What changed in this filing

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Item 1. Business

2025-02-26 compared with 2024-02-21 · 40 added, 56 removed, 354 unchanged (21% of the section changed)

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We also have additional international investments and operations as we have explored new asset classes and geographies including:

(1) an investment in Encore Asset Reconstruction Company (“EARC”) in India and (2) an investment in portfolio in Mexico.

(1) our subsidiary Encore Asset Reconstruction Company (“EARC”) in India and (2) an investment in portfolio in Mexico.

We refer to these additional international operations as our Latin America and Asia-Pacific (“LAAP”) operations.

To date, operating results from LAAP have not been significant to our total consolidated operating results.

Our long-term growth strategy is focused on continuing to invest in our core portfolio purchasing and recovery business in the United States and United Kingdom and strengthening and developing our business in the rest of Europe.

As a result, descriptions of our operations in Part I - Item 1 of this Form 10-K will focus primarily on MCM (United States) and Cabot (Europe) operations.

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Company Information

We were incorporated in Delaware in 1999.

In June 2013, we completed our merger with Asset Acceptance Capital Corp., which was another leading provider of debt recovery solutions in the United States.

In July 2013, by acquiring a majority ownership interest in the indirect holding company of CCM, we acquired control of CCM.

In February 2014, CCM acquired Marlin Financial Group Limited, a leading acquirer of non-performing consumer debt in the United Kingdom.

In August 2014, we acquired Atlantic Credit & Finance, Inc., which was a market leader in the United States in buying and collecting on freshly charged-off debt.

In June 2015, CCM expanded in the United Kingdom by acquiring Hillesden Securities Ltd and its subsidiaries (“dlc”).

In November 2017, CCM completed the acquisition of Wescot Credit Services Limited (“Wescot”), a leading UK contingency debt collection and BPO services company.

In July 2018, we completed the purchase of all of the outstanding equity of CCM not owned by us.

As a result, CCM became our wholly owned subsidiary.

Our headquarters is located in San Diego, California 92108 and our telephone number is (858) 309-1679.

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and (4) stable long term returns and resilience in the event of macroeconomic disruption.

In addition, we are strengthening our presence in Spain, France, and Portugal, each of which we believe shares a number of these same attractive market characteristics.

In addition, we are strengthening our presence in Spain and France, each of which we believe shares a number of these same attractive market characteristics.

Competitive Advantage.

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This includes increasing our cash flow generation through efficient collection operations.

Depending on our relative leverage and a number of other factors, we may apply excess cash toward reducing our debt or, in circumstances in which we are operating within or below the lower end of our target leverage range, we may allocate capital toward share repurchases.

Depending on our relative leverage and a number of other factors, we may apply excess cash toward reducing our debt or, in circumstances in which we are operating within our target leverage range or below the lower end of our target leverage range, we may allocate capital toward share repurchases.

Furthermore, we believe our global funding structure enhances access to capital markets and provides us with financial flexibility, particularly with respect to our ability to allocate capital to our markets with the best risk-adjusted returns.

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With respect to our balance sheet objectives, we strive to preserve financial flexibility and operate with leverage in a range that we believe benefits the company, and we also target a strong debt rating.

Our capital allocation priorities include portfolio purchases at attractive returns, strategic merger and acquisition (M&A) consideration, and the return of capital to stockholders through share repurchases.

Our capital allocation priorities include portfolio purchases at attractive returns, the return of capital to stockholders through share repurchases and the consideration of strategic merger and acquisition (M&A).

Debt Purchasing Approach

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Typically, these forward flow contracts have provisions that allow for early termination or price renegotiation should the underlying quality of the portfolio deteriorate over time or if any particular month’s delivery is materially different than the original portfolio used to price the forward flow contract.

We also have the ability in many of our forward flow contracts to terminate after a certain

notice period.

We also have the ability in many of our forward flow contracts to terminate after a certain notice period.

We generally attempt to secure forward flow contracts for receivables because a consistent volume of receivables over a set duration can enable us to more accurately forecast and plan our operational needs.

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• Direct Mail and Email .

We develop innovative mail and email campaigns offering consumers payment programs, and occasionally appropriate discounts, to encourage settlement of their accounts.

We develop innovative mail and email campaigns offering consumers payment plans, and occasionally appropriate discounts, to encourage settlement of their accounts.

• Call Centers .

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Account managers are trained to assess our consumers’ willingness and ability to pay.

They attempt to work with consumers to evaluate sources and means of repayment to achieve a lump sum settlement or develop payment programs customized to the individual’s ability to pay.

They attempt to work with consumers to evaluate sources and means of repayment to achieve a lump sum settlement or develop payment plans customized to the individual’s ability to pay.

In cases where a payment plan is developed, account managers encourage consumers to pay through automatic payment arrangements.

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We have made significant progress in expanding our digital strategies to match consumer preferences and continue to analyze and optimize our digital strategies.

Currently, consumers can access their account information, view supporting documents and make payments through our website.

Currently, consumers can access their account information, view supporting documents, review payment plan options, and make payments through our website.

We leverage email, text messaging and web chat to interact with our consumers.

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If placed to our internal legal channel, attorneys in that channel will evaluate each account and make the final determination whether to pursue legal action.

If referred to our network of retained law firms, we rely on our law firms’ expertise with respect to applicable debt collection laws to evaluate each account placed in that channel in order to make the decision whether or not to pursue collection litigation.

If referred to our network of retained law firms, we rely on our law firms’ expertise with respect to applicable debt collection laws to evaluate each account placed in that channel and make the decision whether to pursue collection litigation.

Prior to engaging an external law firm (and throughout our engagement of any external law firm), we monitor and evaluate the firm’s compliance with consumer credit laws and regulations, operations, financial condition, and experience, among other key criteria.

law firms we hire are encouraged to communicate with consumers in an attempt to collect their debts prior to initiating litigation.

The law firms we hire are encouraged to communicate with consumers in an attempt to collect their debts prior to initiating litigation.

We pay these law firms a contingent fee based on amounts they collect on our behalf.

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We continuously refine this analysis to determine the most effective collection strategy to pursue for each account we own.

We purchase both paying portfolios, which consist of accounts where over 50% of the investment value is associated with consumers who are already repaying some of their debt, albeit at levels that still require the debt to be written off under the originators’ internal accounting policies, and non-paying portfolios, where 50% or more of the investment value is associated with consumers who are not repaying some of their debt, which are higher risk and have less predictable cash flows than paying portfolios.

Paying portfolios tend to have a higher purchase price relative to face value than non-paying accounts due to the higher expectations for collections, as well as lower anticipated collection costs.

Non-paying portfolios often consist of a substantial number of accounts without contact details and for which the vendor has made numerous unsuccessful attempts to collect.

We employ a variety of collections strategies from the point of purchase, tailored to both the type of account and the consumer’s financial strength.

For paying accounts, we seek to engage with the consumers to transfer their payment stream to us and understand their detailed financial situation.

For non-paying accounts, we apply a segmentation framework tailoring our communication and contact intensity in line with our assessment of their credit bureau data, the size of their debt, our belief as to the consumer’s ability to pay their debt, and whether we have an existing relationship with them from other accounts.

We employ a variety of collections strategies from the point of purchase, tailored to the consumer’s financial strength.

Where contact is made and consumers indicate both a willingness and ability to pay, we create tailor-made payment plans to suit the consumer’s situation.

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We believe that our ability to compete effectively in this market is also dependent upon, among other things, our relationships with credit originators and portfolio resellers of charged-off consumer receivables, and our ability to provide quality collection strategies in compliance with applicable laws.

We believe that smaller competitors in the United States and the United Kingdom are facing difficulties in the portfolio purchasing market because of the higher cost to operate due to increased regulatory pressure and scrutiny applied by regulators.

We believe that smaller competitors in the United States and the United Kingdom have faced difficulties in the portfolio purchasing market because of the high cost of regulatory compliance.

In addition, sellers of charged-off consumer receivables are sensitive to the reputational risks involved in the industry and are therefore being more selective with buyers in the marketplace.

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Our failure to comply with these laws or to maintain relevant state licenses could have a material adverse effect on us to the extent that they limit our recovery activities or subject us to fines or penalties in connection with such activities.

The federal Fair Debt Collection Practices Act (“FDCPA”) and comparable state and local laws establish specific requirements and procedures that debt collectors must follow when communicating with consumers, including the time, place and manner of the communications, and prohibit unfair, deceptive, or abusive debt collection practices.

The federal Fair Debt Collection Practices Act (“FDCPA”) and Regulation F, along with comparable state and local laws establish specific requirements and procedures that debt collectors must follow when communicating with consumers and prohibit unfair, deceptive, or abusive debt collection practices.

Pursuant to the Dodd-Frank Wall Street Reform and Consumer Financial Protection Act of 2010 (the “Dodd-Frank Act”), Congress transferred the Federal Trade Commission’s (“FTC”) role of administering the FDCPA to the Consumer Financial Protection Bureau (“CFPB”) , along with certain other federal statutes, and gave the CFPB authority to implement regulations under the FDCPA.

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The CFPB also has authority to obtain cease and desist orders (which can include orders for restitution or rescission of contracts, as well as other kinds of affirmative relief), costs, and monetary penalties ranging from $5,000 per day for ordinary violations of federal consumer financial laws to $25,000 per day for reckless violations and $1 million per day for knowing violations.

The CFPB has been active in its supervision of, and examination and enforcement activities related to, financial services companies generally, including bringing enforcement actions, imposing fines and mandating large refunds to customers of several financial institutions for various practices.

The CFPB has been active in its supervision of, and examination and enforcement activities related to, financial services companies generally, including bringing enforcement actions, imposing fines and mandating refunds to customers of numerous financial institutions for various practices.

The CFPB and the FTC continue to devote substantial attention to the debt collection industry, and have brought multiple investigations and enforcement actions against debt collectors for alleged violations of the FDCPA and other applicable laws.

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In October 2020, we entered into a stipulated judgment (“Stipulated Judgment”) with the CFPB to resolve the lawsuit.

The Stipulated Judgment requires us to, among other things, continue to follow a narrow subset of the operational requirements contained in the 2015 Consent Order, all of which have long been part of our routine practices.

In connection with the Stipulated Judgment, the CFPB formally terminated the 2015 Consent Order.

Additionally, we are subject to ancillary state Attorney General investigations related to similar debt collection practices.

We have entered into various settlement agreements with the Attorneys General of certain U.S.

We have entered into settlement agreements with the Attorneys General of certain U.S.

states in connection with our debt collection and litigation practices.

In November 2021, the CFPB final rules in the form of a new Regulation F that implement the Fair Debt Collection Practices Act became effective.

Regulation F restates and clarifies prohibitions on harassment and abuse, false or misleading representations, and unfair practices by debt collectors when collecting consumer debt.

In November 2021, the CFPB issued Regulation F, which contained rules implementing the FDCPA.

Regulation F restated and clarified prohibitions on harassment and abuse, false or misleading representations, and unfair practices by debt collectors when collecting consumer debt.

The rules included provisions related to, among other things, the use of newer technologies (text, voicemail and email) to communicate with consumers, limits relating to telephonic communications, consumer disclosures and credit reporting.

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• the collection of fees associated with certain accounts.

The CFPB also accepts debt collection consumer complaints and released template letters for consumers to use when corresponding with debt collectors.

The CFPB makes publicly available its data on consumer complaints.

The CFPB also accepts debt collection consumer complaints, makes complaint-related data publicly available and provides template letters for consumers to use when corresponding with debt collectors.

The Dodd-Frank Act also mandates the submission of multiple studies and reports to Congress by the CFPB, and CFPB staff regularly make speeches on topics related to credit and debt.

All of these activities could trigger additional legislative or regulatory action.

In addition, the CFPB has engaged in enforcement activity in sectors adjacent to our industry, impacting credit originators, collection firms, and payment processors, among others.

In addition, the CFPB has engaged in enforcement activity in sectors adjacent to our industry, impacting credit originators, collection firms, payment processors and credit reporting agencies, among others.

The CFPB’s enforcement activity in these spaces, especially in the absence of clear rules or regulatory expectations, can be disruptive to third parties as they attempt to define appropriate business practices.

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The Gramm-Leach-Bliley Act and its implementing regulations, including the FTC “Safeguards Rule,” require us generally to protect the confidentiality of our consumers’ nonpublic personal information, to disclose to our consumers our privacy policy and practices, including those regarding sharing consumers’ nonpublic personal information with third parties and to report certain data breaches and other security events to the FTC.

In addition, the FCRA requires us to prevent identity theft and to securely dispose of consumer credit reports.

In addition, the FCRA requires us to treat identity theft allegations uniquely and to securely dispose of consumer credit reports.

Certain state laws impose similar or stricter privacy obligations as well as obligations to provide notification of security breaches of personal information to affected individuals, consumer reporting agencies, businesses and governmental agencies.

The applicable regulatory framework for privacy and cybersecurity issues is evolving and uncertain.

For example, the California Privacy Rights Act (“CPRA”), which became operative on January 1, 2023 and amends and expands the California Consumer Privacy Act (“CCPA”), imposes more stringent requirements on certain businesses with respect to consumer and employee data privacy in California.

For example, the California Privacy Rights Act (“CPRA”), which became operative on January 1, 2023 and amended and expanded the California Consumer Privacy Act (“CCPA”), imposes more stringent requirements on certain businesses with respect to consumer and employee data privacy in California.

These laws include provisions that give California residents and employees expanded rights to access and delete c ertain personal information, opt out of certain personal information sharing, and receive detailed information about how certain personal information is used.

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By way of example, Washington D.C.

passed the “Protecting Consumers from Unjust Debt Collection Practices Amendment Act of 2021” which went into effect January 2023.

passed the “Protecting Consumers

from Unjust Debt Collection Practices Amendment Act of 2021” which went into effect January 2023.

The law, among other things, requires both debt buyers and debt collectors operating in Washington D.C.

to have in their possession specific account information before debt collection efforts can begin and has contact limitations more restrictive than the CFPB.

to have in their possession specific account information before debt collection efforts can begin and has contact limitations more restrictive than Regulation F.

In addition, other state and local requirements and court rulings in various jurisdictions may also affect our ability to collect.

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Cabot has three regulated entities in the UK:

the debt purchase brand Cabot Credit Management Group Limited (“CCMG”) , the servicing brand Wescot Credit Services Limited (“Wescot”) and Cabot’s law firm, Mortimer Clarke Solicitors Limited (“ Mortimer Clarke ”).

The FCA regards debt collection as a “high risk” activity primarily due to the potential impact that poor practice can have on already vulnerable consumers and as a result maintains a high focus on the sector.

the debt purchase brand Cabot Credit Management Group Limited (“CCMG”) , the servicing brand Wescot and Cabot’s law firm, Mortimer Clarke Solicitors Limited (“ Mortimer Clarke ”).

The FCA Handbook sets out the FCA rules and other provis ions.

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The FCA also publishes guidance on various topics from time to time that it expects firms to comply with.

The FCA has app lied its rules to consumer credit firms in a number of areas, including its high-level principles and conduct of business standards.

The FCA has app lied its rules, including its high-level principles and conduct of business standards, to consumer credit firms.

In July 2023, the FCA implemented its new Consumer Duty, which aims to provide a higher level of consumer protection in retail financial markets and combines existing consumer treatment requirements with enha nced standards by requiring firms to act to deliver good outcomes for customers.

The FCA has significant powers and , as the FCA

deepens its understanding of the industry through continued supervision , it is likely that the regulatory requirements applicabl e to the debt purchase industry will continue to increase via requirements such as the Consumer Duty.

The FCA has significant powers and , as the FCA deepens its understanding of the industry through continued supervision , it is likely that the regulatory requirements applicabl e to the debt purchase industry will continue to increase via requirements such as the Consumer Duty.

In addition, it is likely that the compliance framework that will be needed to continue to satisfy the FCA requirements will demand continued investment and resources.

Companies authorized by the FCA must be able to demonstrate that they meet the threshold conditions for authorization and comply on an ongoing basis with the FCA’s high level standards for authorized firms, such as its Principles for Business (including the principle of ‘‘treating customers fairly’’), and rules and guidance on systems and controls.

The Senior Managers and Certification Regime (“SMCR”), designed to drive accountability and risk ownership within businesses, came into effect for UK operations in December 2019, and affected the majority of colleagues who need to be aware of and adhere to the required standards of conduct.

Companies authorized by the FCA must be able to demonstrate that they meet the threshold conditions for authorization and comply on an ongoing basis with the FCA’s high level standards for authorized firms, such as its Principles for Business (including the principle of “ act to deliver good outcomes for retail customers” ), and rules and guidance on systems and controls.

The Senior Managers and Certification Regime (“SMCR”) is designed to drive accountability and risk ownership within businesses and applies to the majority of colleagues who need to be aware of and adhere to the required standards of conduct.

In addition to the full authorization of its business with the FCA, CCMG, Wescot and Mortimer Clarke have appointed certain individuals who have significant control or influence over the management of the respective businesses, known as Senior Management Function Managers (“SMF Managers”).

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and new supervisory authorities, including a European Data Protection Board (“EDPB”).

Data Protection Officer(s) have been appointed for the UK, Spain and Ireland who are supported by Privacy Champions at each European/UK site to promote and enforce good data protection practices.

Data Protection Officer(s) have been appointed for the UK, Spain, France, Portugal and Ireland who are supported by Privacy Champions at each European/UK site to promote and enforce good data protection practices.

In the EU, there is a new regulatory framework under Directive 2021/2167 of the European Parliament and of the Council on credit servicers and credit purchasers, known as the Non-Performing Loan (“NPL”) Directive.

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The activities of credit servicers are subject to supervision by the competent authority of the home Member State.

To date, of the markets we operate in, Ireland and France are the only EU member states to transpose the NPL Directive into local law with our Irish entity automatically being given credit servicing authorization and our French entity currently working through the authorization process.

Spain and Portugal are expected to transpose the NPL Directive into local law during 2025.

In addition, the other markets in which we currently operate are subject to local laws and regulations, and we continue to review the required risk and compliance programs to facilitate compliance with applicable laws and regulations in those markets.

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Attracting, developing and retaining talent is critical to executing our strategy and our ability to compete effectively.

We believe in the importance of creating a diverse and inclusive work environment for our employees, supporting their well-being with fair and market-competitive pay and benefits, and investing in their growth and development.

We believe in the importance of creating an engaging work environment for our employees, supporting their well-being with fair and market-competitive pay and benefits, and investing in their growth and development.

We also value feedback from our employees and regularly survey them to understand how they feel about the company and subsequently take appropriate actions and employ employee engagement best practices to improve their work experience.

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Our Standards of Business Conduct reflect our commitment to operating in a fair, honest, responsible and ethical manner and provide direction for reporting complaints in the event of alleged violations of our policies (including through our Employee Compliance Hotline).

Diversity and Inclusion

At Encore, we are committed to cultivating an inclusive culture that reflects our consumers and our communities, where our actions and mindset ensure every individual can thrive.

We see advancing diversity and inclusion as a journey that we will continually work on to build a better Encore for our employees and other stakeholders.

We value diverse viewpoints and inclusive experiences and strive for balanced representation in our overall organization.

We foster a culture of respect and inclusion in various ways, including offering unconscious bias and diversity training, tracking gender diversity, and celebrating diversity through global cultural appreciation initiatives.

Inclusion and Collaboration

At Encore, we believe in creating pathways to economic freedom for our consumers and understand that an inclusive workplace leads to better business outcomes.

We know that our best work happens when we collaborate and embrace a range of thoughts, backgrounds and experiences and when our unique voices are heard and celebrated.

We are committed to fostering an environment that promotes learning, curiosity and continuous improvement, while creating spaces for all people to bring their authentic selves to work.

As of December 31, 2024, approximately 49% of our total workforce were women.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business