New York City Debt Collection Defense Attorney

Attorneys General of 38 States object to Encore Settlement

U.S District Judge David Katz of the Northern District of Ohio is scheduled to review a hotly contested settlement plan in a case involving Midland Funding, a collection unit of debt buyer Encore Capital Group (“Encore”), in a fairness hearing on July 11. Under the terms of the settlement agreement, Encore would pay $5.7 million to settle a class action lawsuit brought against it for using false affidavits in its collection efforts.

However, the attorneys general of thirty-eight states, including New York, Ohio, California and Massachusetts, have interposed objections to the settlement. Among the AGs' concerns, according to a Reuters report, is that the settlement unfairly forces class members to release any claims against the company, allowing Encore and Midland to pursue their original claims against the plaintiffs. The AGs also say the settlement unfairly strips class members of their right to defend against existing lawsuits and to seek to vacate judgments obtained through defendants’ use of false and misleading affidavits.

The AGs' argument that Encore could use the settlement as precedent in state court actions pending throughout the US is a powerful one. A debt collector’s fraudulent affidavit of fact often renders all evidence submitted by the collector inadmissible, so if consumers are robbed of the right to raise the allegation of false and misleading affidavits, they would be denied a crucial tool.

In light of the short-comings set out by the AGs, it is unclear why plaintiffs' lawyers, Murray & Murray, have agreed to the settlement on behalf of their clients.

The AGs also have objected to $1.5 million in fees for plaintiffs’ counsel, which is part of the Encore Midland settlement, as well as a generous payment of $8,000 for each of the named plaintiffs in the case, plus a full release from their debts.

Judge Katz ruled earlier in the case that Encore and Midland employees used false and misleading affidavits to collect credit card debts. He also found evidence of what has become known as “robo-signing” – one Midland employee testified at a deposition that he signed 200 to 400 affidavits a day. Few, if any, of these were reviewed for accuracy.

In an interview, Minnesota AG Lori Swanson called the proposed Encore Midland settlement, in which plaintiffs would each get $10 for their trouble, “wholly deficient” and "paltry.” Worse, she added, the settlement could “throw a monkey wrench in enforcement of the debt collection industry.”

According to the Wall Street Journal, Encore last year collected $266.8 million from 425,000 lawsuits filed against borrowers, up 15% from $232.7 in 334,000 suits filed in 2009.

-Sheril Stanford