State Sues Debt Collector for “Robo-Signing”

The lawsuit reflects widespread concerns about "robo-signing"-the act of signing off on mass-produced, computer-generated documents without reading them or verifying their accuracy in order to streamline the debt collection process.

Minnesota Attorney General Lori Swanson on Monday filed a lawsuit against Midland Funding, LLC, for allegedly “robo-signing” affidavits. Midland says that its current practices are legally sound.

Midland and its administrative arm, Midland Credit Management, Inc., buy portfolios containing billions of dollars of charged-off consumer debt from credit card companies, banks, and telecommunications firms, among other creditors-including Bank of America, Wells Fargo, and Verizon Wireless. The companies have purchased $54.7 billion in consumer debt, according to a press release from Swanson's office.

Midland and its parent company Encore Capital Group, Inc., are based in San Diego, but many of the signed affidavits involved in the lawsuit were generated at Midland's St. Cloud business office.

Encore wrote in an e-mailed statement that the company takes the allegations “very seriously,” adding that the company modified its affidavit process in 2009 “and believes that its current practices are legally sound.The company looks forward to working with Attorney General Swanson to resolve this matter.”

In a press release issued on Tuesday afternoon, Encore said that it was not contacted by Swanson's office prior to the filing of the lawsuit, and Encore has since contacted the attorney general's office.

“We want to be extremely clear that Encore Capital and its subsidiaries, Midland Credit Management and Midland Funding, fully addressed these issues in 2009,” Encore CEO Brandon Black said in the news release. “We look forward to having substantive discussions with the Attorney General's office and establishing Encore as a model for doing business in the state of Minnesota.”

The company is accused of signing thousands of debt-collection documents without verifying their accuracy. The company is also under fire for filing false lawsuits based on those documents against consumers who didn't owe any money. In 2009, it filed 245,000 lawsuits against individuals across the country, and since 2008 it has filed more than 15,000 suits in Minnesota courts.

Midland is accused of “robo-signing” false and unreliable mass-produced affidavits that the company passes off as proof of consumer debt when filing lawsuits against consumers.

“Robo-signing” refers to the practice of signing off on computer-generated legal documents-without reading them or verifying their accuracy-in order to streamline the collection process. According to Swanson, numerous Midland employees admitted to signing up to 400 affidavits per day without being able to testify to their accuracy.

Swanson said that debt buyers, in an attempt to track down people who might owe money on old bills, often pursue the wrong people altogether or go after those who have already paid their debt. Some people are pursued simply because their name or address resembles that of the debtor.

The Midland case reflects a national concern regarding debt collection practices, particularly with mortgage lenders. Regulators in at least a handful of states, including Minnesota, are investigating allegations of mortgage lender wrongdoing. Some firms have been accused of letting individuals sign off on as many as 10,000 affidavits related to home foreclosures within a month.

Last fall, Swanson asked 15 of the country's largest mortgage lenders to voluntarily halt home foreclosures in the state until they demonstrate that they are adhering to the proper legal process.