What Happens to a Debt Collector That Gets Shut Down

Travell Thomas is desperately trying to save his business, or at least part of it. His debt collection firm, Four Star Resolution, was raided during the morning on Feb. 11, as a result of a lawsuit filed by the Federal Trade Commission. Employees were told to leave immediately. A temporary restraining order now prevents Thomas — and any company employee — from entering the premises, seeing any company files or accessing any financial records. Employees can’t be paid and consumers can’t make payments, Thomas says. The lawsuit has thrown the firm, among the largest in South Buffalo, into chaos.

“The penalties sought….far exceed what is equitable and fair,” Thomas says in an affidavit filed in support of a motion to lift or amend the temporary restraining order. “As things stand now, even the consumers are being harmed because they can reach no one to pay their debts.”

Four Star is accused of repeated violations of the Fair Debt Collection Practices Act, including impersonating law enforcement officials and threatening consumers with arrest. The FTC accused the firm of operating a “boiler room” where agents would say almost anything to get consumers to pay up. In its lawsuit, the FTC said one Four Star employee identified himself as “Detective Jeff Ramsey,” and warned consumers to make sure there were no firearms or “loose dogs” in advance of his arrival later that day to discuss a “pending bench warrant.” Four Star employees are also accused of refusing to provide consumers with proof of outstanding debts, and a stream of intimidation and name calling, including “f—ing no good liar,” “idiot,” “dummy,” ”piece of scum,” “thief,” “dirtbag,” “scumbag,” or “loser.”

A federal judge issued the temporary restraining order based on the FTC’s case. Since the order was signed, Four Star officials have only been permitted access to their offices for three hours on Saturday, March 7.

The Debt Collector Responds

In a series of affidavits signed by Thomas and Four Star’s compliance officer, Ronald Williams, the firm concedes there were problems, but claims the FTC has been heavy-handed in the abrupt shutdown of the business. Four Star’s lawyer Linda Joseph provided Credit.com with a series of documents her clients planned to file in an attempt to convince a U.S. district judge to ease restrictions on the firm. An FTC spokesperson said the agency would not comment on ongoing litigation, but the affidavits provide an unusually candid glimpse into the world of debt collectors, how they see themselves and the challenges of their jobs.

“I am not pretending that Four Star’s operations did not have problems that need to be improved upon, but debt collections a difficult business and I do not think there is any company that can say it has a perfect record,” Williams writes. “It also is a necessary business that is essential to maintaining the cost of credit to all consumers.”

At its core, debt collection isn’t complicated. It usually boils down to an interaction between a collector and a consumer. Both Thomas and Williams talk about the challenge of rogue employees, who can break the law during interactions even after they are forced to sign promises that they won’t. Employees would even use scripts taken from former employers that encouraged law-breaking, they claim.

“Every day I endeavored to confiscate rogue scripts and I reprimanded employees on their tone,” Williams said. Some were fired for breaking the rules. “I would also point (out), however, that it is impossible to catch all employees who might be violating the law and I, like all of us, am not perfect.”

Four Star employee wages were modest. According to the affidavit, “team members” were paid $10-$12 per hour, managers earned $20 hourly, and Williams was paid $25,000. The firm also paid performance-based bonuses.

Bonuses could conceivably create incentives for collection agents to be aggressive with consumers, though the FTC doesn’t accuse Four Star of that in its lawsuit.

Thomas admits he didn’t do a good enough job of managing.

“I concede that there are managers who have been deficient and whom I have not sufficiently supervised because of other business opportunities in which I was involved at the time,” he said. But he points to several steps he’s taken to keep Four Star on the right side of the law, including hiring Williams as compliance officer after a prior investigation into the firm’s activities.

Williams and Thomas, along with lawyer Joseph, remarked repeatedly how surprised they were at the FTC’s swift action to shut down the firm’s operations. The firm had separately been approached by the Consumer Financial Protection Bureau and the Better Business Bureau and worked to remediate those complaints.

“If I had been approached by Plaintiffs and informed of other issues that needed to be addressed, I would certainly have addressed them,” Thomas said.

Lawyer Joseph was much more blunt, calling the FTC’s actions “draconian…freezing the business assets, much less freezing individual funds needed for procurement of counsel and family support.”

She also complained that investigators made a mess out of Four Star offices, with “papers and debris on the floor.”

“The Plaintiffs could have simply asked for more injunctive relief,” she wrote. The FTC seems “more intent on shutting down the business than in looking after the protection of consumers.”

Trying to Stay in Business

Four Star wants to reopen a part of its collection operations in order to fund some employee salaries, and to continue collecting consumer payments. Joseph argues that consumers who are trying to clear their credit reports of debts cannot do so while Four Star is not operating, so the restraining order hurts consumers and employees.

“If the Plaintiffs prevail, nothing will be left to recover,” she said. “The real motive was not to preserve assets of the business for recovery by plaintiffs or consumers, but to drive the defendants out of business.”

Joseph planned to file her reply to the FTC lawsuit late last week. It’s unclear when the court might rule on any change to the temporary restraining order. For now, Thomas says he is trying to help some employees stay afloat — he paid Williams’ $1,200 mortgage this month, according to his affidavit. Meanwhile, both men are trying to make sure they have a future in the debt collection business.

“I am not perfect. I second guess some of my own decisions, but I know deep in my heart I was trying to do my best,” Williams writes. “I have tried sincerely to educate myself, constantly reading the updates from the CFPB, even though they are very confusing and constantly evolving. Now add all the decisions being made on the federal bench, regarding debt collection cases, this is very confusing. … Just because we may not have been clear on certain procedures, or verbiage, or daily mandates from different agencies or did not understand the corporate structure issues or which the FTC complains does not in my opinion mean we should be destroyed.”