FTC Says Midland Funding Class Action Suit is a Bad Deal For Consumers

he Federal Trade Commission filed an amicus brief in federal court opposing a class action settlement that would require consumers to surrender protections provided by the Fair Debt Collection Practices Act (FDCPA) and state laws in exchange for minimal payments.

The proposed settlement in Vassalle v. Midland Funding would resolve several private class action lawsuits consumers filed against Midland Funding LLC, and related entities Encore Capital Group, Inc. and Midland Credit Management, Inc. The class action lawsuits accused the San Diego company of violating both the FDCPA, which prohibits deceptive, unfair, and abusive practices by third-party debt collectors, and similar state statutes.

As explained in the amicus brief, the proposed settlement raises concerns in three areas in which the FTC has significant expertise: FDCPA and debt collection, privacy and data collection, and class action fairness. First, the FTC is the chief federal enforcer of the FDCPA and has conducted comprehensive assessments of debt collection activities, including its 2009 report, Collecting Consumer Debts: The Challenges of Change and its 2010 report, Repairing a Broken System: Protecting Consumers in Debt Collection Litigation and Arbitration. Second, the FTC safeguards consumers’ privacy and the security of their personal information under Section 5 of the FTC Act and the Gramm-Leach-Bliley Act. Finally, in connection with its Class Action Fairness Project, the FTC has studied how best to protect consumer interests and promote fairness in the class action context and has filed amicus briefs commenting on potentially unfair class settlements.

Consistent with concerns expressed about the proposed settlement by state Attorneys General and consumer protection advocates, the FTC’s amicus brief argues that if the court accepts the settlement, class members will have to give up too much in exchange for too little. Class members would receive only a small payment, capped at $10. In return, they would surrender their rights under the FDCPA and state laws to challenge Midland’s actions related to the company’s use of affidavits in debt collection lawsuits. This would include, the FTC argues, perhaps even the right to challenge improper default judgments obtained by Midland. The amicus brief also notes that nothing in the settlement limits Midland’s uses of personal information that consumers provide in connection with the proposed settlement. In keeping with its long-standing position that information collected for one purpose should not be used for other, undisclosed purposes, the FTC asserts that consumer information obtained in connection with a class action settlement should be used solely to process settlement payments.

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