Midwest Recovery Systems (“Midwest Recovery”), a debt collection company, must cease its alleged debt-parking practices, delete all reported debts, and surrender its remaining assets in partial payment of a $24.3 million monetary judgment, under a stipulated order filed by the Federal Trade Commission (“FTC”) last week. Debt parking, also known as “passive debt collection,” occurs when debt collectors place false or questionable debts on a consumer’s credit report without first contacting the consumer. The debts often go unnoticed until a consumer applies for a loan or a job, at which point the consumer must hastily pay off the debt to prevent them from interfering with those other important transactions rather than dispute the debt’s authenticity. This latest order signals that the FTC, in addition to the Consumer Financial Protection Bureau, continues to take an active role in enforcing federal consumer protection laws and strictly punishes noncompliance.
The FTC filed a complaint in federal court against Midwest Recovery together with the stipulated final order and injunction. According to the complaint, Midwest Recovery and its owners had collected $24.3 million on debts that consumers did not owe or that Midwest Recovery was not authorized to collect and had wrongly reported over $98 million in debts since 2015, usually without first informing consumers. It stated that Midwest Recovery itself had found that around 90 percent of the debts it investigated were inaccurate or invalid. Much of that parked debt was medical debt, which the FTC noted is especially difficult for consumers to handle, or portfolios originated by Joel Tucker, who has been the subject of several FTC enforcement actions for selling unauthorized or counterfeit debts. The complaint further alleged that Midwest Recovery often failed to meet disclosure deadlines under the Fair Debt Collection Practices Act (“FDCPA”), even when it did communicate with consumers about the debts.
The complaint raised multiple claims against Midwest Recovery, alleging first that Midwest Recovery violated the Federal Trade Commission Act (“FTC Act”) by making false or unsubstantiated claims that consumers owed debts. Second, the complaint alleged Midwest Recovery violated the FDCPA by making false or misleading collection representations, engaging in unfair collection practices, and failing to provide validation notices. Third, it claimed Midwest Recovery violated the Fair Credit Reporting Act (“FCRA”) and its implementing rule, Regulation V, by furnishing inaccurate information to consumer reporting agencies, failing to conduct reasonable investigations of direct disputes, and failing to report the results of its investigations.
Under the stipulated order, Midwest Recovery is prohibited from furnishing credit information before communicating about the debt with the consumer, making any further misrepresentations, or otherwise violating the FTC Act, FDCPA, FCRA, or Regulation V. It also must request that CRAs delete the tradelines for any debts Midwest Recovery reported prior to entry of the order. The terms of the FTC’s order make clear Midwest must delete tradelines for all previously reported debts, not simply the $98 million the FTC contends was parked. Finally, the order included a judgment for $24.3 million, suspended in part due to Midwest Recovery’s inability to pay. Midwest Recovery is required to pay $56,748 and surrender all its assets, and owner Brandon Tumber must pay $56,748, divest his ownership interest in another debt collector, and transfer the proceeds to the FTC as well. While four of the five FTC commissioners agreed to the stipulated order, Commissioner Chopra issued a statement objecting because it did not adequately redress the victims and did not ban Midwest Recovery or its owners from future debt collecting.