UPDATE 3-Minnesota accuses Encore Capital of robo-signing

* Settlement pending in Ohio federal court

* Encore Capital says has modified affidavit practices

* Shares fall as much as 10.3 pct before partial recovery
(Adds Encore statement, adds comments by Minnesota attorney
general’s spokesman, updates stock movement)

By Jonathan Stempel

NEW YORK, March 28 (Reuters) – Minnesota accused Encore
Capital Group Inc (ECPG.O: Quote, Profile, Research) of cutting corners by filing
fraudulent, “robo-signed” affidavits in debt collection
lawsuits, the same practice for which banks have come under
fire in home foreclosures.

Encore shares fell as much as 10.3 percent before
recovering some of their losses.

Attorney General Lori Swanson said Encore, one of the
largest U.S. debt collectors, and its Midland Funding LLC and
Midland Credit Management Inc units repeatedly filed false
affidavits to collect consumer debt that was not owed or was
already paid off.

She pointed to sworn testimony that “numerous” employees
had signed up to 400 affidavits a day without reading or
verifying the accuracy of their contents.

“People are getting hounded by debt buyers for money they
don’t owe,” Ben Wogsland, a spokesman for Swanson, said in a
telephone interview. “Midland is treating people as though they
are guilty until proven innocent.”

Encore often buys debt from credit card companies,
typically for pennies on the dollar. Swanson is also
investigating collection practices at about a half-dozen other
companies that buy debt, Wogsland said.

The allegations follow an Ohio federal judge’s preliminary
approval on March 11 of a $5.2 million class-action settlement
of similar claims against Midland.

Swanson asked the Ohio judge to clarify that the accord
does not bar enforcement activity by government agencies. She
wants to file her lawsuit in a Minnesota state court.

“The company put its thumb on the scale of justice to
unfairly tilt the collection process in its favor,” Swanson
said in a statement.

Mike Huckman, an Encore spokesman, said the company looks
forward to working with Swanson to resolve the matter. He also
said Encore has modified its affidavit process and believes its
current practices are legally sound.

All 50 state attorneys general are investigating
robo-signing and other alleged improper practices by banks in
the mortgage industry.

Robo-signing is a term coined to describe employees signing
litigation documents without reviewing their contents.

Encore had through year-end invested $1.8 billion to buy 33
million accounts with a face value of $54.7 billion, or about 3
cents on the dollar, according to its annual report.

In late afternoon trading, Encore shares were down 2.9
percent at $24.88 on the Nasdaq, after falling to $22.99.

Shares of two competitors, Asset Acceptance Capital Corp
(AACC.O: Quote, Profile, Research) and Asta Funding Inc (ASFI.O: Quote, Profile, Research), were little changed.

The Ohio case is Brent v. Midland Funding LLC, U.S.
District Court, Northern District of Ohio, No. 08-01434.
(Reporting by Jonathan Stempel in New York, editing by Matthew
Lewis and Gerald E. McCormick)

UPDATE 3-Minnesota accuses Encore Capital of robo-signing