The Federal Trade Commission and other law enforcement officials across the U.S. announced Wednesday the first coordinated federal-state enforcement measure targeting deceptive and abusive debt collection practices.
"Operation Collection Protection" aims, in part, at helping regulators across the U.S. coordinate and inform other law enforcement about illegal activity. The initiative didn't reveal new legal actions against debt collectors and doesn't appear to offer new insights into enforcement strategies but does trumpet the fact that regulators will continue to be aggressive against the industry.
The initiative also appears to signal that regulators will be more forthright about pursuing the industry, whereas for years many in the business have felt blindsided.
The initiative reviewed 30 recent law enforcement actions by federal, state, and local law enforcement authorities against so-called collectors using illegal tactics such as harassing phone calls and false threats of litigation, arrest and wage garnishment. Unlawful practices targeted also include the failure of some collectors to give consumers legally required disclosures and notices, or to follow state and local licensing requirements.
FTC Chairwoman Edith Ramirez said nearly 30 million people have at least one account in collections and debt collectors in the U.S. make 1 billion contacts a year with consumers.
"The majority are perfectly legal. Many are not. We receive more complaints about this industry than any other. Last year alone, consumers filed over 280,000 complaints with federal authorities related to debt collection," she said.
Ramirez played a recorded example of a collector from "Check Systems" calling a school, attempting to collect from a teacher. The man spoke with the school's principal and, among other threats, said he thought the teacher's students might be interested in knowing about the teacher's debts.
Illinois Attorney General Lisa Madigan, during an FTC news conference Wednesday, pointed to a rise in scammers trying to collect phantom debts and zombie debts – phony debts that consumers don't actually owe. Madigan said her office receives thousands of calls and complaints each year from consumers who are victims of illegal debt collection tactics. She cited the example of a married couple in suburban Chicago who ran a collection scheme.
K.I.P. LLC, under a settlement with the FTC and Madigan's office, agreed to a $6.4 million judgment, and a ban on working in any debt collection business.
K.I.P., and Charles and Chantelle Dickey, were charged in April with threatening and intimidating consumers to pay payday loan debts they either did not owe, or did not owe to the defendants. The U.S. District Court for the Northern District of Illinois, Eastern Division subsequently halted the operation and froze the defendants’ assets pending litigation.
The defendants allegedly used several business names to target consumers who obtained or applied for payday or other short-term loans, according to the complaint. Claiming those loans were delinquent, they threatened to garnish consumers’ wages, suspend or revoke their driver’s licenses, have them arrested or imprisoned, or sue those who did not pay. Many consumers paid, even though they may not have owed the debts, because they believed the defendants would follow through on their threats or because they simply wanted to end the harassment.
The final order prohibits the defendants from misrepresenting financial products and services, profiting from customers’ personal information and failing to dispose of such information properly. It imposes a $6.4 million judgment, including proceeds from the sale of a car and the turnover of any assets held by third parties.
During Wednesday's new conference, Minnesota Commerce Department Commissioner Mike Rothman referred to a July enforcement action by the state against Texas-based collection agency Tucker, Albin and Associates Inc., which was fined $500,000 for allegedly harassing and threatening small businesses in Minnesota.
Tucker, Albin allegedly violated state and federal laws after investigators found a pattern of "deliberate, repeated misconduct in the company’s debt collection activities," Rothman said.
The fine was the largest penalty imposed on a collection agency by the Minnesota Commerce Department. According to Rothman, the agency's debt collectors were trained to use caller ID to pretend to be family members or neighbors. Tucker Albin’s employee training manual listed instructions for collectors to spoof fake numbers to use with fake names, the Commerce Department found. More than 100 Minnesota businesses were victimized - including farmers, restaurants, construction companies and body shops.
Both Madigan and Rothman pointed out Wednesday that the majority of collection agencies are legitimate and licensed companies. But Madigan said strong measures and coordination are both needed to ensure consumers are better protected.
Referring specifically to consumers victimized by phantom debts and zombie debts, she added: "For them, Halloween never ends when they’re targeted by these scammers. We are seeing more and more of these so-called debt collectors that are completely unlicensed scammers illegally trying to collect."
The cases mentioned Wednesday bring to 115 the total number of actions taken in 2015 by the more than 70 law enforcement partners in the initiative.
The FTC mentioned five new enforcement actions against debt collectors, including the K.I.P. case and one case that has been filed under seal and can't be discussed.
The remaining cases and details include:
BAM Financial: The FTC has alleged that the defendants extracted payments from consumers through intimidation, lies and other unlawful tactics. According to the FTC’s complaint, the defendants bought consumer debts and collected payment on their own behalf by threatening consumers with lawsuits, wage garnishment and arrest, and by impersonating attorneys or process servers. They also unlawfully disclosed debts to, or harassed, third parties, failed to identify themselves as debt collectors, and failed to notify consumers of their right to receive verification of the purported debts.
In one case, the defendants falsely told a consumer’s 84-year-old mother that they had a warrant for her daughter’s arrest and later told the consumer they represented a bounty hunter and would have the sheriff serve her with process. The defendants falsely told another consumer that she would not be allowed to see her children, and that they would garnish her wages and report her to the Internal Revenue Service if she did not pay.
Delaware Solutions: In a joint action by the FTC and the New York Attorney General’s Office, the Delaware Solutions defendants are charged with attempting to collect on debts they knew were bogus. The defendants bought payday loans supposedly owed to a company that repeatedly told them to stop collection efforts because the debts were invalid, and ignored consumers’ evidence that they had never authorized a payday loan.
According to the complaint, the defendants also failed to identify themselves to consumers as debt collectors, falsely portrayed themselves as process servers or attorneys, and falsely threatened arrest or litigation. The defendants also unlawfully disclosed consumers’ debts to third parties in an attempt to embarrass the consumers into paying them.
The U.S. District Court for the Western District of New York issued a temporary restraining order against the Delaware Solutions defendants in October. This is the seventh case against an abusive Buffalo debt collection enterprise that the FTC has filed in the last two years, four of which were filed jointly with the New York Attorney General’s office.
National Check Registry: The operators of a debt collection scheme agreed to a ban on participating in any debt collection business to settle charges brought by the FTC and the New York Attorney General’s Office in June 2014 that the defendants used lies and false threats to collect millions of dollars from consumers.
The settlement order prohibits the defendants from misrepresenting material facts about any financial-related product or service, including lending, credit repair, debt relief, and mortgage assistance relief services, and profiting from customers’ personal information. One of the defendants, Joseph Bella, will pay $112,000 and surrender certain bank accounts, two cars and two boats.
The U.S. District Court for the Western District of New York entered the order in October.
With the new settlements, the FTC has secured final judgments in seven cases in 2015, placing 33 defendants under strict federal court orders, securing more than $88 million in judgments and banning 24 defendants from working in debt collection.