Minnesota Reaches Settlement with Midland Funding, Legal Actions Could Commence Elsewhere against Other Debt Purchasing Companies

There is increased scrutiny of the U.S. debt buying sector – with an example being last month’s settlement between Minnesota officials and a large debt collection firm.

Midland Funding will pay $500,000 to the state and reform how it handles the accounts of suspected delinquent borrowers, according to a statement from Minnesota Attorney General Lori Swanson.

It was claimed the company sometimes targeted the wrong consumers for payment of old bills that it purchased from credit card companies and banks for “pennies on the dollar,” Swanson said.

“In its rush to quickly collect old debts that it purchased for just a few pennies on the dollar, the company ignored legal requirements designed to protect the rights of an individual in court,” Swanson added.

Midland buys old, charged-off debt from banks and credit card companies such as, Bank of America, JP Morgan Chase, Citibank and Wells Fargo (News - Alert), as well as from phone companies like Verizon Wireless, Swanson added.

Often the debt totaled about three cents on the dollar, according to TMCnet.

At the heart of the state’s inquiry was that the company used “robo-signed” affidavits in actions against consumers. Debt buyers allegedly sometimes went after consumers because “they have the same or similar name or address as the real debtor,” according to a local newspaper report carried on TMCnet. “Unreliable mass-produced, robo-signed affidavits” were used “to obtain judgments against or extract payments from mostly unrepresented individuals, some of whom had no knowledge of any alleged debt.”

Company employees said they “signed up to 400 affidavits per day without reading them, verifying their accuracy, or knowing exactly what they contained,” the Attorney General’s statement said. In addition, a Notary Public signed affidavits “falsely attesting that he or she witnessed employees signing affidavits under oath,” the statement added.

Now, Midland employees have to confirm the contents of affidavits they file and affidavits need to be signed legally in the presence of a Notary Public.

The Minnesota lawsuit was the first governmental action in the United States against a debt buyer for filing “robo-signed” affidavits to support the debt buyer’s claims in individual lawsuits, Swanson said.

Now, Midland must also provide consumers: the name of the original creditor; the last four digits of the original account number; the current owner of the debt and an explanation that the debt was sold; the amount owed to the original creditor at the time of charge-off;  the amount owed to the current owner, including a breakdown of the charge off amount and any post-charge off fees, interest, and other charges; and for debt that is beyond the statute of limitations, a statement that Midland will not sue on the debt.

The consent judgment was approved by Hennepin County District Court Judge Denise Reilly.

Swanson said the issues her office investigated about Midland are likely found in other companies involved in debt-purchasing. "This is a real problem area," Swanson was quoted by the Minneapolis Star Tribune. “I hope others will take a look at this." The Federal Trade Commission and state officials in other locations may take similar actions elsewhere.

Midland Funding is owned by Encore Capital Group. The company claims it changed its affidavit procedures in 2009, news reports said.

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