Sherman, PRA Drop $16 Million Debt Collection in New York
Two of the largest U.S. consumer debt buyers agreed to drop collections on about $16 million in judgments to settle allegations they violated New York law in pursuing debtors, the state attorney general’s office said.
Portfolio Recovery Associates (PRAA) LLC, based in Norfolk, Virginia, and Sherman Financial Group LLC also agreed to pay a combined $475,000 in penalties, Attorney General Eric Schneiderman is preparing to announce today.
The firms, which buy mostly unpaid credit card debt from other creditors at discounted prices, violated New York law by trying to collect debt that was too old, the state said.
The attorney general said his office’s probe of the industry revealed that debt buyers had for years failed to ensure their claims were filed within appropriate time limits under New York law. The law requires that actions be brought either under New York’s six-year limit, or the limit in the state where the original creditor resides, whichever is shorter. Some states have time limits as long as 15 years while others have limits as short as three years, according to the website Bankrate.com.
The debt-collection business will face greater U.S. oversight as the Consumer Financial Protection Bureau is writing the first regulations under a federal law governing the industry and probes for violations. The 2010 Dodd-Frank Act that created the bureau also authorized it to write regulations under the Fair Debt Collection Practices Act of 1977.
“Debt collectors must follow the same rules the rest of us do when bringing lawsuits — in this case, suing for debts that were not enforceable in the first place,” Schneiderman said in a statement.
Faulty Judgments
Portfolio Recovery Associates and Sherman Financial, which has offices in New York and Charleston, South Carolina, are two of the most active debt collectors in the state, filing thousands of collections lawsuits each year, the state said. After a ruling by New York’s highest court in 2010 affirming that debt collectors must adhere to state-imposed time limits, the companies have appeared to follow the law for new collections cases while continuing to collect on more than 2,400 old, faulty judgments, according to the state.
Rick Goulart, a spokesman for Portfolio Recovery Associates, didn’t immediately return a call after regular business hours yesterday seeking comment on the agreement. A call to the New York office of Sherman Financial yesterday also wasn’t immediately returned.
The companies are dropping those cases as part of the agreement and will seek to have them vacated in the courts, according to the attorney general’s office. Schneiderman said the companies also agreed to improve communications with debtors and other reforms.
According to the agreements, the companies didn’t admit or deny the allegations. Portfolio Recovery Associates LLC is the collection subsidiary of Portfolio Recovery Associates Inc., also based in Norfolk, Virginia, according to the company’s website.
Source: bloomberg
