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Millions of AT&T mobile phone consumers were caught up in a debt collection effort that led to legal action against a third-party collector, according to complaint filed by Consumer Financial Protection Bureau on Monday.

The complaint alleges EOS, a Massachusetts-based collection firm, reported and collected on old cellphone debt that consumers disputed and was not verified. The debts were sold to EOS and its subsidiary US Asset Management in 2012 by AT&T.

The complaint involve more than 3 million collection accounts — the largest debt portfolio ever purchased by the firm from the cellphone provider. However, according to it, the portfolio consisted “mainly of old accounts that AT&T had sent to multiple collection agencies.” And many of the debts were ineligible for collection, the CFPB alleged.

The outstanding debt totaled $2.3 billion, but EOS paid $35.4 million for it – not much more than a penny on the dollar. Still, the portfolio contained accounts that should not have been subject to collection, and AT&T was unable to substantiate some of the alleged debts, the CFPB said.

“Contrary to the sales agreement with AT&T, the portfolio contained time-barred debt, fraudulent debt, and debts consumers disputed as having been paid or settled,” the CFPB wrote in a press release.

A consent order made public by the CFPB would require EOS to overhaul its debt collection practices, refund at least $743,000 to consumers, and pay a $1.85 million civil money penalty.

AT&T is not the subject of the CFPB complaint or consent order, and has not been accused of any wrongdoing.

“Today’s action was specifically regarding the illegal conduct by EOS. Regarding AT&T, the Bureau does not confirm or deny any subjects or matters under investigation,” bureau spokeswoman Moira Vahey said.

AT&T did not immediately return requests for comment about the legal action against its third-party debt collector.

EOS said in a press release that it had already worked to improve its policies and procedures and welcomed the legal resolution.

“Prior to the audit by the CFPB, EOS CCA had taken extensive steps to revamp its compliance management system,” the firm wrote. “The Consent Order requirements outlined by the CFPB represent policies and procedures already implemented at the company. EOS CCA cooperated fully with the CFPB during the course of its audit and has chosen to the settle matters to move forward and demonstrate its commitment to protecting and treating consumers fairly.”

Per the complaint, not long after the sale of AT&T’s portfolio, in January 2013, a senior manager at EOS warned that there were problems with the portfolio. Nevertheless, the company continued to report inaccurate information about the debts to credit reporting agencies, and continued to attempt collection, even after consumers disputed the debts or the firm was unable to verify the debts were still owed, the CFPB said.

The firm also took the unexplained step of reporting all three million accounts as disputed by the account holder shortly after acquiring the portfolio. A month later, EOS reversed course and deleted most of the dispute flags. In early October 2012, it reinstated the dispute flags; then a few weeks later, deleted most of those dispute histories. EOS did not respond to a question seeking an explanation of this behavior.

In June 2014, EOS took steps to identify accounts that had potentially been paid, including contacting AT&T for additional information. According to the complaint, AT&T’s response was incomplete.

“A&TT reviewed only a subset of the accounts EOS provided and concluded that 20% of the accounts it reviewed had been paid or settled,” the CFPB said. “AT&T did not, however, give EOS any information or documentation revealing whether the remaining accounts on EOS’s list were still outstanding.”

The firm has now identified 10,000 accounts that may have been paid or resolved.

“EOS does not have sufficient, or in some cases, any documentation from AT&T to refute consumers’ claims that the vast majority of these accounts have been paid or resolved,” the CFPB said.

EOS made false and misleading representations when attempting to collect on the debts, the CFPB said.

“EOS continued to represent that consumers owed the amounts claimed on particular accounts even after learning that AT&T Portfolio contained unreliable data with respect to some accounts, including previously paid or settled accounts,” it said. EOS also kept reporting the consumers to the credit reporting agencies.

“After buying a portfolio of debt, EOS soon learned of several red flags that raised doubts about the debt’s validity. Even so, EOS still proceeded to collect certain disputed and unverified debts,” CFPB Director Richard Cordray said in a press release. “It is unacceptable that consumers were harmed by these practices and that the company supplied inaccurate information to the credit reporting companies, so today we are taking action to stop it.”

Under the consent order, EOS would be barred from collecting on an AT&T debt that a consumer has disputed and the firm is unable to substantiate. The firm would also barred from reselling debts for five years.

Debt collection accounts can damage your credit, so it’s always a good idea to monitor your credit report and dispute any fraudulent ones with the credit reporting agencies. You can pull your credit reports for free each year at AnnualCreditReport.com and see your credit scores for free each month on Credit.com.

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