We’ve heard it before: A debt collection company engaged in a “phantom” debt scheme in which they try to entice unsuspecting individuals into paying debts they don’t actually owe. While federal regulators have cracked down on these unscrupulous organizations in the past, they are now turning their attention to the companies providing information on these supposed debts. To that end, the Federal Trade Commission today ordered one such data company to pay $4.1 million.
The FTC announced today that it had obtained a $4.1 million judgment [PDF] against an operation that sold — for millions of dollars — lists of fake payday loan debts to debt collectors, who then used the information to collect unowed debts.
While it’s not uncommon for debt collectors to purchase portfolios of consumer debts for pennies on the dollar from third-party debt sellers, the information sold by SQ Capital, JT Holdings, and HPD LLC did not actually contain accurate information.
According to the FTC’s complaint [PDF] filed last year, beginning in July 2014, the companies — along with operator Joel Jerome Tucker — began marketing and selling counterfeit debt portfolios that purported to identify customers who had defaulted on payday loans.
In order to give the lists an air of legitimacy, the portfolios claimed that some of the loans were issued by fictitious lender “Castle Peak” or online lender 500FastCash.
In some cases, Tucker even allegedly used the name of his brother, payday loan vendor Scott Tucker, to give credibility to the debts.
You might remember Scott Tucker; he was recently found guilty on 14 charges including racketeering related to running a $3.6 million online payday lending operation that exploited more than 4.5 million people.
Additionally, the FTC claims that in some cases, the loans listed in the portfolio were real, but that the SQ Capital, JT Holdings, and HPD did not engage in any transaction that authorizes them to collect, sell, distribute, or transfer any valid loans.
Despite this, the complaint claims that debt collectors who purchased the portfolios were able to induce individuals to pay the fictitious debts.
Under today’s order, Tucker and his companies must pay a $4.1 million judgment that will be deposited to the U.S. Treasury.
The companies are also banned from handling sensitive debt information, including bank account numbers, credit or debit card numbers, or social security numbers.
Finally, the companies must destroy the personal information they provided and stop misrepresenting material facts about debts and any product or service.