New York City Debt Collection Defense Attorney

Controversial Encore Settlement Approved

Judge David Katz of the Northern District of Ohio last week approved a controversial class action settlement involving Midland Funding and Encore. The class action was brought in 2008 against collections company Encore Capital Group and its subsidiaries Midland Credit Management and Midland Funding, alleging that they used robo-signed affidavits to collect debts from approximately 1.44 million consumers.

The settlement requires Encore to pay $5.2 million, netting each class member about $17.38. The settlement provides for $1.5 million in attorney’s fees. In his 35-page opinion, Judge Katz said that the settlement “provides substantial injunctive relief,” by requiring Midland to implement policies to ensure that its affidavits are handled properly, while “significantly penalizing” Midland for its prior actions. Judge Katz also called the settlement “beneficial to the public interest.”

When the settlement was initially announced earlier this year, consumer advocates, including the FTC and the attorneys general of 38 states, universally disapproved. They were concerned that nothing in the settlement prevented the debt buyers from later pursuing a class member for an alleged debt, but the settlement may preclude the class member from claiming as a defense that an affidavit is fraudulent. The AGs and the FTC were also concerned by the high attorneys fees, the paltry amount awarded to class members, and the relatively high amount, $8,000, awarded to the named plaintiffs.

The settlement will not put much of a dent in Encore’s income. Through the end of 2010, Encore had invested $1.8 billion to buy 33 million collection accounts with a face value of $54.7 billion, meaning they paid three cents on the dollar.

--Sheril Stanford, J.D.