Credit firm accused of ‘robo-signing’

Posted on 22. Nov, 2010 by Collections Recon in Collection News, Press Releases

Lawsuit says it made false claims about reviewing paperwork for loans

The St. Cloud office of a national debt collection business is accused in a lawsuit of being a “robo-signing” operation, generating a wave of documents to help win favorable financial judgments in court.

Midland Credit Management, the St. Cloud firm, is alleged to have employees who “sign several hundred affidavits a day” falsely claiming they’ve reviewed paperwork on loans that have gone into default.

The lawsuit, filed last week in federal court, alleges that Midland Credit and a law firm it works with are submitting a huge volume of debtcollection lawsuits to state courts, where the company can win monetary judgments, without adequately reviewing the documentation.

The suit was filed in Washington state and names four individual plaintiffs. It seeks class-action status and unspecified damages.

Midland Credit is owned by Encore Capital Group Inc., a publicly held debt collections firm based in San Diego. Midland Credit’s St. Cloud location employs about 125 who work in “debt collection, consumer relations and litigation support,” Encore said in a statement.

While declining to comment on the specifics of the case, Encore Capital said that its employees “are regularly trained and understand the need to carefully review any and all materials they sign.”

According to the lawsuit, the lead plaintiff, Eva Lauber, a Washington state resident, had a debt of $4,642, which eventually wound up in the hands of Midland Credit. While collection agencies are best known for calling or e-mailing borrowers to collect debts, a company affiliated with Midland Credit sued Lauber in Washington state.
“More and more debt collectors are going that route,” said Kirk Miller, an attorney for the plaintiffs.

The Midland employees in St. Cloud sign the affidavits, which say they have personal knowledge of the debt. But that’s untrue, Miller said in an interview. The signed affidavits are then sent to a law firm in Washington state without the supporting loan records, he said, where attorneys attach loan records — that may be fabricated — to the signed affidavits. Those sets of documents are then used to sue the borrowers in default.

The process used by Midland Credit “implicitly misrepresents that the attorney has had meaningful involvement in developing and evaluation of the case against the consumer-debtor,” the lawsuit says.

The Washington state lawsuit says that state courts reviewing high volumes of loan defaults will enter judgments “if it appears on the surface that documentation supporting the debt has been properly attached” to other court papers.

The plaintiffs had to fight the judgments in court — something they shouldn’t have had to do, Miller said. The lawsuit against Lauber was dropped after he was brought on to represent her, he said.

Encore Capital’s statement added: “This case, in essence, recycles older claims that have been previously disclosed in our public filings,” and goes on to say that Encore is “committed to transparency and dedicated to treating consumers with respect.”

Encore’s regulatory filings list a number of actions taken against the company, including a cease-and-desist order by a Maryland financial regulator in 2009. In that action, Encore was accused of improperly filing lawsuits to collect credit card accounts. Encore says the problem was resolved and that the businesses in question have resumed operations in Maryland.

Debt collection firms typically hold portfolios of loans-gone-bad, including consumer credit card debt, auto loans and other unpaid bills. Collection firms buy the bad debt from banks and other institutions, often for pennies on the dollar. They then try to collect at least a portion of the balance by pestering borrowers with phone calls, e-mails or legal action.

Encore had total revenue of $320 million in 2009, and earnings of $33 million. In the latest quarter its earnings totaled $12.3 million on revenue of $97.9 million.

John Welbes can be reached at 651-228-2175.

By John Welbes
jwelbes@pioneerpress.com

Tags: documents, encore, Midland Capital Management, robo-signing