FTC Cracks Down on Payday Loan Debt Collector

At Credit.com, we’ve heard from consumers across the country who have been harassed by phony debt collectors who threaten to have them arrested for debts they may not even owe. While the threats are often blatantly illegal, there hasn’t been a lot that American regulators or law enforcement agencies could do to stop most of these scammers. That’s because they are based overseas.

But now at least one firm won’t be making any more collection calls, thanks to efforts by the Federal Trade Commission. Villa Park, California-based American Credit Crunchers, LLC, an affiliated company called Ebeeze, LLC, and the companies’ owner, Varang K. Thaker, are charged with violating the FTC Act and the Fair Debt Collection Practices Act.

A U.S. district court has closed down the operation based on FTC allegations that it made calls to collect payday loan debts that didn’t exist. According to the complaint, the firm made over 5 million collection calls from India. It was a lucrative operation, netting more than $5 million from consumers, says the FTC.

According to the FTC’s court papers, the callers pretended to be law enforcement agents, or “federal investigators” and threatened to arrest and/or imprison their victims if they didn’t pay.

One of the reasons these types of schemes work so well is that they target consumers who have received, or applied for, payday loans online. The firms usually have detailed personal information about the consumers they are calling, such as Social Security numbers or bank account numbers. That information makes callers think the debt is legitimate.

But for those who are getting those calls, the FTC’s complaint lists a couple of red flags:

They threaten to lodge criminal charges against consumers who fail to pay these alleged debts. But the “collectors” have no intention of taking—or even the standing or authority to take—legal action against these consumers.
Other times, they pretend to be attorneys or to work for law firms when they do not.
They frequently use abusive or profane language during these telephone calls. That’s prohibited under the Fair Debt Collection Practices Act.

While this is good news for consumers, the reality is there are many more firms operating the same way. This one happens to be based in California, which is why the FTC was able to act. But for the companies based entirely overseas, it’s likely business as usual. In fact, whose to say the employees who were working for this firm aren’t collecting for someone else now?

As long as this type of scam continues to make money, there will be companies operating the same way. The only way to stop it is to get consumers to stop paying bogus debts or debt collectors. Be extremely cautious if you get collection calls and the collector uses high-pressure tactics—especially for payday loans.

Ask for written verification of the debt. You are entitled to it by federal law. Any legitimate collection agency will send it.
Check out the specific company making the calls. A simple web search can often identify a company that is a fake. Firms often use meaningless names like “fraud investigation center” to sound official.
Do not give your credit or debit card number over the phone to a collector that calls you out of the blue. If you determine the debt is legitimate, consider paying with a cashier’s check or prepaid card.

NOTE: The Commission files a complaint when it has reason to believe that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The complaint is not a finding or ruling that the defendant has actually violated the law.

Image: stallio, via Flickr.com