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The Minnesota attorney general is suing a Florida company that was a major buyer of overdraft debt from Minnesota banks, accusing it of churning out reams of fake bank affidavits to use in its collection from individuals and businesses.
United Credit Recovery LLC was allegedly churning out computer-generated affidavits with bank logos, cutting and pasting supposedly notarized signatures of bank officials onto the documents to make them look authentic.
The electronically robo-signed documents were used for years on a "mass scale," not only to persuade people that they owed the money but also to convince courts to award judgments and to hike the value of portfolios for resale, according to a complaint the state filed Wednesday in Hennepin County District Court.
United Credit Recovery buys the charged-off fees and balances from closed checking and savings accounts that some banks bundle and sell off. It bought billions of dollars in overdraft debt from the country's largest banks since it started in 2007, the lawsuit said.
The company acquired more than 2 million accounts nationally from Wells Fargo and U.S. Bank alone between 2007 and 2011, but it also bought from Bank of America, Fifth Third Bank and Huntington National Bank. Companies like United Credit buy debt at steep discounts and then try to collect as much as they can.
Attorney General Lori Swanson said her office doesn't know how many Minnesotans were affected, but it's at least several thousand. "The numbers are really astronomical," Swanson said in an interview.
The affidavits go beyond the traditional robo-signing that was a hallmark of the country's mortgage debacle, where employees physically signed stacks of paper without regard to the facts.
"Here it's a cut-and-paste job. It takes traditional robo-signing to a whole new level," Swanson said. "We have not seen this scale both in terms of the brazenness of it and the sheer numbers."
The state is seeking an injunction to stop the fabrications, a list of where in Minnesota the affidavits were distributed, and civil penalties. The law suit said it's seeking $25,000 for each violation of the state's deceptive trade practices act. Swanson said a judge will have to determine how many Minnesota instances there are.
Leonard Potillo, the head of United Credit Recovery (UCR), could not immediately be reached for comment. In one case in 2008, UCR allegedly fabricated 1,600 affidavits for accounts involving Minnesotans. The "notice of correctness/assignment" affidavits all bear the exact same signature of a U.S. Bank officer, but the bank's signature is clearly dated one month later than the signature of the notary.
The charged off accounts that banks sell can be resold many times, making the allegedly fraudulent affidavits very difficult to root out.
"These affidavits have now been put in the stream of commerce and sold over and over again," Swanson said. "We're trying to put spilled milk back in the bottle."
UCR bought at least 11 portfolios of overdraft debt from Minneapolis-based U.S. Bank between 2007 and 2011, and at least 24 portfolios from San Francisco-based Wells Fargo during that time, the state says.
Wells Fargo and U.S. Bank stopped selling overdraft debt to debt buyers last year due to compliance concerns, Swanson said.
Wells Fargo spokeswoman Peggy Gunn issued a statement saying the bank has been working closely with the state on its investigation, as well as an investigation the Colorado Attorney General has underway.
Wells Fargo worked with UCR until Jan. 31, 2012, when its contract ended and has not done business with UCR since, Gunn said.
Earlier this month Wells Fargo sued UCR in federal district court in Florida over its unauthorized use of the bank's name and trademark on the affidavits.
U.S. Bank issued a statement saying that it hasn't sold any of the overdraft debt at issue in the case since March 2012.
"Selling charged-off debt has historically been a small portion of our collections efforts," spokeswoman Teri Charest said in the statement. "While we collect the vast majority of delinquent debt internally, we do maintain relationships with a small number of agencies who collect on our behalf. Those agencies are required to meet very strict compliance, ethical and customer service standards."
The suit is the state's second against a debt buyer over sworn affidavits used to try to prove debts. In 2011 the AG's office sued Midland Funding LLC over accusations its employees were robo-signing affidavits used in court. In a settlement last year, Midland agreed to pay the state $500,000 and clean up its practices. Midland is owned by debt-buying giant Encore Capital Group Inc. in San Diego.
Swanson said her office has other debt buyer investigations pending.