Minnesota Attorney General Lori Swanson is suing a Plymouth debt collection firm, alleging it illegally charged high interest on the debts of people whose overdrawn bank accounts had been closed.
State law only allows a maximum of 6 percent interest on such debt, but the firm -- Bradstreet & Associates -- would typically charge 22 percent interest, Swanson said.
"Companies have the right to collect legitimate debt. But they shouldn't be charging people for interest they don't owe," she said. "Since 2009, Bradstreet and its predecessor company bought at least $18 million in debt that originated with Wells Fargo and U.S. Bank. This affects, we believe, at least 16,000 Minnesota consumers."
The debt passed from the banks to Bradstreet through a middleman that buys and sells consumer debt, the attorney general said, adding she was not alleging wrongdoing by the banks.
The company could not be reached for comment.
According to the lawsuit, Bradstreet and a predecessor firm paid a Florida debt buying firm $646,000 to acquire about $9 million of U.S. Bank overdraft debt. The terms represented between 3 cents and 7 cents on the dollar.
The collection firm paid $434,000 for Wells Fargo debt of about $9 million, or from 3 cents to 6 cents on the dollar.
The lawsuit says the Florida firm itself paid as little as 2 or 3 cents on the dollar for the debt.
U.S. Bank said it supports the attorney general's efforts to crack down on fraudulent debt collection practices.
"The portfolios described in the complaint were sold in the past and were sold outright, long after we had exhausted efforts to recover the debt ourselves," said bank spokeswoman Nicole Garrison-Sprenger. "We have cooperated with the attorney general's office in its investigation and we will continue to provide any additional support we can offer in this case."
In some cases, the attorney general said Bradstreet obtained court judgments against consumers, misrepresenting the maximum interest rate that could be charged on their debts.
"We have sued other debt buyers for manufacturing evidence," Swanson said. "But in this case it is especially troubling that Bradstreet got courts to issue judgments against unrepresented people based on the false representation that 21.75 percent interest was a proper rate. Judgment affects people's credit and has a significant impact on people's financial situation."