On December 10, the Colorado Attorney General (AG) announced a lawsuit against a debt buyer and its principal for allegedly engaging in fraudulent conduct in attempting to collect charged-off debt purchased from two national banks. The complaint also names two debt collection companies to whom the debt buyer resold some of the debt acquired from the banks. The AG asserts that all three companies routinely used false affidavits to collect on the debt.

The complaint scrutinizes the agreements pursuant to which the banks transferred the charged-off debt to the debt buyer. The AG states that the agreements limited the information the banks were obligated to provide to the buyer, requiring it to purchase evidence of the debt from the banks as needed. If the buyer requested documents that the banks could not locate, the banks agreed to provide affidavits attesting to the validity of such debts.

According to the complaint, the debt buyer sought to maximize its profits by using such affidavits and other materials provided by the banks to fabricate similar documents. It then allegedly used those false materials to collect debts from Colorado consumers, or provided the fabricated materials to the debt collectors to whom it had resold some of the debt. The complaint notes that neither of the two debt collectors “had policies or procedures for the evaluation of the validity or accuracy of account documentation that they received regarding debt that they purchased or sought to collect on.”

The AG claims that the creation, use, and distribution of the false bank documents violated the Colorado Fair Debt Collection Practices Act and the Colorado Consumer Protection Act. The AG also claims the debt buyer conducted collection activities in the state without obtaining a license, in violation of the state licensing law. The complaint seeks, among other things, civil penalties, actual damages, restitution, and disgorgement of all profits from the allegedly unlawful activities.