Yesterday the Federal Trade Commission (FTC) issued a press release announcing that, at the request of the FTC and Illinois Attorney General, a federal court has shut down a network of businesses and operators that falsely claimed to be debt collectors collecting real payday loan debts. The defendants also allegedly illegally provided portfolios of fake debt to other debt collectors – this is the FTC’s first case alleging that practice.

The case against six companies and three individuals who used names such as Stark Law, Stark Recovery, and Capital Harris Miller & Associates is part of Operation Collection Protection, an ongoing federal-state-local crackdown on collectors that use deceptive and abusive collection practices.

The defendants are Stark Law LLC, also doing business as Stark Recovery; Stark Legal LLC; Ashton Asset Management Inc.; CHM Capital Group LLC, also d/b/a Capital Harris Miller & Associates; HKM Funding Ltd.; Pacific Capital Holdings Inc., formerly known as Charles Hunter Miller & Associates Inc. and also d/b/a Pacific Capital; Hirsh Mohindra, also d/b/a Ashton Lending LLC; Gaurav Mohindra; and Preetesh Patel.

According to the Complaint, since at least 2011, the defendants used a host of business names to target consumers who obtained or applied for payday or other short-term loans, pressuring them into paying debts they either did not owe or that the defendants had no authority to collect. Other elements in the complaint were:

  1. The defendants called consumers and demanded immediate payment for supposedly delinquent loans, often armed with consumers’ sensitive personal and financial information. Defendants also allegedly threatened consumers with lawsuits or arrest, and falsely said they would be charged with “defrauding a financial institution” and “passing a bad check” – even though failing to pay a private debt is not a crime. In addition, the complaint claims that since 2015, the defendants have held themselves out as a law firm with authority to sue and obtain substantial judgments against delinquent consumers.
  2. The defendants also allegedly harassed consumers with improper phone calls, disclosed debts to relatives, friends and co-workers, failed to notify consumers of their right to receive verification of the purported debts, and failed to register as a debt collector in Illinois, as required by state law.
  3. In response to the defendants’ repeated calls and alleged threats, many consumers paid the debts, even though they may not have owed them, because they believed the defendants would follow through on their threats or they simply wanted to end the harassment.
  4. In addition to illegal collection allegations, the defendants are charged with providing bogus payday loan debt portfolios to other debt buyers, who then tried to collect the fake debts. According to the complaint, the defendants represented that the portfolios included delinquent debts owed to specified lenders and that the defendants had the right to market those lenders’ debts. However, those lenders had not made loans to the consumers identified in the portfolios, or authorized the defendants to market any of their debts.

The complaint was filed in the U.S. District Court for the Northern District of Illinois, Eastern Division. The court granted the FTC’s request for a temporary restraining order on March 22, 2016.

insideARM Perspective

The headline of the FTC press release read: “FTC and Illinois Attorney General Halt Chicago-Area Operation Charged with Collecting and Selling Phantom Payday Loan Debts.”

In conjunction with the press release, the FTC also published a blog by Bridget Small, Consumer Education Specialist, with the headline “Closing Time for a Fake Collector.

These are two headlines the ARM industry should like to see. Assuming the allegations in the complaint are true, these companies were not legitimate debt collectors. They should not be called “debt collectors,” “collection agencies,” or “collection law firms.” The individuals involved are not operators of legitimate businesses. Illinois Attorney General Lisa Madigan was quoted in the press release, “Phantom debt collection is one of the most brazen scams today. With the FTC, we are working to protect consumers by shutting down these scam operations.”

The first paragraph in the FTC Blog was perfect: “It’s fine to play ‘let’s pretend’ when you’re young; you can be an astronaut today and an inventor tomorrow. But grown-ups who pretend to be debt collectors and lie to get peoples’ money are headed for trouble.”

Readers often only skim headlines. Thank you to the FTC for not using the words “Debt Collector” or “Collection Agency” in their headlines on this story.

insideARM applauds the FTC, the Illinois Attorney General Office and the continued efforts of Operation Collection Protection. The ARM industry is better with the elimination of individuals and companies that use the collection industry as a disguise for illegal or unethical behavior.

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