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Most Big Debt Collectors Backed Off During the -2-

Mr. Navarro wanted to use computer programs to estimate the profitability of debt portfolios. He assembled a 100-person information-technology staff, hired people with front-office experience and integrated the company's various business units so they could handle bigger volumes and different types of debt, according to a 2006 report to investors.

To get Sherman off the ground, Mr. Navarro sold 91% of the firm for $40 million to two insurance firms. "They had phenomenal analytics," said Daniel Gross, the former CEO of one of the firms, Enhance Financial Services Inc.

Sherman grew quickly as wages for many working and middle-class consumers stagnated and they turned to more widely available credit. Between 2001 and 2020, consumer credit-card debt grew by 37% to $819 billion, according to New York Fed data, and credit-card debt sold by banks increased by 87%, Federal Reserve data show.

In some cases, Sherman admitted to suing the wrong people. Other times, it attempted to collect debts so old they were no longer legally collectible, court records show.

The company said identity theft can lead to suing the wrong people, and Resurgent takes steps to detect and remedy cases of mistaken identity, the spokesman said.

Between Sherman's inception and September 2006, its companies recovered more than $3.8 billion in old debts, it said in a 2006 presentation. Between 2005 and 2009, before the company was taken private and data became unavailable, Sherman was the nation's biggest buyer of defaulted credit-card debt, according to the Nilson Report, a credit-industry analysis firm.

In 2005, Sherman bought a small bank, rebranded it Credit One, and increased the business from $647 million in outstanding credit-card receivables in 2006 to $6.81 billion in 2020, the most recent reported figure, according to Nilson Report. Credit One was the seventh-largest credit-card provider in 2020, ranked by active accounts.

Between 2011 and 2020, the bank was the subject of 13,500 consumer complaints filed to the federal Consumer Financial Protection Bureau over late fees and delays in processing payments that generate late fees, according to a Journal analysis of federal records made public via a public-records request.

Credit One received the most complaints of any firm with less than $10 billion in assets supervised by the Office of the Comptroller of the Currency, a federal banking regulator, and the ninth-most complaints about financial products of the largest credit-card issuers ranked by outstanding loans.

"The level of complaints is representative of an institution of our size, " Sherman's spokesman said. "We work hard to address all customer complaints, and our goal is to have as few as possible."

Since Mr. Navarro's group took full control of the company, there has been little publicly available information about Sherman's activities. Court records, some of the only public documents, show that Sherman filed thousands of lawsuits against borrowers, leading to some problems with authorities.

In 2011, Maryland sued Sherman's primary debt-collection subsidiaries, alleging they flooded courts with cases but were unlicensed to collect there. Sherman suits "contained false, deceptive, or deficient complaints and supporting affidavits," state regulators wrote. In a 2012 settlement, without admitting wrongdoing, Sherman paid a $1 million penalty and gave credits worth about $3.8 million to Maryland consumers.

In 2014, the New York attorney general later said, Sherman collected from at least 400 borrowers whose debts weren't legally collectible. Sherman paid a $175,000 fine for those violations. In September, the New Mexico attorney general sued Sherman, alleging it undertook illegal collections practices. The Sherman spokesman declined to comment because the lawsuit is pending.

The spokesman said the CFPB has never taken an enforcement action relating to debt collection against Sherman's debt-collection companies, and in 2020 those companies underwent 54 regularly scheduled regulatory examinations and a COVID-specific assessment with zero violations.

Laws regulating collection efforts vary. Some states, including Kentucky, allow debt collectors to seize nearly everything a debtor owns. Last year, Carol Bradley, 78-year-old retiree who lives on the outskirts of Louisville, filed for bankruptcy after a Sherman subsidiary emptied her bank account to collect on a 15-year-old debt.

Sherman had acquired a $12,008 debt that Ms. Bradley had defaulted on in 2006. Sherman later sued Ms. Bradley, and a judge in 2011 awarded Sherman a default judgment, allowing it to force her bank to pull money from her account.

Sherman didn't act on that judgment until last year, the Sherman spokesman said, when the company's computer models determined Ms. Bradley had money to pay. In May, Sherman used a garnishment order to compel her bank to transfer her balance of $6,770.78 to Sherman.

Ms. Bradley, who declined to comment, lives on a fixed income, court records show. Bankruptcy laws enable debtors to seek the return of garnishments filed immediately before a bankruptcy. Ms. Bradley did so, and Sherman settled the matter by returning the money.

--Lisa Schwartz contributed to this article.

Write to Shane Shifflett at Shane.Shifflett@wsj.com and Justin Scheck at justin.scheck@wsj.com

 

(END) Dow Jones Newswires

April 07, 2021 10:18 ET (14:18 GMT)

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