Employees at a giant debt collection company in St. Cloud "robo-signed" thousands of collection documents without verifying their accuracy, allowing false and deceptive lawsuits to be filed across the country against consumers who didn't owe money, the Minnesota attorney general charged Monday.

The state lawsuit against Midland Funding LLC, one of the nation's largest debt collection firms, is the first enforcement action in the country against a debt collector for robo-signing, Attorney General Lori Swanson said.

Midland workers admitted signing up to 400 affidavits a day without reading them or verifying whether a debt was owed, according to the lawsuit. Often, the debts were 10 or more years old, known as "zombie debt," that Midland had purchased for cents on the dollar from credit card companies and other businesses, Swanson said.

"This company has a history of targeting people and assuming they owe them money until the citizen can show they don't owe the money," said Swanson, appearing at a capitol press conference with five Minnesotans who had been subjected to the practice.

Midland declined to answer questions about the allegations, but said in a statement that it takes the allegations seriously.

The practice of robo-signing has been widely condemned in foreclosure cases, resulting in crackdowns in several states. Swanson said her office is investigating a half dozen other collections firms in Minnesota for robo-signing.

"It really flips the process on its head because a debt collector or a debt buyer shouldn't be targeting anybody for payment of a bill unless they substantiate that a person actually owes the money," Swanson said.

In its statement, Midland said it changed collection practices in 2009 after a class-action lawsuit with similar allegations was filed in Ohio. Last month, Midland's publicly traded parent, Encore Capital Group Inc. of San Diego, announced it had tentatively agreed to settle that case for up to $5.7 million.

Midland is one of the state's biggest filers of lawsuits, with 15,000 cases in Minnesota alone since 2008. Across the country, the debt collector filed 245,000 consumer lawsuits in 2009, Swanson said. The company also has offices in Arizona, Texas and India.

The Star Tribune reported last June that Midland had obtained $30 million in judgments against debtors in Minnesota from 2005 through 2009, the most of any collection firm. The revelation was part of the newspaper's investigative series entitled, "Hounded," which revealed the aggressive tactics used by debt collectors.

Encore and Midland are part of the booming debt-buying industry, which purchases electronic databases of billions of dollars of old, charged-off consumer debt from credit card companies, banks, telecommunications firms and others.

Debt buyers receive just one line of data on each debtor, including the name, an address and the amount, Deputy Attorney General Nate Brennaman said. When purchasing debts, Midland and other companies do not purchase underlying charge slips and contracts to prove money is owed, according to the lawsuit.

A 'derogatory statement'

Daniel Fischer of Brooklyn Park said he discovered he had been a victim of Midland's tactics a year ago, when his credit card company reduced his credit limit because of a "derogatory statement" in his credit report. It turned out that Midland had sued him five years earlier, obtained a judgment for $1,155 and was ready to garnish his paycheck or other assets.

But Fischer didn't owe anyone money, and the order to appear in court to prove his innocence was sent to an address where had hadn't lived for 23 years. Only after he contacted the attorney general's office did Midland's law firm, Messerli & Kramer of Minneapolis, drop the case, he said.

That pattern was repeated with Barbara Thies of Eagan, who kept getting dunned for an obligation she had paid before it was due in 2001. Thies said she repeatedly sent the canceled check to Midland, but had to go to court anyway. There, confronted with the evidence in person, the Messerli firm dropped the case in 2007, she said.

But that didn't repair her credit. Later, her auto and home insurers raised her rates because her credit rating had dropped, she said. She does not believe the company simply made a mistake.

"I think they are predatory," Thies said of Midland. "This is a choice. They clearly know they are doing this. This isn't an error in judgment. I think this is a business model."

The state lawsuit includes partial transcripts of interviews with three Midland employees who signed collection affidavits, including Elizabeth Ann Neu of St. Cloud.

"Did you ever read the affidavit all the way through?" an attorney asked her.

"No," replied Neu.

Neu, reached by phone, said she left the company a year and a half ago. She declined to comment further.

It was not clear how many false lawsuits allegedly have been filed based on robo-signed documents, Swanson said. Her lawsuit seeks to halt the practice and have financial penalties imposed of $25,000 per violation under state and federal debt collection laws.

In a statement, Midland's corporate parent said 95 percent of consumers ignore letters sent by the company, and the court system is often the only remaining option. The Messerli firm, which is not named in the lawsuit, said it was not aware of the specific allegations against its client.

Swanson said consumers who don't respond to mailed legal notices often don't realize that debt collectors can easily obtain a default judgment. Some consumers subjected to Midland's tactics said they wondered if the phone calls and mailings were a scam. Most consumers don't have attorneys to represent them in such cases, Swanson noted.

The Minnesota lawsuit was submitted to a federal court in Ohio, where the class-action settlement awaits a judge's approval. Brennaman, the deputy attorney general, said the judge had ordered that no other lawsuits be filed while the class-action case was pending, so Minnesota is seeking a "clarification" to assure that its enforcement case can proceed separately.

After that formality, Brennaman said the suit would be filed in Ramsey County District Court.

David Shaffer • 612-673-7090