defendants began using a foreign payment processor, which resulted in consumers' banks charging the consumers international transaction fees.

Encore's Response

Encore released a statement regarding the lawsuit, stating:

Our efforts in 2015 to implement the CFPB’s new requirements under the consent order were quite thorough and effective, but for a very small percentage of transactions our execution was not immediately perfect. We have long since refined our processes, making the necessary changes to improve our operations, and provided appropriate relief for impacted accounts over three years ago.


We are disappointed that the CFPB has chosen to file this lawsuit on outdated issues, but we will continue to engage with the CFPB and work to ensure that we maintain policies and practices that fully comply with all applicable legal requirements. We believe that there will be no material operational impact as a result of the suit.W e fully corrected the issues underlying the allegations in this lawsuit years ago and are unaware of any unresolved consumer impact.

insideARM Perspective

Some of these allegations need to be put in perspective. Let's keep in mind that earlier this year when the CFPB released its Supplemental Notice of Proposed Rulemaking for time-barred debts, the CFPB acknowledged that:

[D]etermining whether the statute of limitations for a particular debt has expired can, in certain cases, be a complex undertaking, and debt collectors may be uncertain about whether a particular statute of limitations has passed even after conducting a reasonable investigation.

It was one of the reasons why the CFPB proposed a "know or should know" standard regarding the determination of whether a debt is time-barred.

But, let's take a look at the numbers in some of the claims made in the lawsuit against Encore. The complaint alleges that Encore filed lawsuits on 100 time-barred debts since the 2015 order went into effect. That's 100 lawsuits in the 4-year span covered by the claims, which averages about 25 lawsuits per year. For perspective, the complaint mentions that Encore and its subsidiaries are the largest debt buyer in the United States. Even the FDCPA acknowledges that errors happen even if robust policies and procedures are in place, and debt collectors are relieved from liability in such instances. 25 incidents per year for the largest debt buyer would fall squarely into this category, especially considering the CFPB's own acknowledgment that calculating the time-barred status of a debt can be complex.

The same analysis goes toward the allegation that Encore failed to provide consumers with requested account-level documentation in 250 incidents. In a 4-year span, that averages to roughly 62 incidents per year. For the largest debt buyer in the United States that like receives an unimaginable amount of consumer requests each day, this also smells like bona fide error.

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We, of course, don't know the facts or the background of these allegations. But what we do know is the CFPB's own litigation tactics against debt collectors. A few years ago, the CFPB sued Weltman, Weinberg & Reis Co., L.P.A., where the CFPB dropped many of its claims on the day of trial. This was after many years of time-consuming and resource-consuming pre-litigation and litigation tactics that cost the debt collection law firm—which won the lawsuit, by the way—$1.2 million to defend. This doesn't even take into consideration the taxpayer dollars used to pursue the ultimately baseless claims.

We'll be watching closely to see what the CFPB does in the Encore lawsuit, especially on the two claims referenced above. The "throw the spaghetti on the wall" litigation tactic doesn't look good on anyone.

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