On November 4, 2015, the Federal Trade Commission (FTC), 47 State Attorneys General, and other state and local law enforcement authorities from around the country announced the first coordinated federal-state enforcement initiative targeting deceptive and abusive debt collection practices. The initiative, named Operation Collection Protection, aims to crackdown on collectors who use illegal tactics such as harassing phone calls and false threats of litigation, arrest and wage garnishment.
As part of the Operation Collection Protection announcement, FTC Chairwoman Edith Ramirez, Illinois Attorney General Lisa Madigan and Minnesota Commerce Department Commissioner Mike Rothman, announced the filing of 30 new law enforcement actions by federal, state and local law enforcement authorities against debt collectors since October 1, 2015. These new cases bring the total number of actions taken so far this year to 115. These efforts include collaboration by more than 70 law enforcement partners in the Operation Collection Protection initiative.
The actions mentioned focused on collectors who knowingly attempted to collect so-called phantom debts – phony debts that consumers do not actually owe. The illegal practices targeted by authorities also included the failure of some collectors to give consumers legally required disclosures and notices, or to follow state and local licensing requirements. “Debtors have certain rights and rogue collectors that step outside the law will face the consequences of illegal behavior,” FTC Chairwoman Edith Ramirez said.
Illinois Attorney General Lisa Madigan said, “My office receives thousands of calls and complaints each year from consumers who are victims of illegal debt collection tactics. Through our partnership with the FTC and states across the country, we are putting scam operations out of business and protecting consumers from abusive practices by legitimate creditors.”
The FTC specifically announced five new enforcement actions against debt collectors engaged in allegedly illegal practices. Those named in the press release include BAM Financial, Delaware Solutions, K.I.P., LLC, and National Check Registry. The fifth action has been filed under seal, so the FTC is unable at this time to disclose details regarding it.
According to the FTC, BAM Financial allegedly extracted payments from consumers through intimidation, lies and other unlawful tactics. The FTC’s complaint states that BAM Financial bought consumer debts and collected payment on their own behalf by threatening consumers with lawsuits, wage garnishment, arrest, and by impersonating attorneys or process servers. They also unlawfully disclosed debts to third parties, failed to identify themselves as debt collectors, and failed to notify consumers of their right to receive verification of the purported debts. The U.S. District Court for the Central District of California issued a temporary restraining order against the BAM Financial defendants on October 21, 2015, halting their operations.
The FTC and the Attorney General of the State of New York filed a joint action against Delaware Solutions charging the company with attempting to collect on debts they knew were bogus. The company allegedly 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 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, also halting their operations.
K.I.P., LLC 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.
Finally, the FTC and the New York Attorney General’s Office reached a settlement agreement with National Check Registry in June 2014 over allegations that 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 U.S. District Court for the Western District of New York entered the order on October 16, 2015.
In 2015 alone, the FTC has obtained over $88 million in judgments, placed 33 defendants under federal court orders involving injunctive relief and monitoring requirements, and banned 24 defendants from working in debt collection.
Industry participants can glean a number of takeaways from this announcement. First, the FTC has placed illegal debt collection activities at the top of its priority list. Second, the FTC is actively working to coordinate enforcement activities with a variety of other regulators, in particular State Attorneys General. Third, the risks of engaging in unlawful collection activities are getting higher with the growing trend of criminal indictments, with 19 individuals facing indictment, pleading guilty or being convicted of criminal charges as part of Operation Collection Protection. Finally, the FTC has indicated a desire to partner with members of the debt collection industry to work collaboratively to stop questionable practices and rid the industry of bad actors. The FTC’s Debt Collection Dialogues in Buffalo and Dallas touched on this topic, and we expect the conversation will continue at the Dialogue in Atlanta on November 18.