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Prepared Remarks of CFPB Director Richard Cordray on Call About Encore and Portfolio Recovery Associates Enforcement Action

Thank you all for joining us on this call. Today the Consumer Financial Protection Bureau is taking action against Encore Capital Group and Portfolio Recovery Associates, the two largest debt buyers in the country, for their illegal debt collection activities. Encore and PRA demanded payments and filed lawsuits on debts that they knew very little about, and they did so without reviewing the appropriate documentation to make sure they were collecting the right amount from the right consumer.

The Bureau is ordering Encore to refund consumers up to $42 million, stop its collection efforts on $125 million in debts, and pay a $10 million penalty. PRA must refund consumers about $19 million, cease collections on $3 million in debts, and pay an $8 million penalty. Even more important, the orders subject Encore and PRA to far-ranging injunctive relief. As I will describe more fully in a moment, the orders require the companies to overhaul their debt collection and litigation practices and to stop reselling debts to third parties. The terms of the orders will help reform and improve the tactics and approaches that have become all too common in the troubled debt collection market.

As debt buyers, Encore and PRA purchase delinquent or charged-off accounts for a fraction of the value of the debt. Although they pay only pennies on the dollar for the debt, they have the right to collect the full amount claimed by the original lender. Together, these two companies have purchased the rights to collect over $200 billion in defaulted consumer debts on credit cards, phone bills, and other accounts.

Our investigation found that Encore and PRA bought debts that they knew or should have known were inaccurate or could not legally be enforced. In some cases, the seller informed them that a portion of the debts they were buying may be faulty. In other cases, the companies should have known about that concern based on contractual disclaimers, past practices of debt sellers, or consumer disputes. The companies consciously bought debt that they knew was suspect because the seller expressly represented that documents were not available to validate some or all of the accounts.

Even though Encore and PRA knew that some of the debts they were buying could have substantial problems, they continued to purchase debts from companies without obtaining important documents and information, or checking to make sure that these debts were accurate and enforceable. For example, for more than three years Encore bought over 10,000 individual consumer accounts from one large credit card bank with overstated interest rates. Encore then continued to purchase and collect on more debt from this bank even after it became aware that the underlying records were materially inaccurate. Both companies also entered into contracts to buy debts that deliberately imposed significant limitations on their access to account-level documents that could have helped them verify the debts.

Encore and PRA also made misrepresentations to consumers and used other unlawful tactics to pressure them to pay. For example, PRA misrepresented that consumer accounts had been reviewed by an attorney, misstated that litigation was imminent when it was not, and misled some consumers into agreeing to receive auto-dialed calls to their cellphones. As for Encore, its subsidiary, Asset Acceptance, made an excessive number of calls to consumers and called outside the time periods permitted by the debt collection laws. Also, Encore has considered disputes received outside of 45 days “untimely” and has directed personnel responsible for handling these disputes not to investigate the disputes unless consumers could first provide proof that they did not owe the money. The companies also falsely represented that debts were legally enforceable when in fact those debts were too old to enforce.

Encore and PRA collected debt by suing large numbers of consumers in state courts across the country, knowing that they would win the vast majority of the lawsuits by default when consumers failed to defend themselves. For many of these lawsuits, the companies had no intention to prove the debt was valid if consumers contested it, and they made little or no effort to obtain the documents to back up their claims. PRA also obtained judgments against consumers in hundreds of cases that were filed past the applicable statute of limitations.

The companies also used misleading affidavits in their lawsuits against consumers. For example, in tens of thousands of sworn affidavits, Encore told consumers and courts that undisputed debt is assumed to be valid under federal debt collection laws. But those laws actually state that the failure to dispute a debt may not be considered an admission of liability in court. All of these unlawful practices helped the companies file hundreds of thousands of lawsuits without doing the research and due diligence that would be required to obtain a legitimate judgment against the consumers they were suing.

In addition to paying tens of millions of dollars in consumer redress and penalties as specified earlier, and stopping other collections altogether, Encore and PRA are subject to substantial injunctive relief under the terms of the orders. As these companies are the two largest debt buyers in the country, they now will be leading change in the marketplace as they must overhaul their debt collection practices and reform the ways they collect debts through lawsuits.

In the first place, the companies will be barred from collecting on debts they cannot substantiate. In all future collections, they must review original account-level documents verifying a debt before seeking to collect on it when there are certain specific reasons to believe the debt may be suspect. Those reasons include cases where a consumer has disputed the debt, cases where the seller did not pledge that the debt was valid and accurate, and cases where the debt was part of a portfolio known to include unsupportable or inaccurate information.

Encore and PRA must also take greater steps to ensure accuracy when they file lawsuits to collect debts. Under the terms of the orders, the companies cannot file suit unless they have specific documents and information showing that the debt is accurate and enforceable. Prior to filing a suit, the companies must provide consumers with information about the debt, such as the name of the creditor and the charge-off balance, and must offer access to original documents relating to the account.

Another change is that Encore and PRA cannot use affidavits to collect debts unless the statements contained in the affidavits specifically and accurately describe the signer’s own personal knowledge of the facts and the documents attached. Illegal robo-signing has long marred the debt collection market and has been a considerable source of consumer harm, which is why the Consumer Bureau is making determined efforts to root it out. There is likewise no justification for threatening consumers with lawsuits on debts for which the statute of limitations has expired, so the companies will be prohibited from suing or threatening to sue to collect on time-barred debt. Furthermore, they will not be able to make any other efforts to collect on such debt unless they first disclose to consumers that they cannot sue to collect it.

As many of you know, the Consumer Bureau is also working on new rules for the debt collection market. Our actions today are distinct from that rulemaking, but both are efforts to address certain common problems, such as data integrity, the substantiation of debts, and collection of time-barred debt. 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. Taken together, these cases paint a broader picture about how the Consumer Bureau is working to clean up the market from both ends. Regardless of whether you are a debt seller or a debt buyer, all players in the collections market need to do their part and invest the resources to ensure they are collecting the right amount from the right consumer.

More than 300 million consumers across the country count on the Consumer Financial Protection Bureau to ensure basic fairness in the marketplace. Our actions today against these two companies reinforce the importance of accountability in the debt buyer market that is so often rife with consumer abuse. Debt collection serves a crucial role in the proper functioning of consumer credit markets, but it matters enormously just how companies go about performing this task. Collectors must do much more than they have done in the past to ensure they are following the law to its fullest measure. Consumers have the right to expect that they will be told the truth and treated fairly. Indeed, every consumer deserves that. So we will continue to take action to protect consumers from illegal and obnoxious debt collection practices.

The Consumer Financial Protection Bureau is a 21st century agency that implements and enforces Federal consumer financial law and ensures that markets for consumer financial products are fair, transparent, and competitive. For more information, visit