Encore Capital Group

Encore Capital Group
Public (NASDAQ: ECPG)
Industry Financial services,
Debt buyer
Debt-collection
Founded 1953
Headquarters San Diego, California, United States
Key people
 Kenneth A. Vecchione,
President & CEO
Products Specialty finance
Services Collections and recoveries
Revenue

Increase US$ 467.4 million (FY 2011)

[1]
Number of employees
 ~ 5,000 (YE 2014)[1]
Website Encorecapital.com

Encore Capital Group, Inc., and subsidiaries form the largest publicly traded debt buyer by revenue in the United States.[2][3]:235[4] They purchase "portfolios of defaulted consumer receivables from major banks, credit unions, and utility providers,"[5] and recover collectable debt from these accounts. Jake Halpern author of Bad Paper, described Encore Capital as a "behemoth" in the American debt-industry complex.[6] At the corporate level debt collection is highly profitable and Encore Capital enjoyed soaring revenues from $316 million in 2009 to $773 million in 2013.[6] The firm is a publicly traded NASDAQ Global Select company, a component stock of the Russell 2000, the S&P SmallCap 600, and the Wilshire 4500.

In September 2015, both Encore and Portfolio Recovery Associates, the United States two largest publicly held debt buyers were charged with violating the Fair Debt Collection Practices Act, the Dodd–Frank Wall Street Reform and Consumer Protection Act by filing "lawsuits against consumers without having the intent to prove many of the debts, winning the vast majority of the lawsuits by default when consumers failed to defend themselves."[4] U.S. federal regulators - Consumer Financial Protection Bureau imposed an enforcement action on Encore for pressuring borrowers "to pay with false statements, with lawsuits and with the use of using so-called robo-signed court documents."[7] According to the New York Times Encore must pay "$42 million in consumer refunds and a $10 million penalty" and an injunction to "stop collections on debts totaling more than $125 million."[7] In New York State Encore and other debt buyers were filing lawsuits against customers to collect debts in hundreds of court cases which included "generic testimony" or relied on robo-signed bogus affidavits compared to the robo-signing controversy in the 2010 United States foreclosure crisis. At the same time "preventing those same consumers from using the courts to challenge the companies’ tactics."[8] In response to the enforcement action imposed on Encore Capital Group by the CEO Kenneth A. Vecchione claimed that its debt collection practices were not improper and that the C.F.P.B. was "subjecting companies to its own interpretations that have never been codified or adopted."[7]

Their business model is highly lucrative as debt-collectors "buy huge swaths of soured bills from lenders for pennies on the dollar."[8] From 2007 to 2012 in New York State alone, Encore Capital and its subsidiaries filed more than 239,000 lawsuits and in 2013 alone collected $564.7 million in legal collections.[8]

History

Encore Capital Group’s wholly owned operating subsidiary, Midland Credit Management, Inc., was founded in 1953 and was incorporated in Kansas in September 1953. In 1998, an investor group led by Nelson Peltz and Peter May (members of Triarc Companies, Inc. management) and Kerry Packer of Consolidated Press International Holdings Limited, acquired a majority interest in its operations. In 1999, the group formed a holding company, MCM Capital Group, Inc., later renamed Encore Capital Group, Inc. in April 2002. The company was incorporated in Delaware in April 1999 as MCM Capital Group, Inc. and changed its name to Encore Capital Group, Inc. in April 2002. The company completed its initial public offering of 2,250,000 shares of common stock in July 1999.[9] In June, 2013, Encore acquired Asset Acceptance Corporation ( NASDAQ: AACC), another large publicly held debt buyer based in Warren, Michigan. This increased the size of Encore Capital.[10] In 2013, Encore began a series of acquisitions of international debt buying companies. These include Cabot Credit Management in the U.K. and Ireland, Refinancia S.A. in Columbia and Peru, Mexico with other Latin America locations, and Baycorp Holdings in Australia.

Business

According to their 2012 SEC filing, Encore "purchases portfolios of defaulted consumer receivables at deep discounts to face value and uses a variety of channels to maximize collections from these portfolios. In addition, the firm provides bankruptcy support services to some companies in the financial services industry; through their wholly owned subsidiary, Ascension Capital Group, Inc. ("Ascension")."[11]

In 2009 Encore Capital filed 448,000 lawsuits.[3]:235[12]:39

Locations

Encore Capital Group is based in San Diego, California, with additional sites in Arizona, Minnesota, Texas, Michigan, India, and Costa Rica In addition, the international subsidiaries operate in their own countries. It employs about 3,400 people (as of December, 2015 across these locations, and also has a large third-party network of collection agents and litigators in the United States.

Leadership team

Kenneth A. Vecchione is Encore Capital Group's President and Chief Executive Officer.

Financials

In 2010, the firm paid $362 million, to purchase $10.9 billion in face value of debt. In 2011, it paid $386.9 million to purchase $11.7 billion in face value of debt,[1] Of this $386.9 million, $346.3 million was credit card portfolios, $1.6 million consumer bankruptcy accounts, and $38.9 million telecom accounts.

The Company's revenue increased 22.5% in 2011 to $467.4 million.[1] Gross collections increased to $761.2 million in 2011, a 26% increase from 2010. Collection sites accounted for $336.0 million, while legal collections accounted for $377.5 million. External collection agency forwarding accounted for $47.7 million in gross collections.

Encore's 2015 SEC filings report revenues of $1,2 billion dollars for calendar year ending in December 31, 2015, and $1.1 billion for 2014.

Litigation Practices

The Consumer Financial Protection Bureau, an official site of the United States government, reported on September 2, 2015 that the nation's two largest debt buyers, Encore and Portfolio Recovery Associates, violated the Fair Debt Collection Practices Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act by filing "lawsuits against consumers without having the intent to prove many of the debts, winning the vast majority of the lawsuits by default when consumers failed to defend themselves."[4]

Already by 2010 the Wall Street Journal was investigating litigation practices as a business plan for large publicly-traded debt buyers like Encore.[2] Journalist Jessica Silver-Greenberg reported that the modern debt-buying industry was created in response to the savings-and-loan crisis.[2]

"Lawmakers established the Resolution Trust Corp. to shutter failed thrifts and auction other assets to buyers. By the mid-1990s, the RTC sold more than $450 billion in these assets. Over time, some buyers of such assets shifted to a new source of profit: charged-off credit-card debt and other consumer debt.
— Wall Street Journal 2010

In 2009 alone Encore Capital filed 448,000 lawsuits[3]:235[12]:39— the most filed by any company in the United States that year.[2]

"Encore posted $33 million in profit last year, up 139% from 2008. While the Standard and Poor's 500-stock index rose 23.5% in 2009, Encore's stock soared 142%. Between 2007 and 2008, the company scooped up $20 billion in charged-off loans for $695.9 million. In order to wring more cash from debt, Encore increasingly has turned to the courts. Lawsuits are filed by a network of outside law firms. Last year, Encore paid $112.6 million for legal collection, which brought in $233 million. Once Encore sues, it is virtually assured a win, says Mr. Black, the company's CEO. Roughly 94% of collection cases filed against borrowers result in default judgments in favor of the debt buyer, according to industry estimates. The majority of borrowers don't have a lawyer, some don't know they are even being sued, and others don't appear in court, say judges."
— Wall Street Journal 2010

January 2015

New York State Attorney General Eric Schneiderman sued Encore (Midland’s parent company) over shoddy practices and forced Encore to pay a $675,000 penalty and vacate more than 4,500 court judgments against borrowers.[8] Mr. Schneiderman added,

"New York has laws in place to ensure no one can prey on consumers, and debt collectors are required to follow those rules...[T]oday’s settlement ensures that thousands of New Yorkers will see millions in relief from debts that were not enforceable in the first place."
— New York State Attorney General Eric Schneiderman January 2015

Robo signing lawsuits

According to a New York Times article, In September 2015, U.S. federal regulators - Consumer Financial Protection Bureau - ordered the two big debt-collecting agencies, Encore Capital Group and Portfolio Recovery Associates, to "pay a combined $79 million in refunds and penalties, to stop collections on debts totaling $128 million and to change their debt collection practices."[7] Robo-signing refers to the use of false and misleading affidavits signed by debt-collecting agency staff claiming personal knowledge of an alleged debt that are then used in court. On August 11, 2009 the Northern District of Ohio court issued a landmark ruling that robo-signing affidavits in debt-collection violates the Fair Debt Collection Practices Act (FDCPA). In the 2009 case the debt-collector employees had "been signing between 200 and 400 computer-generated affidavits per day for use in debt-collection actions, without personal knowledge of the accounts."[13]

"The bureau said the companies bought the rights to collect debts that were potentially inaccurate, lacked documentation or were legally unenforceable, and tried to collect the money without verifying the debt. The bureau said the companies pressured borrowers to pay with false statements, with lawsuits and with the use of so-called robo-signed court documents."
— New York Times, September 9, 2015

Context

Illegal robo-signing tactics used by debt-collectors were first uncovered through a 2008 affidavit signed by Midland Credit Management debt-collection agency employee "claimed personal knowledge that Andrea Brent owed a debt of over $4,000 to Midland Funding." This affidavit was used to file a debt-collection against Brent. Brent brought a class-action counterclaim against Midland "alleging violations of the Fair Debt Collection Practices Act (FDCPA) and state common law because the attached affidavit was signed "without personal knowledge of the facts asserted."[13] By June 2008 the case was removed to the Northern District of Ohio. On August 11, 2009, Northern District of Ohio issued a "self-described 'landmark ruling,' holding that 'robo-signing' affidavits in debt-collection actions violates the FDCPA." "The court found the affidavit to be false and misleading under the FDCPA due to the false attestation of personal knowledge. As it turns out, Midland employees had been signing between 200 and 400 computer-generated affidavits per day for use in debt-collection actions, without personal knowledge of the accounts."[13]

The 2013 case Vassalle v. Midland Funding LLC, 11-3814, U.S. Court of Appeals for the Sixth Circuit (Cincinnati) was held to determine if Encore Capital Group used illegal collection tactics to collect funds from 1.44 million consumers.[13][14] The suit alleged that Encore's Midland Funding unit's used affidavits approved by staff without personal knowledge of their validity, a process commonly known as "Robo-Signing."[15] A negotiated settlement of $5.2 million was objected to by the FTC,[16] American Association of Retired Persons (AARP), the National Consumer Law Center and 38 U.S. state attorneys general. In February 2013 the settlement was overturned by the 6th circuit court of appeals, who described the final payout of $17.38 per litigant as "perfunctory at best." The court also objected to the negotiated one year injunction on the grounds that the firm's subsidiaries would then be "free to resume its predatory practices."[17] The ruling reversed the decision of Judge David A. Katz of Toledo and returned the case to him for further proceedings.[18]

On 4/16/14 the Attorneys General of 32 states objected to the revised proposed class settlement, stating that it was "a thinly veiled attempt to revive the original settlement" and that it "provides no meaningful value to unnamed class members, and, in fact, it leaves them in a significantly worse position."[13]

Consumer "Bill of Rights"

Encore Capital has promulgated a "Consumer Bill of Rights",[19] that codifies the company's commitment to ethical and respectful business practices. In February, 2016, Encore became the first debt buyer to announce a detailed Bill of Rights for consumers on its webpage. Among the new changes, Encore stated that it will, in certain cases, grant hardship provision to consumers who have suffered a job loss , or a facing large medical bills. The website also announced more protections for Servicemembers.

Subsidiaries

According to the New York Times, in 2015 a subsidiary of Midland Funding — which was not licensed to collect debt in Maryland — a subunit of the Encore Capital Group, sued hundreds of Baltimore residents.[21] "Some of them said they did not even owe any money, or their debt had long expired and was not legally collectible, according to a review of court records."[21]

References

  1. 1 2 3 4 "ENCORE CAPITAL GROUP, INC. - Form 10-K - February 9, 2012" (PDF). secdatabase.com. Retrieved 2012-05-15.
  2. 1 2 3 4 Silver-Greenberg, Jessica (28 November 2010). "Boom in Debt Buying Fuels Another Boom—in Lawsuits". Wall Street Journal. Retrieved 23 December 2015.
  3. 1 2 3 Halpern, Jack (14 October 2014). Bad Paper: Chasing Debt from Wall Street to the Underworld. Farrar, Straus and Giroux. p. 256. ISBN 0374108234.
  4. 1 2 3 CFPB Takes Action Against the Two Largest Debt Buyers for Using Deceptive Tactics to Collect Bad Debts: Encore and Portfolio Recovery Associates Must Refund Millions of Dollars and Overhaul Debt Collection and Litigation Practices, 9 September 2015, retrieved 23 December 2015
  5. ↑ "Nature of Our Business". Encore Capital Group. U.S. Securities and Exchange Commission. 2012. Retrieved 23 December 2015.
  6. 1 2 Halpern, Jake (4 October 2014). "A Debt Collector’s Day". New York Times. Retrieved 23 December 2015.
  7. 1 2 3 4 Carnns, Ann (9 September 2015). "Debt Collectors to Pay $61 Million in Consumer Refunds and Amend Their Practices". New York Times. Retrieved 23 December 2015.
  8. 1 2 3 4 Greenberg, Jessica-Silver (8 January 2015). "Debt Buyer Faces Fine and Loss of Thousands of Court Judgments". New York Times. Retrieved 23 December 2015.
  9. ↑ "Investor FAQ - Investors - Encore Capital Group". Phx.corporate-ir.net. 2003-10-01. Retrieved 2015-12-04.
  10. ↑ [Encore Capital 10-K SEC filings Encore Capital 10-K SEC filings] Check |url= value (help). Missing or empty |title= (help)
  11. ↑ "Encore Capital Group". U.S. Securities and Exchange Commission. 2012. Retrieved 23 December 2015.
  12. 1 2 "Encore Capital Group 10-K form". U.S. Securities and Exchange Commission. 31 December 2009. Retrieved 23 December 2015.
  13. 1 2 3 4 5 Circuit Judge Moore; Circuit Judge Cole; Circuit Judge Rose (26 February 2013). "Vassalle 11 3961 11 4016 11 4019 11 3814 11 4021 v. Midland Funding LLC". United States Court of Appeals, Sixth Circuit. Retrieved 23 December 2015.
  14. ↑ "U.S. Court of Appeals for the Sixth Circuit" (PDF). Ballardspahr.com. Retrieved 2015-12-04.
  15. ↑ "Bloomberg Business". Businessweek.com. 2015-11-05. Retrieved 2015-12-03.
  16. ↑ "Martha Vassalle, et al. v. Midland Funding, LLC, et al. | Federal Trade Commission" (PDF). Ftc.gov. 2011-06-21. Retrieved 2015-12-03.
  17. ↑ Williams, Sean (2013-02-26). "Why Encore Capital Group Shares Slumped (ECPG)". Fool.com. Retrieved 2015-12-03.
  18. ↑ "Court Rejects Robosigning Settlement That Would Pay Borrowers $17.38 Each". Forbes.com. 2012-02-20. Retrieved 2015-12-03.
  19. ↑ "List of Public Companies Worldwide, Letter - Businessweek - Businessweek". Investing.businessweek.com. Retrieved 2015-12-04.
  20. ↑ "Encore Capital Group Closes Acquisition of Controlling Stake in Cabot Credit Management". Yahoo! - ABC News Network. Retrieved 3 October 2013.
  21. 1 2 Silver-Greenberg, Jessica; Corkery, Michael. "Sued Over Old Debt, and Blocked From Suing Back". New York Times. Retrieved 23 December 2015.
  22. ↑ "Encore Capital Group Acquires Bankruptcy Service Provider Ascension Capital Group, Ltd. for $22 million". Insidearm.com. 2006-09-12. Retrieved 2015-12-03.

External links

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