FTC Halts Payday Loan Debt Scheme

The Federal Trade Commission said Wednesday (March 30) that it requested, along with the Illinois attorney general, and was granted, a request from a federal court to halt the operations of a Chicago area operation that used threatening tactics to collect on debts that were not owed to the firm.

As reported in a press release by the commission, the case is the first of its kind, as the FTC stated that the defendants — including six companies and three individuals — also created “phantom” portfolios of debt that were distributed to other debt collectors to target consumers. The roster of entities and individuals named by the FTC included Stark Law, Capital Harris Miller and Stark Recovery.

The FTC said the complaint noted that, for the past five years, the defendants employed a series of business names to target consumers who had gotten, or at least applied for, payday or short-term loans. These entities then pressured those individuals to pay debts that were not owed or that the firms and/or individuals had no authority to collect. The tactics included phone calls demanding immediate repayment, with knowledge of consumers’ sensitive financial and personal information, and threats of retaliation for fraud — despite the fact that failing to pay a private debt is not, in fact, a crime.

In addition, the defendants also disclosed debts to victims’ relatives, friends and even coworkers. They also failed to register as debt collectors in the state of Illinois, as is required by law. The defendants listed above also provided bogus payday loan debt information to other debt buyers who then went to collect on those fake debts.

In many cases, victims paid off debts that they did not owe out of fear or out of a desire to stop the harassment.