Are You Dealing With a Real Debt Collector?

Some less-than-above-board debt collectors deploy a number of unsavory tactics while trying to persuade consumers to give them money, but none worse than this: trying to collect on debts that just don’t exist.

It happens, often. Sometimes, bad records are to blame. Debt notes are often sold, re-sold and re-sold again, and during that game of telephone, something gets lost in the translation and a consumer gets unnecessarily harassed. But that’s not what we’re talking about today.

We’re talking about outright fraud. An aggressive collector calls a person and simply harasses him or her into coughing up some dough. Let’s call that phantom debt. That happens a lot, too. Just last week in the Debt Collection Files, we wrote about a company that submitted potentially millions of falsified documents in an attempt to collect bogus debts on long-since-closed checking accounts.

Chasing Down Fake Collectors

Jason Krumbein is a Richmond, Va.-based lawyer who often represents consumers in debt collection cases. He also spends a lot of time trying to find collectors who bug his clients over phantom payday loan debts.

“I get a call about this one to four times each week… (There are) six I am currently looking for,” he said. “I can’t figure out who is actually doing the collecting. It used to sound like they were in India, but now it sounds like they are in the U.S. But that could just mean they went to the ‘A’ team.”

Finding the source of the phone calls is important, because until Krumbein figures out who’s collecting, he can’t sue them for violations of the Fair Debt Collection Practices Act.

“Ordinarily what happens is a collector calls saying, ‘You need to give me a credit card, or someone (from law enforcement) will show up at your house in an hour,’” he said. Intimidated victims often pay hundreds of dollars.

The fake payday debt scam has been making the rounds for a long time. Credit.com covered it back in 2012. It’s simple: consumers get an aggressive call threatening them with jail time or a mandatory county court appearance if they don’t cough up a credit card number or other form of payment on the spot. How do collectors pick victims? Sometimes the debts are old and invalid because of the statute of limitations; sometimes the consumer visited a website to inquire about a payday loan but never received one; and sometimes, the consumer is just an unlucky target. But each call follows the same pattern: The collector refuses to disclose even basic information, such as their mailing address or phone number.

The Federal Trade Commission has filed six different cases against phantom payday debt collectors, most recently in July, when it stopped a Georgia-based operation from attempting to collect on $3.5 million in phantom debt.

“Many consumers in this case were victimized twice,” said the FTC’s Jessica Rich back in July. “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.”

But despite the attention, and run-ins with federal authorities, the scam persists, which means only one thing: It works. Criminals wouldn’t keep trying it if people didn’t pay.

Just last month, the FTC sued a payday loan operation called the Hydra group which allegedly used the unique strategy of beginning its scam by placing money into consumers’ checking accounts before beginning to withdraw regular payments without authorization. When consumers stopped the payments, Hydra allegedly sold the “debts” to third parties who engaged in phantom collection.

The Fake Debt Collector M.O.

Phantom payday debt collectors generally commit a laundry list of violations. Here’s the list from the Georgia case, according to the FTC:

“In addition to the deception and false threats, the defendants violated federal law by telling consumers’ family members, employers, and co-workers about the debt; failing to identify themselves as debt collectors; using profanity; making repeated inconvenient or prohibited calls; failing to provide information in writing about the debt; and making unauthorized withdrawals from consumers’ bank accounts.”

That makes fake payday debt collectors an easy private lawsuit target — if they can be found.

“I’ve found two so far,” Krumbein said. “One paid, and the other one I have a judgment on, but I need to get a garnishment order for that.”

One thing that makes the scam seem a bit more legitimate to victims: The calls appear to be coming from U.S.-based phone numbers. Krumbein said they are actually Magic Jack or cellphone numbers, however, meaning the callers could really be anywhere.

“Tracking down who is calling is approaching impossible,” he said with a sigh. “I have a whole bulletin board of cases where I have to go figure out if it’s anybody that we can chase.”

The key takeaway from the persistent payday debt collection scam is this: Many people can be intimidated into paying debts they don’t owe. Many of you Credit.com readers are savvy about your rights, and you probably think you’d never fall for this. Even if that’s true, no doubt you can imagine a friend or family member – particularly someone elderly – who might be duped this way. That’s why it’s so important for you and everyone you know to understand consumer rights created by the Fair Debt Collection Practices Act. Here’s a great list of them. But in short, when a debt collector calls, stop their monologue immediately. Tell them to mail you evidence of the debt, in writing, and then tell them never to contact you again unless it’s to provide a legal notice, mentioning that if they violate that request, they will be in violation of federal law.

You can also check your credit reports (you can get your credit reports for free once a year) for legitimate collection accounts as well. However, keep in mind that credit report errors can occur also, and if you spot a collection account you don’t recognize, you can dispute the error with the credit bureau. Collection accounts can be a major drag on your credit scores, and you can see if any debts are impacting your scores for free on Credit.com.