The two largest bad-debt buyers in the United States have settled charges with the Consumer Financial Protection Bureau over alleged illegal debt collection activities.
The settlement with Encore, which is based in San Diego, includes $42 million in consumer refunds and a $10 million fine. The company has also agreed to stop collecting on $125 million in debts.
Virginia-based PRA has agreed to pony up $19 million in refunds to consumers and an $8 million fine. It will also halt collection efforts on more than $3 million in debts.
“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 in a statement. “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 companies have also been ordered to overhaul their debt collection and litigation practices.
Debt buyers purchase delinquent or charged-off accounts for a mere fraction of the value of the debt, then try to collect the full amount of debt claimed by the original lender, the CFPB said. Combined, Encore and PRA have bought the rights to collect on more than $200 billion in defaulted consumer debts, including money owed on phone bills and credit cards.
“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,” Cordray explained.
Although Encore maintains that it followed relevant laws, it still agreed to a settlement.
“While we disagree with the CFPB’s positions … we chose to agree to a settlement so we can move forward,” Kenneth Vecchione, president and CEO of Encore, said in a statement. “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.”
PRA had a similar stance. Steve Fredrickson, chairman and CEO of PRA, 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.
The CFPB has been working to develop new regulatory rules for companies that buy, sell or collect on consumer debt.
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