The Consumer Financial Protection Bureau (CFPB) announced yesterday that a Massachusetts-based debt collection firm agreed to pay at least $2.5 million to settle CFPB claims that it collected debts that it had purchased without verifying their accuracy and gave inaccurate information to consumer credit reporting firms.

The federal complaint and settlement agreement involves Collecto, Inc. d/b/a EOS CCA (EOS), a Massachusetts debt collection firm.  EOS is a debt collection company headquartered in Norwell, Massachusetts, that also has a debt-purchasing arm. The enforcement action and settlement agreement involves a specific purchase of a portfolio of more than three million cellphone accounts with a total face value of $2.3 billion. The accounts were purchased in 2012. Many of these debts were older accounts that had been previously sent to multiple collection agencies.

The proposed consent order, if and when approved by the court, would require EOS to overhaul its debt collection practices, refund at least $743,000 to consumers, and pay a $1.85 million civil money penalty.

“After buying a portfolio of debt, EOS soon learned of several red flags that raised doubts about the debt’s validity. Even so, EOS still proceeded to collect certain disputed and unverified debts,” said CFPB Director Richard Cordray. “It is unacceptable that consumers were harmed by these practices and that the company supplied inaccurate information to the credit reporting companies, so today we are taking action to stop it.”

Per the CFPB press release: “The CFPB’s investigation found that EOS learned of significant problems with the portfolio a few months after acquiring it. Among other things, the portfolio contained fraudulent, already paid, or already settled debts. Despite this, EOS continued to collect and report on the debts, including debts that consumers disputed, without verifying that those debts remained outstanding. In addition, EOS initially reported all the debts to the credit reporting companies as disputed even though it had no basis to believe that all the debts had in fact been disputed by consumers.“

The CFPB alleged that these practices violated the Fair Debt Collection Practices Act, the Fair Credit Reporting Act, and the Dodd-Frank Wall Street Reform and Consumer Protection Act.

The company issued the following statement:

“Collecto, Inc. d/b/a EOS CCA today announced it has entered into a settlement agreement with the Consumer Financial Protection Bureau (CFPB) that relates to certain collection and credit reporting activities specific to a single portfolio of telecommunications debt purchased in 2012.

Prior to the audit by the CFPB, EOS CCA had taken extensive steps to revamp its compliance management system. The Consent Order requirements outlined by the CFPB represent policies and procedures already implemented at the company.

EOS CCA cooperated fully with the CFPB during the course of its audit and has chosen to the settle matters to move forward and demonstrate its commitment to protecting and treating consumers fairly.

EOS CCA is pleased to resolve this matter and believes that its practices reflect the highest standards of integrity.”

The EOS complaint can be found here.

The proposed EOS consent order can be found here.

insideARM Perspective

EOS is one of the larger collection agencies in the United States.  One assumes that when the CFPB began their investigation/enforcement action all of the company’s collection practices were scrutinized. Yet, the complaint and settlement agreement involves only a single portfolio acquired in 2012 and collection practices associated only with that portfolio.  This is an important lesson for all ARM companies: You may be a very well-run company and maintain an excellent Compliance Management System, but one problem portfolio and decisions made on how to handle that portfolio can lead to a significant problem with the CFPB.

Finally, to those who believe that believe that the CFPB is signalling potential rulemaking through enforcement actions, take notice of the provision in the settlement agreement that prohibits EOS from re-selling any purchased debt for the next five (5) years.