A U.S. district court has halted a Georgia-based operation from using threats and lies to collect $3.5 million in phantom payday loan "debts" that consumers didn’t owe.

John Williams, of Norcross, Ga., and two companies he controls used a variety of false threats to bully consumers nationwide into paying supposed payday loan debts, the Federal Trade Commission charged.

Williams; Williams, Scott & Associates LLC; and WSA LLC falsely claimed to be affiliated with federal and state agents, investigators, members of a government fraud task force and other law enforcement agencies. They also pretended to be a law firm, according to the FTC complaint.

The defendants allegedly told consumers their drivers’ licenses were going to be revoked, and that they were criminals facing imminent arrest and imprisonment. The court previously had ordered the defendants' assets frozen to preserve the possibility that they could be used to provide redress to consumers.

The FTC alleges that many consumers the defendants contacted had inquired about a payday loan online at one time, and submitted contact information, which later found its way into the defendants’ hands.

"Many consumers in this case were victimized twice," said Jessica Rich, director of the Federal Trade Commission’s Bureau of Consumer Protection. "First when they inquired about payday loans online and their personal information was not properly safeguarded, and later, when they were harassed and intimidated by these defendants, to whom they didn’t owe any money."

The FTC alleged that the defendants’ tactics violated the Federal Trade Commission Act and the Fair Debt Collection Practices Act. In addition to the deception and false threats, the defendants violated federal law by telling consumers’ family members, employers and co-workers about the debt; failing to identify themselves as debt collectors; using profanity; making repeated inconvenient or prohibited calls; failing to provide information in writing about the debt; and making unauthorized withdrawals from consumers’ bank accounts.

This is the FTC’s sixth recent case charging "phantom debt" scams with law violations. Other cases include American Credit Crunchers LLC, Broadway Global Master Inc., Pro Credit Group, Vantage Funding, also known as Caprice Marketing and Pinnacle Payment Services LLC.

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