FTC Settlement is Largest Ever for a Debt Collection Agency

West Asset Management has agreed to pay $2.8 million, the largest civil penalty ever won by the FTC in a debt collection case, to settle charges that it violated the FDCPA when collecting debt from consumers.

West Asset Management employs over 1,500 collectors and manages collections on over 20 million delinquent accounts. The FTC alleged that West Asset Management, Inc. violated the FTC Act and Fair Debt Collection Practices Act when collecting debts from consumers. It would be easy to simply dismiss this as an example of a bad collection agency, but this is a major collection agency that is part of all the major trade organizations and the Federal Trade Commission continues to report more complaints about debt collectors than any other single industry.

Here are some of the FTC’s complaints against West Asset Management, all of which violated federal law:

• Calling consumers multiple times per day, sometimes regarding debts they did not owe
• Using abusive or rude language over the phone
• Telling friends and relatives about consumers’ debts
• Contacting consumers after receiving written notification to cease and desist contact
• Withdrawing funds from consumers’ bank accounts or charging their credit cards without proper permission
• Falsely telling consumers that they could be sued, arrested or even have their property seized if they didn’t pay the alleged debt

The $2.8 million civil penalty is the largest civil penalty the FTC has ever gotten in a debt collection industry case. Perhaps the fine will send a significant message to the industry about the importance of abiding by federal laws when collecting on debts, but it most certainly will not be much solace for individual debtors harmed by West Asset Managements unfair debt collection tactics.

This is a disgraceful list of accusations against a supposedly reputable agency. West reports on it’s website that it:

ranks as one of the nation’s top accounts receivable management companies and is the vendor of choice for the largest healthcare system in the United States, seven of the top 10 credit card issuers, and other Fortune 500 companies

West is also a member of the ACA International, which supposedly holds its members to high standards. It will be interesting to see if ACA continues to accept West’s dues. It certainly makes you question the legitimacy of the entire debt collection industry when you hear about these types of actions and a company paying record fines to make the problem go away.

Consumers who believe West Asset Management broke the law in attempting to collect debts from them should consider consulting a consumer law attorney. Under the FDCPA they may be entitled to damages as well as attorney fees.

A Florida Judge has rule that collection agencies cannot use Facebook to contact debtors.

Debt Collectors looking to use Facebook, MySpace LinkedIn and other social media sites will have try another tactic. Last week, a Florida judge ordered Mark One Financial LLC, a debt collection agency, to stop using Facebook and other social media websites to locate debtors.

Mark One Financial had been sued for, among other things, using Facebook to locate a Tampa woman over her $362 late payment on her car loan. The presiding judge, W. Douglas Baird, ordered the Jacksonville, Fla. company to refrain from contacting the woman’s family or friends on Facebook.

Melanie Beacham filed a lawsuit last August against the collection agency. According to her complaint, Mark One sent several messages to Ms. Beacham herself and her family members on the Facebook networking site. Messages asked her family to have her call the agency asap about the alleged debt.

Billy Howard of the Morgan and Morgan law firm in Tampa, said the debt collectors violated his client’s privacy and the agencies actions constituted harassment under Florida law. He said that in the past few months, over a dozen potential clients have reached out to him because debt collectors have used social media sites to track them down or harass their friends and relatives.

“It’s the beginning of an epidemic,” Howard said, calling it “another weapon” unethical debt collectors can use, if allowed.

Allegedly, Mark One contacted Ms. Beacham up to 10 times a day by phone, sent text messages to her cell phone, called her neighbors and dispatched a paid courier to deliver a letter to her place of work. Last November, Mark One said it would not discuss Beacham’s case and denied breaking any Federal or Florida laws. However, the company did acknowledged that instructs its collectors to use Facebook to find people when they don’t respond to efforts at contact, like sending letters and making phone calls.

This is not an isolated case, as many consumers are filing suits relative to being contacted via social media. In one Chicago case, a man accepted a new friend request from a young woman in a bikini. But, much to his surprise, the account was a debt collector’s. The man figured this out when the new Facebook “friend” posted a message on his wall for all his friends to see. The message read: “Pay your debts, you deadbeat.”

Arizona Attorney General Tom Horne announced a settlement with Quik Cash, a unit of publically traded QC Holdings Inc. (QCCO)

The lawsuit alleged that Quik Cash’s collections practices “raised an onerous burden” for the customers that they sued. Quik Cash claims it did not do anything illegal, but the Attorney General disagreed. Basically, Quik Cash sued Arizona customers over payday loan debts of $500 or less. However, they sued all of their Arizona customers and even some Nevada residents in Pima and Maricopa counties.

The catch? Many of these clients received loans at locations hundreds of miles away. This made it extremely difficult for the cash-strapped payday loan or cash advance customers to attend the hearings. Therefore, default judgments and subsequent garnishments were easy for the company to obtain.

According to a press release from the Arizona AG:

[Quik Cash], in order to obtain as many defaults as possible against consumers who lived outside of Pima and Maricopa counties, filed for default judgments and, in many cases obtained garnishment orders, in Pima County against non-county residents. Quik Cash’s actions allegedly deprived consumers of their right to appear in court or to contest judgments and garnishments and in some cases, allowed Quik Cash to collect on debts consumers had already paid.

This is very similar to issues with phantom service that we have seen in the credit card collection industry. However, I’m amazed that lenders would proceed with legal actions against consumers for payday loan debts of less than $500. This seems like it would clog up our court system and would only really be beneficial or economical for the lender if consumers did not have a chance to protest of challenge the proceedings. My guess is that this is why Quik Cash pursued this course of action, which the Attorney General refers to as “consumer fraud.”

Ironically, Quik Cash is no fly-by-night payday loan shop. They are one of the nation’s largest payday loan companies, a member of the CFSA (which supposedly supports best practices by it’s members) and are publicly traded under the ticker symbol QCCO. QC Holdings Inc. is based in Overland Park, Kansas.

The FTC has settled a case against a payday lender that illegally garnished consumers wage, among other illegal debt collection tactics. According to the FTC’s complaint, Ecash and GeteCash, offered loans to be paid back using borrowers’ future paychecks. Online loan applicants were required to check a check box indicating their agreement with the terms of the loan, including a hard to find “wage assignment” clause that said that their wages would be garnished to cover delinquent loan payments. Then, using the name LoanPointe, the defendants attempted to collect on delinquent payday loans by sending garnishment notices directly to consumers’ payroll departments.

Federal law allows federal agencies to require employers to garnish employees’ wages without a court order when the employees owe the government money, for tax debts for example. In letters to employers that sought garnishment of their employees’ wages, GeteCash and LoanPointe tried to pass themselves off as having the same collection rights as the government. The FTC’s complaint also alleges that GeteCash and LoanPointe falsely stated that consumers knew their pay would be garnished and had an opportunity to dispute the debt. In addition, GeteCash and LoanPointe allegedly violated the law when they told employers and co-workers about consumers’ debts without their consent. (See the complaint HERE)

Under the settlement order, Mark S. Lofgren is banned from collecting debts through wage assignment. He is also permanently prohibited from misrepresenting facts in order to collect a debt; contacting a consumer’s employer in trying to collect a debt, unless he is seeking location information or has a valid court order of garnishment; and disclosing a debt to any third party. In addition, Lofgren is barred from violating the Credit Practices Rule and the Fair Debt Collection Practices Act, selling or otherwise benefiting from customers’ personal or financial information, and failing to properly dispose of customer information. The order imposes a $38,133 judgment that is suspended based on his inability pay. The full judgment will become due immediately if he is found to have misrepresented his financial condition.

It is very disappointing to me that this penalty is so light. Basically, Mr. Lofgren is barred from violating the law again and the fine is waived since he can’t pay it. Why someone like this is not banned from issuing payday loans online or collecting on payday loans in general, is beyond me.

Wage garnishment or wage assignment is a frequent tactic used by payday lenders to recover on delinquent debts. This practice has been expressly banned by the FTC, but payroll departments across the nation continue to be ignorant of the law and process these garnishments. You can use our payday loan wage garnishment letter to prevent these garnishments about 95% of the time.

There are many debt collection videos on YouTube, so I thought I’d take the time today to share my Top 5 of these videos. Some have strong language so be careful watching these at work. Please share your thoughts and favorites in the comments section.

5. Premier Credit of North America – Calling on Federal Student Loans
In this recorded call, I debt collector yells into a voice mail machine. What makes this noteworthy is not the message itself, but the fact that they are (supposedly) collecting on behalf of the U.S. Government. It should be noted that the IRS ended private debt collection over a year ago, but private collection on Federal Student Loans continues.

4. DS Solutions Prank Call
I find this video hilarious. A guy was getting frequent calls from an agency regarding someone else’s debt. Instead of fighting it, he started having some fun with them on his own.

3. ABC News 20/20 Highlights Abusive Collection Tactics
This one is a bit long, but ABC News 20/20 did a great job of highlighting some of the worst tactics in the debt collection industry in this segment. Foul language, calling someone “ghetto”, fat or a loser and generally abusive and illegal tactics.

2. American Credit Collections – How Not to Collect a Debt
In this clip, the client is calling American Credit Collections, who is trying to collect on a debt beyond the statute of limitations with Providian Financial credit card. The rep escalates to threatening to “go to any length to embarrass the customer.” Then, the rep gets really angry when the customer sends them his recorded calls and refuses to verify the debt (which is against the law). The customer also points out to the rep that her agency is no licensed. This is a very interesting series of collection calls.

1. Midland Marketing – Payday Loan Scam
The top rated clip features Midland Marketing making calls as an “officer.” These guys sound a lot like the Indian Payday Loan Scam I’ve written about extensively. They are a complete fraud and as usual, they threaten to take him to some unnamed “court.”

Pennsylvania AG Tom Corbett

In an amazing story, a Pennsylvania debt collection company has been sued by the Pennsylvania Attorney General for using a fake courtroom to attempt to collect debts from consumers. According to the AG the company used a fake courtroom “to mislead, confuse or coerce consumers.” The main issue in the complaint is that bogus “hearings” were allegedly held in a company office that was decorated to look like a courtroom.

Corbett said the civil lawsuit was filed by the Attorney General’s Bureau of Consumer Protection against Unicredit America Inc., with corporate and business offices located at 1537 West 39th St., Erie, also identified as the “Unicredit Debt Resolution Center.” “This is an unconscionable attempt to use fake court proceedings to deceive, mislead or frighten consumers into making payments or surrendering valuables to Unicredit without following lawful procedures for debt collection,” Corbett said. “Consumers also allegedly received dubious ‘hearing notices’ and letters – often hand-delivered by individuals who appear to be Sheriff Deputies – which implied they would be taken into custody by the Sheriff if they failed to appear at the phony court for ‘hearings’ or ‘depositions’.”

According to the lawsuit that was filed last month, fake court proceedings were utilized to manipulate consumers into giving Unicredit access to clients’ bank accounts, making immediate cash payments or surrendering their vehicle titles or other physical assets – sometimes they even had Unicredit employees go to consumers’ homes in order to retrieve documents or have consumers sign payment agreements.

Corbett said Unicredit allegedly used civil subpoenas to summon consumers to an office in Erie, which included an area referred to by Unicredit employees as “the courtroom.”

The fake courtroom allegedly contained furniture and decorations similar to those used in actual court offices, including a raised “bench” area where a judge would be seated; two tables and chairs in front of the “bench” for attorneys and defendants; a simulated witness stand; seating for spectators; and legal books on bookshelves. During some proceedings, an individual dressed in black was seated where observers would expect to see a judge.

It is amazing that anyone actually thought they would get away with this. Rogue collectors like this really give the collections industry a bad name, so it’s good to see them being punished by the PA Attorney General.

Maryland Suspends Debt Collector License

The Maryland Collection Agency Licensing Board, a division of the Office of the Commissioner of Financial Regulation, decided last week to suspend the collections license of the Kansas-based collection agency that specializes in payday loan collections. The agency also issued a cease and desist order covering all collection activity by the company. As a part of the order, the company must turn over all information regarding its payday loan debt collection activities to the state of Maryland.

Smith Haynes & Watson was attempting to collect payday loans from a number of clients, including East Side Lenders LLC, a Delaware company. Back in early 2008, the Office of the Commissioner of Financial Regulation began investigating the lending practices of East Side Lenders, due to a number of Maryland consumer complaints. The agency subsequently determined that the lender’s agreements constituted usury and were not legal in Maryland. East Side Lenders was not licensed to do business in the state of Maryland, although they are licensed with the state of Delaware and claim the ability to export that state’s law.

In June of 2010, the state issued a cease and desist order to East Side Lenders. But the Collection Agency Licensing Board contends that it warned Smith Haynes & Watson in July 2009 that any loans from East Side Lenders were not enforceable in the state of Maryland. Despite the warning, the state claims the collection agency continued to pursue consumers for collection. The state also claims that it followed up the warning with multiple letters over the second half of 2009, but no action was taken by Smith Haynes.

According to court filings, the suspension is effective immediately, but the Smith Haynes can request a hearing within 15 days to protest the suspension.

Texas AG Greg Abbott

Texas Attorney General Greg Abbott has charged an Oklahoma based payday loan company with impersonating a state official. Patrick D. “Dylan” White, whose businesses operate in Texas as CASHMAX, Fed Cash, TOPCASH and Cash Service Center, is owner of Federal Cash Advance of Oklahoma, LLC, and maintains offices in Dallas County.

According to State investigators, the defendant sent deceptive collection letters to Texans with outstanding payday loan debts. The letters were delivered in envelopes that contained the Dallas County Clerk’s forged signature and improperly bore the official seals of both the State of Texas and Dallas County. Inside the envelopes, the defendant inserted notices of debt collection that instructed recipients to call a telephone number, which belonged to Federal Cash Advance’s CASHMAX offices.

The notice letters illegally threatened criminal prosecution, referenced a phony “case number” and cited fictitious criminal penalties of up to five years in prison and heavy fines.

The Texas Finance Code prohibits debt collectors from threatening debtors with prison sentences. It also bans deceptive collection notices that improperly pressure debtors to pay their debts.

The State is seeking court-ordered penalties of up to $20,000 per violation of the Texas Deceptive Trade Practices Act and the Finance Code.

It is our hope that these companies are given the maximum penalty. Dealing with debt collectors is tough enough without them not playing by the rules, threatening criminal prosecution and impersonating state officials.

You can view the sample fraudulent collection letter.

New York AG Cuomo Closes Collection Agencies

New York Attorney General Andrew Cuomo is continuing his crusade against rogue debt collectors. His office announced on Wednesday that they have launched a statewide inquiry into debt collection agencies.

In addition, they have obtained a court order against Lamont Cooper and his two debt collection companies, Emanee Development, Inc. and Dial Tech LLC, under which the companies will shut down and Cooper will be forced to pay restitution to consumers statewide.

According to Cuomo’s Office, Cooper’s collections companies unlawfully lied to consumers, threatened to arrest them, and intimidated them into paying debts that they sometimes did not even owe. They would often call third parties like neighbors or employers to further embarrass and harass consumers. Emanee and Dial Tech allegedly did business under the names of various shell companies and fictitious law firms across the state, including: Claims Process Services, Claims America, CMC Recovery Services, Lomax & Barnes and Murray, Bradshaw & Associates.

Cuomo also announced that his Office has subpoenaed nearly 20 other debt collectors across the state of New York in his ongoing investigation into various practices of the debt collection industry.

Attorney General Cuomo has subpoenaed nearly twenty companies and law firms operating as debt collectors throughout the state. The subpoenas included requests designed to discover the policies and procedures the debt collectors have implemented to comply with federal and state laws, how the companies respond to complaints about their collection practices, as well as how individual collectors are compensated.

The companies subpoenaed by Cuomo’s Office include:

• Cavalry Portfolio Services, LLC
• Cohen & Slamowitz, LLP
• Debt Recovery Solutions LLC
• Eltman, Eltman & Cooper
• Forster and Garbus
• LHR, Inc
• Mel S. Harris & Associates, LLC
• Med-Rev Recoveries, Inc.
• Mitchell N. Kay, P.C.
• NCO Portfolio Management, Inc. and NCO Financial Systems, Inc.
• North Shore Agency, Inc
• RJM Acquisitions LLC
• Rubin & Rothman LLC
• Sharinn & Lipshie P.C

You may remember LHR from the Dateline NBC special about a month ago. Perhaps Cuomo will thank Chris Hansen and Dateline for helping him out on this investigation.

Also, several of the agencies above were involved in a previous action by Cuomo.

Read the full press release HERE.

Read the Business Week Report on this HERE.

Yesterday, in U.S. District Court in San Jose, a jury awarded a California couple $500,000 in a fair debt collection case.  Credigy Services Corp. was found to be in violation of the Fair Debt Collection Practices Act and were trying to collect on money that was not owed.

The jurors in the cases cited Credigy Services Corp. used intentional and systematic efforts to cause emotional distress for the consumers, Manuel G. Fausto and his wife Luz.

Credigy Service Corp’s lawyers said it’s too early for them to comment on the jury’s decision. U.S. District Court Judge James Ware has yet to enter judgment on the case. If he does not approve the verdict, that could give Credigy’s attorneys an opportunity to get it overturned.

This is certainly a huge win for consumers, not to mention the Fausto’s. Let’s just hope the judge upholds the jury’s decision and sends a message to debt collectors who violate state and federal laws.

UPDATE: The Faust’s lawyers have sent me a link with more details on this debt collection lawsuit.