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By Jonathan Stempel
NEW YORK May 8 Two large consumer debt-buying firms have agreed to stop pursuing $16 million of judgments against New York borrowers, and also agreed to pay fines, to resolve allegations that they repeatedly brought improper debt collection actions.
A unit of Portfolio Recovery Associates Inc will pay $300,000, while Sherman Financial Group LLC will pay $175,000 under separate settlements announced by New York Attorney General Eric Schneiderman on Thursday. The payments include civil penalties and costs.
Both firms specialize in buying defaulted debt, such as on credit cards, from lenders, and then try to collect in court. The debt often costs just a few cents on the dollar, in part because of uncertainty over whether sums owed will be repaid.
Schneiderman accused the firms of violating New York law by trying to collect debt that was too old from thousands of people, after statutes of limitations had run out. Neither firm admitted or denied the allegations.
Rick Goulart, a Portfolio Recovery Associates spokesman, said the company is committed to "strict compliance" with consumer protection laws. He said it changed some practices after a 2010 decision by New York's highest state court that involved the company and concerned statutes of limitations.
Tom Thurmond, division president of Sherman's Resurgent Capital Services LP unit, said the company is committed to working with all regulators in a manner that reflects its concern for consumer protection.
Schneiderman is among various federal and state regulators seeking to curb alleged debt collection abuses.
In 2013 the U.S. Consumer Financial Protection Bureau sought comments on how to better regulate the industry, and address consumer concerns such as intimidating collection tactics, misstating sums owed, and misleading people abut how repayments might affect credit scores.
Debt collectors are governed under the federal Fair Debt Collection Practices Act. The CFPB began supervising debt collectors last year.
According to Schneiderman, Portfolio Recovery Associates LLC and Sherman would obtain default judgments against New York consumers who did not respond to their lawsuits, even though deadlines to pursue recoveries had already passed.
He said Portfolio Recovery Associates had obtained more than 2,000 improper judgments since 2008, while Sherman had obtained more than 400 improper judgments.
The settlements require the firms to seek to throw out these judgments, stop pursuing the underlying claims, tell borrowers they won't sue once statutes of limitations have run out, and provide more information about the debt allegedly owed. (Reporting by Jonathan Stempel in New York; Editing by Nick Zieminski)