FTC Announces Debt Collection Enforcement Initiative, Takes Action Against Five Entities

The Federal Trade Commission today announced that it is spearheading a law enforcement initiative between local, state, and federal authorities that will target debt collectors engaging in illegal activities.

In making the announcement, the FTC also announced five actions against different companies and individuals.

While the event, which was attended by Edith Ramirez, the chairwoman of the FTC, Lisa Madigan, the attorney general of Illinois, and Michael Rothman, the Commerce Commission for Minnesota, had plenty of soundbites, it had little in the way of actual details about the initiative, called Operation Collection Protection. What the event also had, was numerous mentions of the term, “zombie debt,” which is becoming more and more popular by the day.

Without providing details about how the joint multi-level initiative will actually work, Chairwoman Ramirez said that one of the federal agencies included in the effort is the Consumer Financial Protection Bureau.

“We’ve all been acting independently for some time,” Ramirez said during the event. “Now, we can build a national coalition.”

During the event, a recording of a collection call was played, where a collector from Check Systems called a school and tried to get in touch with a teacher. The collector, who called himself an investigator, threatened to contact the parents of the students being taught by the teacher.

Ramirez said that there are hundreds of thousands of illegal debt collection activities, out of a total of 1 billion collection contacts, which represents less than 0.1% of all communications.  But even with such a small amount of illegal activity, Ramirez said that the FTC needed a “more effective” way of going after unlawful debt collectors.

As part of the event, the FTC also announced actions against:

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 instance, the defendants falsely told a consumer’s 84 year-old mother 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.

The Commission vote authorizing the staff to file the complaint was 4-0. The U.S. District Court for the Central District of California issued a temporary restraining orderagainst the BAM Financial defendants on October 21, 2015, halting their operations.

Delaware Solutions: In a joint action by the FTC and the Attorney General of the State of New York, 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 Commission vote authorizing the staff to file the complaint was 4-0. The U.S. District Court for the Western District of New York issued a temporary restraining order against the Delaware Solutions defendants on October 6, 2015, halting their operations. 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.

K.I.P., LLC: Under a settlement with the FTC and the Illinois Attorney General, a married couple who ran a phantom debt collection scheme based in Aurora, Illinois, have agreed to a $6.4 million judgment, and a ban on working in any debt collection business.

In April 2015, the FTC and the Illinois Attorney General charged K.I.P. LLC, and Charles and Chantelle Dickey, 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.

According to the complaint, the defendants used a host of business names to target consumers who obtained or applied for payday or other short-term loans. 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 proposed stipulated final order also 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 $6,403,781 judgment, including proceeds from the sale of a car and the turnover of any assets held by third parties.

The Commission vote approving the filing of the proposed stipulated final order was 4-0. The proposed order is subject to approval by the U.S. District Court for the Northern District of Illinois, Eastern Division.

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 Commission vote authorizing the staff to file the proposed stipulated final order was 5-0. The U.S. District Court for the Western District of New York entered the order on October 16, 2015.

The orders involving K.I.P., LLC and National Check Registry impose millions of dollars in judgments, include strong injunctive relief and monitoring provisions, and ban the defendants from working in the debt collection industry for life. With the new settlements, the FTC has now secured final judgments in seven cases so far in 2015, placing 33 defendants under strict federal court orders, securing over $88 million in judgments, and banning 24 defendants from working in debt collection.


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