The calls went out by the millions to unsuspecting consumers across the country.
Phony debt collectors – based in Southern California and using call centers in India – demanded immediate payment on delinquent loans. Often posing as attorneys or law enforcement officials, they threatened consumers with lawsuits or arrests if payments weren’t made.
And they were highly effective. In 8.5 million calls tracked over four months in late 2010 by the Federal Trade Commission, the callers raked in more than $5 million in payments from intimidated consumers.
Only problem: Nobody owed them a dime.
The “phantom-debt” collection calls originated from two companies – American Credit Crunchers LLC and Ebeeze LLC, based in Orange County’s Villa Park. Last week, the FTC announced that both companies have been shut down by court order and their assets frozen while an investigation continues.
“This is a brazen operation based on pure fraud, and the FTC is committed to shutting it down,” said David Vladeck, director of the FTC’s Bureau of Consumer Protection, in a statement last week.
According to the FTC, the deceptive collection calls focused on payday loans, the short-term, high-interest loans that have been riddled by consumer complaints for years. In many cases, the victims had not even taken out a payday loan, but had filled out an online application that disclosed their bank account, Social Security or other personal financial information.
Using that information, the callers would use coercive tactics, such as threatening to file lawsuits or arrest people for failure to pay.
Why would victims pay for loans they’d never made? In last week’s press conference, one victim, JanLaree DeJulius of Las Vegas, said she was so rattled by the call to her workplace that she paid more than $700 just to make the caller go away.
In its complaint, the FTC said payday loan applicants are often financially stressed and “overwhelmed with bad finances,” causing them to be confused or scared into paying.
“It’s very frightening,” said Chicago-based FTC staff attorney Elizabeth Scott. “They threaten to show up at your home or workplace and arrest you. And they have so much personal information on you – your bank accounts, etc. – that they’re believable.”
During the four-month investigation period, about 17,000 payments were taken from consumers’ credit or debit cards, ranging from about $300 to more than $2,000 each.
The so-called “phantom-debt” calls occurred in virtually every ZIP code across the country. Scott said the FTC could not determine how many victims might be in California.
The companies’ owner, Varang Thaker, could not be reached for comment.
According to the FTC, a review of Thaker’s company bank accounts show plenty of deposits by consumers, but no money going back out to known lenders or debt sellers. The accounts also show payments to outsourcing companies in Gujarat, India, where the call centers are believed to be located. Other company transactions show transfers to Thaker’s personal bank accounts, as well as the purchase of a Mercedes-Benz SUV, airline tickets and tens of thousands of dollars in store purchases in both California and India.
Debt collection ranked No. 2 among consumer complaints received by the FTC in 2010, making up 11 percent of the 1.3 million total complaints filed that year.
That same year, an FTC report described the country’s system for resolving disputed debt collections as “broken,” citing lawsuits filed by debt collectors that leave consumers unable to defend themselves. It recommended that states enact laws to tighten their rules on the debt-collection process.
In California, the state Senate last month passed Senate Bill 890, by state Senator Mark Leno, D-San Francisco, which would require debt buyers – who purchase bundles of uncollected debts – to provide documentation that the debts are valid.
The state attorney general’s office said unscrupulous debt buyers “have flooded California’s courts” with poorly documented lawsuits seeking judgments on debts, often resulting in collection efforts against the wrong person.
The Leno bill provides “basic consumer protections for an industry that has no real controls on it,” said the attorney general’s spokeswoman Lynda Gledhill. “This will help a lot of people whose credit can be ruined by (deceptive) debt collectors.”
Under the federal Fair Debt Collection Practices Act, it’s illegal for debt collectors to threaten arrest, use abusive language, or pose as a law enforcement or government official. Within five days after first contacting you, debt collectors must send a written verification notice listing the creditor and the amount you allegedly owe. (For more details on fair debt collection practices, see accompanying box, “Beware of Fake Debt Collectors.”)
If you get a call from a debt collector, be savvy. “Immediately ask for a written verification of the debt owed,” said Scott, the FTC attorney. If the debt collector can’t or won’t provide one, “it’s a red flag.” Similarly, she said, if a debt collector suggests you could be arrested if you don’t pay, “it’s an instantaneous red flag.”
Robert Tavelli, past president of the California Association of Collectors, said fraudulent companies that use abusive tactics harm the reputation of legitimate debt collection companies.
“The industry shouldn’t receive a black eye for what criminals do. The majority of folks (debt collectors) do it right. These are the kinds of guys who make a big splash.”
Although the massive Southern California operation got shut down, the problem isn’t going away. As FTC’s Scott noted: “We are certain there are other entities engaging in similar activity” across the country.