A federal judge has barred a Georgia-based business operation from using a variety of strong-arm tactics to collect payday loan debt, some of which is allegedly phony.

The case, which was filed in May by the Federal Trade Commission, illustrates numerous ways in which consumers who apply for online payday loans can be victimized. Federal authorities have been targeting such fraud as part of the controversial probe known as Operation Choke Point.

The FTC accuses John Todd Williams of Norcross, Ga., and two firms that he controls of trying to collect debt from consumers who had previously inquired about, applied for, or received an online payday loan.

The complaint alleges that the defendants threatened to imprison consumers, to have their drivers' licenses suspended or revoked, and to disclose their alleged debts to their employers, relatives and co-workers.

It also accuses the defendants of impersonating law enforcement authorities, using profanity and making unauthorized withdrawals from the consumers' bank accounts. The defendants caused more than $3.5 million in consumer injury, according to the complaint.

The case has yet to be resolved, but in the meantime the defendants have agreed not to use a variety of illegal debt-collection tactics that authorities allege they've used in the past. They've also agreed to allow their assets to be frozen, according to a June 19 court order signed by U.S. District Judge Harold Murphy.

The FTC alleges that in some instances, the affected consumers were not actually delinquent on a payday loan. In a news release Tuesday, the agency stated that many of the consumers had previously inquired online about getting a payday loan, and had submitted contact information, which eventually wound up in the defendants' hands.

The FTC's complaint does not specifically mention lead generation companies. But many of the companies that advertise payday loans online are actually lead generators. They sell the information they collect, which sometimes includes sensitive personal information such as bank account numbers.

"Many consumers in this case were victimized twice," Jessica Rich, director of the FTC's bureau of consumer protection, said in the news release. "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."

Careton Matthews, a lawyer who represents Williams and the two firms named as co-defendants, Williams, Scott & Associates LLC, and WSA LCC, did not immediately return a phone call seeking comment.

Operation Choke Point, the multiagency initiative spearheaded by the Justice Department, has sought to combat fraud by cutting off the bad actors' access to the payment system.

But bankers, third-party payment processors and payday lenders have all complained that legitimate businesses are also being harmed by the probe. They have been urging authorities to prosecute alleged fraud directly, as the FTC did in the case against Williams, rather than pulling banks into the effort.

"We applaud FTC's action against this phantom debt collector who fraudulently tried to collect fake debts from consumers," Lisa McGreevy, president and chief executive of the Online Lenders Alliance, said in a news release.

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