Midland executives have publicly stated that Midland sues on approximately 2 per cent of the consumer accounts it purchases.
How does Midland collect?
“Generally we pursue collection activities on only a fraction of the accounts we purchase, through one or more of our collection channels.”
Midland explains that it uses “proprietary analytics” (analytics are a “formula”) to select these chosen few from the great unwashed.
Midland routinely performs “account reviews” and/or credit reports at or around the time Midland purchases the account.
Obviously, credit scores, numbers of defaulted accounts, evidence of current accounts, payments for cars and mortgages are easily obtained from consumer credit reports.
Midland attempts to dedicate its resources to collect accounts by scrubbing out accounts that are highly unlikely to pay.
According to Midland :
“We strive to use our financial resources judiciously and efficiently by not deploying resources on accounts where the prospects of collection are remote. For example, for accounts where we believe that the consumer is currently unemployed, overburdened by debt, incarcerated, or deceased, no collection method of any sort is assigned.”
Before consumers get excited that Midland says it does not pursue consumers who Midland believes are “overburdened by debt”, I suspect Midland’s perception of “overburdened by debt” or “unable to pay” are dramatically different than the Florida consumers I have represented for over 20 years. Midland’s report to the SEC sheds some light on Midland’s criteria for discontinuing collection efforts because the consumer can’t pay :
“Consumers who we believe are financially incapable of making any payments, or are facing extenuating circumstances or hardships that would prevent them from making payments are excluded from our collection process.”
After scrubbing the uncollectable accounts, Midland usually commences a campaign of letter writing and calling that many Florida consumers are familiar with. Midland’s collection results increase dramatically if Midland can “engage” the consumer on the telephone :
During 2010, we called approximately 8.6 million unique consumers, of which 1.8 million, or 21%, made contact with us. Similarly, during the same time period, we mailed 8.7 million consumers, of which 3% engaged with us.
“The majority of consumers we contact ignore our calls and our letters and we must then make the decision about whether to pursue collections through legal means.”
Collection agencies really, really want to talk to consumers. Why? Collection agencies would have consumers believe it is so they can “help” the consumer “resolve” (i.e., pay) their debts. Actually, the collection agencies are fishing for information which they can use to supplement the information that some debt buyers obtain concerning real estate ownership, motor vehicle registration, and ability to pay other creditors as evidenced by the credit reports. (For example, a consumer who is able to pay $ 300 / month for a car to get to work is more likely to be able to pay the debt collector than a comparable person who isn’t paying on a car or is delinquent in their payments.)
Some collection agencies place great weight in verifying a consumer’s employment. Many of these collection agencies rely heavily on suing in order to obtain wage garnishments in order to collect.
So, consumers who, to use Midland’s terminology — “engage” — with the collection agency (i.e., discuss their personal finances with the collection agency) are providing the collection agency with information that usually increases the odds that the collection agency will select their name for “special treatment” (i.e., to be sued.)
Besides, many people will just give in to robo-dialers and violations of the Fair Debt Collection Practices Act. Most consumers are uninformed and are unlikely to sue.
Debt collector frequently subscribe to Webrecon or other “scrub” services so that they can avoid contacting consumers who have sued debt collectors. Although debt collectors often refer to these informed consumers as “litigious” or “litigation prone”, what the debt collectors are actually saying is that they would rather not contact these consumers than train their debt collectors to comply withe the FDCPA. As a result, consumers who sue debt collectors tend to get the peace and quiet that other consumers only wish for.
The trick for collection agencies is to be able to get the consumer under the agency’s control. As Midland explains :
“If a consumer’s phone number proves inaccurate when an account manager calls an account, or if current contact information for a consumer is not available at the time of account purchase, then the account is automatically routed to our skip tracing process. We currently use a number of different skip tracing companies to provide phone numbers and addresses.”
In the hands of many debt collectors, “skip tracing” can be legitimate but it is frequently abused.
Collection agencies frequently call relatives and friends under the ruse of obtaining “location information”.
Some debt collectors call several of the consumer’s neighbors and even leave illegal messages before they attempt to call the consumer. Debt collectors refer to this illegal collection practice as a “block party”.
Midland and most other collection agencies will attempt to locate the consumer and will probably be able to do so. But, what if the consumer refuses to speak to Midland collection agency and does not answer Midland’s letters either? According to Midland :
“We generally refer accounts for legal action where the consumer has not responded to our direct mail efforts or our calls and it appears the consumer is able, but unwilling, to pay its obligations.”
This brings us back to the “analytics” that Midland mentioned. Each collection agency or their client use different criteria, formula, or “analytics”, for deciding which accounts to sue on and which accounts to sell or otherwise discard from the deck of possible lawsuits. Thoughtful debt buyers have different criteria for each state because laws effecting potential recovery of judgments vary depending upon garnishment exemptions, personal property exemptions, and in states such as Florida, homestead exemptions from forced sale.
“When we decide to refer an account for legal action, we retain law firms that specialize in collection matters in the states where we intend to pursue collections. Prior to engaging a collection firm, we evaluate the firm’s operations, financial condition, and experience, among other key criteria. We rely on the law firms’ expertise with respect to applicable debt collection laws to evaluate the accounts we refer to them and to make the decision about whether or not to pursue collection litigation.”
Even if Midland decides to sue a consumer who did not request that Midland validate (or verify) the account, the consumer often gets a second opportunity :
“The law firms we have hired may also attempt to communicate with the consumers in an attempt to collect their debts prior to initiating litigation. We pay the law firms a contingency fee based on amounts they collect on our behalf.”
Given the allegations of collection lawsuit abuses by Midland, raised by Lori Swanson, the Attorney General of the State of Minnesota, consumers who receive letters from in-state attorneys should consider promptly sending a debt validation letter.
When the collection lawyers communicate with the consumer, the consumer should receive the validation notice in a letter within thirty days of the lawyer’s initial communication with the consumer.
The consumer can then request that the collection lawyer obtain verification of the debt.
Again, what are the odds that Midland will sue a consumer?
According to Encore Capital Group (Midland’s parent corporation) filings with the Securities Exchange Commission, Midland has approximately 8,600,000 consumer names in its data base. Minnesota Attorney General Lori Swanson recently stated that Midland filed approximately 245,000 collection lawsuits nationwide during 2009. These numbers indicate that a consumer probably has approximately a 2.85 percent chance of being sued by Midland.
Consumers fear collection lawsuits more than the facts indicate they should. Many consumers overestimate the likelihood that they will be sued. Most consumers also greatly overestimate the odds that a debt buyer would prevail against an experienced consumer lawyer if they obtain representation from a lawyer.
Like most other risks, it the risk of litigation and the outcome of litigation should be managed based upon the individual consumer’s situation (income, sources of income, assets, state exemptions, age of debt, stage of the collection process, etc.)
If you are reading article because Midland has filed a lawsuit against you, do not allow Midland (or any other debt buyer) to obtain a default judgment against you especially until you’ve consulted with a lawyer who practices law in your state and is experienced in defending consumer against collection lawsuits. In many states, including Florida, it is often more realistic than consumers assume for them to hire an experienced lawyer to defend their rights.
If you are a Florida resident who is receiving calls or letters from a collection agency including Midland Funding, Midland Collection, or on behalf of Encore Capital Group, you are welcome to contact me by completing the Collection Agency Harassment form in the right hand column of this page. If you are a Florida resident, you are also welcome to call my office and I will contact you to discuss your debt situation and how I may be able to help you.
(C) 2011 – 2013 Donald E Petersen
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