A consumer debt buyer recently agreed to a $12 million settlement to resolve allegations by the Massachusetts Office of the Attorney General of a variety of allegedly unlawful debt buying and collection practices.
More specifically, the Massachusetts Attorney General reached an Assurance of Discontinuance (Assurance) with the consumer debt buying and collection company and its affiliates (Company). The Company denied all allegations made in the Assurance but agreed to pay a $4.5 million dollar fine, cease collections activity on another $7.5 million dollars in uncollected debts, and to comply with various restrictions on its business practices as to Massachusetts debtors.
A copy of the Assurance of Discontinuance is available at: Link to Assurance
Accounts Referred to Disbarred Law Firm
The Massachusetts Attorney General alleged that the Company purchased portfolios of "charged-off" debts from creditors that included credit card accounts and defaulted loans.
The Company referred the collection of many the debts to a law firm in Massachusetts (Law Firm). The Law Firm sued debtors on behalf of the Company, and also allegedly used the threat of litigation to induce debtors to pay debts allegedly owed to the Company. The Law Firm falsified internal records to make it appear that it filed suit when in many cases it did not. In 2011, the principal of the Law Firm was formally disbarred by the Massachusetts Supreme Judicial Court.
When the Company discovered the misconduct of the Law Firm, the Company recalled the debts they placed with the Law Firm and tried to detect and correct information falsified by the Law Firm. However, the Company could not detect the falsified or incorrect information and placed over 19,000 of these debts with a new law firm for continued collection.
According to the Massachusetts Attorney General, because many of these debtors were never actually sued by the Law Firm, the statute of limitations lapsed, and the Company and the new law firm were prohibited from collecting on the debts without providing the disclosures required by 940 C.M.R. 7.07(24) for such debts.
The Attorney General alleged that "the Company's new Law Firm proceeded to collect Debts on which the statute of limitations had run without including the language required by 940 C.M.R. 7.07(24)."
Initial Disclosures Required by State Law
In addition, the Massachusetts Debt Collection Regulation, 940 C.M.R 7.08(2) states in part that "it shall constitute an unfair or deceptive act or practice for a creditor to fail to provide to a debtor or an attorney for a debtor the following within five business days after the initial communication with a debtor in connection with the collection of a debt, unless the following information is contained in the initial communication or the debtor has paid the debt:
(a) The amount of the debt;
(b) The name of the creditor to whom the debt is owed;
(c) A statement that unless the debtor, within 30 days after receipt of the notice, disputes the validity of the debt, or any portion thereof, the debt will be assumed to be valid by the creditor; and
(d) A statement that if the debtor notifies the creditor in writing within 30 days after receipt of this notice that the debt, or any portion thereof is disputed, the creditor will obtain verification of the debt and provide the debtor, or an attorney for the debtor, additional materials described in 940 C.M.R 7.08(2)."
Under 940 C.M.R 7.08(2), if the debtor disputes the debt in writing, the person seeking to collect must provide:
"(a) All documents, including electronic records or images, which bear the signature of the debtor and which concern the debt being collected;
(b) A ledger, account card, account statement copy, or similar record, whether paper or electronic, which reflects the date and amount of payments, credits, balances, and charges concerning the debt, including but not limited to interest, fees, charges or expenses incidental to the principal obligation which the creditor is expressly authorized to collect by the agreement creating the debt or permitted to collect by law;
(c) The name and address of the original creditor, if different from the collecting creditor;
(d) A copy of any judgment against the debtor."
and all collection efforts must stop until the person seeking to collect "has made reasonable efforts to obtain the necessary information and provide this information to the debtor."
The Massachusetts Attorney General alleged that the Company did not provide the statement required under 940 C.M.R. 7.08.
Account Level Documentation
Moreover, the Company allegedly did not obtain certain account level documentation when it acquired many of the debts, including documentation provided to the debtor by the prior owners of the debts, complete transactional histories of the debts, and copies of any final judgments awarded to the seller.
The Company also allegedly entered into agreements to purchase debts that did not require the seller to provide this account level documentation, and that limited the seller's responsibility for the accuracy and validity of the debts.
Massachusetts Debt Collection Regulation 940 C.M.R. 7.04(l)(f) "prohibits a Debt Collector from initiating more than two telephone calls to a Debtor's residence, cellular telephone, or other personal telephone in a seven-day period." Outbound calls that do not reach a consumer, or where no message is left for the consumer, are included as "initiating" a communication with any debtor via telephone pursuant to 940 C.M.R. 7.04(f).
The Company did not include "outgoing calls where its collectors did not reach a consumer, or decided not to leave a message on an answering machine" within its call frequency limits. "As a result," the Attorney General alleged, "in certain circumstances, the Company exceeded the number of calls allowed by 940 C.M.R. 7.04(1 )(f) in a seven-day period."
Collecting on Exempt Income
"Under Massachusetts law, Exempt Income is categorically exempt from courtordered payment and includes, amongst others, Supplemental Security Income (SSI), Social
Security Disability Insurance (SSDI), unemployment assistance, and pension benefits."
The Attorney General alleged that the Company and its Law Firm collected or attempted to collect against Exempt Income of the debtor.
The Company denied these allegations but agreed to a $4.5 million fine to the Commonwealth of Massachusetts. The Company also agreed to a variety of restrictions as to Massachusetts debtors, and to not attempt to collect $7.5 million in charged off debts of Massachusetts debtors that the Company had previously purchased.
The Assurance also contains a provision that if the Company acquires an entity in the debt collection business in Massachusetts, then the acquired entity will have a ninety (90) transition period before it also must comply with the terms of the Assurance.
Ralph T. Wutscher
Maurice Wutscher LLP
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