Midland Funding Lawsuit? Understanding the Debt Buying Industry and Why You Should Care

Before being sued by Midland Funding most don’t have a clue who this company is or why they being served with a lawsuit.  Midland Funding is a debt buyer.  Companies like Midland Funding, Portfolio Recovery Associates, CACH, LLC, and Cavalry SPV, purchase old charged off debts for pennies on the dollar and then sue on them.

The rise in debt buying companies over the last decade has garnered companies like Midland Funding a lot of attention from various State Attorney General’s offices as well as the Federal Trade Commission (FTC).  Earlier this year the FTC released a report on a study it did entitled “The Structure and Practices of the Debt Buying Industry”.  Here are a few of the highlights (or low-lights) of this study and how they can impact your case:

Prices Debt Buyers Paid for Purchased Debt

Debt buyers like Portfolio Recovery and Midland Funding, on average paid 4 cents per dollar of debt.  This means that for a $1,000 debt, the debt buying company paid about $40 bucks for the right to sue you!  Here in Arizona debt buyers are permitted to sue for the entire balance of the debt – no matter how little they paid for it.

This is valuable information to have if you are trying to settle the debt with Midland Funding or if you are dealing with a debt collection lawsuit.  Knowing that the debt buyer paid very little for the debt should influence how much you are willing to pay to settle the claim.

Debt Buyers Received Few of the Underlying Documents about the Debts

The FTC found that the debt buyers obtained very few documents related to the debt they purchased.  In fact, for most of the accounts the debt buyers didn’t receive any documents at the time they purchased the debts from the original creditor.  Typically there were only a small percentage of accounts that included basic documents like account statements and the terms and conditions related to the account.

If you are facing a debt collection lawsuit by a debt buyer this information is helpful because debt buyers such as Midland Funding have the burden of proving their case in court.  This requires documentation.  The debt buyer can’t simply show up to court and state that you owe the debt – they have to prove it.

Debt Buyers Have Limited Access to Additional Documents

The FTC also found that debt buyers were given a limited amount of time (usually between six months and three years) during which they could request a certain number of documents at no charge.  After that, debt buyers had to pay a fee to the original creditors for the documents – usually $5 to $10 per document requested.  Further the company selling the debt was often given anywhere from 30 to 60 days to respond to the request for additional documents.

If you are being sued by Portfolio Recovery or one of the other debt buyers this finding by the FTC likely explains why it is often so difficult to get documents from the debt buyer.  It appears that often they don’t have the requested documents, and if the don’t have them they are going to have to shell out more money to get them.

Only about 50% of Sold Debts are Verified

The FTC also found that 51.3% of debts that were disputed by consumer were actually verified.  This means if that of the one million debts estimated to have been disputed in the debt buying industry each year by consumers, that approximately 500,000 debts were not verified by the debt buyer even though they were disputed by the consumer!  That is a lot of cases!

You can see why the debt buying industry has the shoddy reputation that it does.  Few documents and an unwillingness to verify debts.

The debt buying industry deals in huge volume.  The FTC study looked at 90 million consumer accounts that were sold in a three year period.  The transactions are plagued with faulty information, lack of documentation, lack of verification, and just sloppiness.  It should be no surprise to the debt buying industry that more and more consumers are putting up a fight when it comes to debt buyer lawsuits.