Texas Attorney General Launches Action Against Encore Capital

Texas Attorney General Greg Abbott announced Friday afternoon that his office has filed a lawsuit against debt buyer Encore Capital Group and its Midland subsidiaries over some of its collection practices, including the alleged use of “robo-signed” or inaccurate affidavits to validate some consumer debt.

Abbott claims that an investigation by his office uncovered practices used by San Diego-based Encore (Nasdaq: ECPG) that ran afoul of Texas debt collection laws and the Texas Finance Code.

The enforcement action, filed Friday in Harris County (Texas) court, alleges that Encore used falsified or otherwise inaccurate affidavits to support debt collection claims made in court and made little other effort to validate debts in advance of filing the lawsuits. Abbott said that as a result of the documents, “some Texans unnecessarily suffered financial hardships, such as improperly decreased credit ratings, loss of job opportunities or the ability to refinance their home.”

Encore disagrees with the allegations.

In a statement released late Friday, Encore said that the Texas case “largely restates allegations raised in a 2008 lawsuit called Brent, which alleged that affidavits filed in debt collection lawsuits were defective because the person who signed the affidavits lacked personal knowledge. Contrary to the Texas Attorney General’s suggestion, the alleged defects in the affidavits never resulted in judgments against people who did not owe the debts.”

Encore has been embroiled in a legal battle over the affidavits it used to validate consumer debt in collection litigation. The Brent case is a class action suit brought by a consumer in 2008 that addresses the affidavit issue. A judge made a ruling in the case in 2009, prompting Encore to change many of its practices. But the case lingered into 2011 and other consumers filed “copycat” lawsuits. Encore decided to settle the case earlier this year, along with other related actions, on a nationwide basis. The settlement is still subject to final approval. Encore submitted a detailed statement in late March outlining their position on the matter.

But attorneys general of several states and the FTC disagree with the terms of the settlement, principally because they feel it does not award the plaintiffs enough in damages. The AGs are also questioning whether the settlement will preclude separate action from their offices.

Encore notes that “the judge in the Brent case ruled there was ‘… no evidence that the amount of the debt, the fact that it is unpaid, or other vital account information, is false.’ Indeed, the court also stated Midland ‘… could easily prepare a form affidavit that achieved the same goals without being misleading by reflecting the truth, plain and simple… they could base it on the accuracy of the records kept and the accuracy of the data.’”

The company said Friday that there may be some closure on the case very soon.

“The fairness hearing regarding the 2008 Brent lawsuit settlement is scheduled for Monday, July 11, 2011,” Encore said in its statement. “The company is certain of the validity regarding the underlying debts at issue. Encore believes that the judge, after examining all of the facts and evidence, will support the company’s position and formally approve the settlement.”

Encore also noted that it intends to continue to cooperate with the Texas Attorney General’s Office and seeks to resolve its lawsuit.