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At the request of the Federal Trade Commission, a U.S. district court has halted an operation that the FTC alleges collected phantom payday loan “debts” that consumers did not owe.  Consumers received millions of collection calls from India, and that since January 2010 the operation took in more than $5 million from victims, according to the FTC.

In tough economic times, many consumers turn to high-interest, short-term payday loans between paychecks.  The FTC alleges that information submitted by consumers who applied online for these loans found its way into the hands of the defendants.    

Often pretending to be law enforcement or other government authorities, the callers working with the defendants would falsely threaten to immediately arrest and jail consumers if they did not agree to make a payment on a delinquent payday loan, the FTC’s court papers stated.  Claiming to be law enforcement, such as a local police department, the “Federal Department of Crime and Prevention,” or simply a “federal investigator,” the callers typically demanded more than $300, and sometimes as much as $2,000.  At other times, the callers said they were filing a large lawsuit against the consumer because of the delinquent payday loan or would have the consumer fired from his or her job, according to the FTC. 

But the consumers did not owe money to defendants – either the payday loan debts did not exist or the defendants had no authority to collect them because they are owed to someone else, according to the FTC.  The court order stops the illegal conduct and freezes the operation’s assets while the FTC moves forward with the case.

“This is a brazen operation based on pure fraud, and the FTC is committed to shutting it
down,” said David Vladeck, Director of the FTC’s Bureau of Consumer Protection.  “Consumers should not be pressured into paying debt they don’t remember owing.  Legitimate debt collectors must provide consumers with both written information about the debt, and instructions for protecting themselves if they don’t think they owe the debt.”

The case of Mark Merola is typical of consumers the defendants targeted.  A caller with an Indian accent reached his wife at home and told her Merola would be arrested and immediately imprisoned if he did not pay what he owed on a payday loan.  The caller later said he knew where Merola worked and threatened to send police there to arrest him.  Despite not being delinquent on any loan and not owing money to the caller, Merola was afraid of the threatened arrest, so he paid $523.87 to the defendants.

As part of its continuing crackdown on scams that target consumers in financial distress, the FTC charged Villa Park, California-based American Credit Crunchers, LLC, an affiliated company called Ebeeze, LLC, and the companies’ owner, Varang K. Thaker, with violating the FTC Act and the Fair Debt Collection Practices Act.

Over the last two years, consumers have filed more than 4,000 complaints with the FTC and state attorneys general about fraudulent debt collection calls.                                                                       

According to the FTC’s complaint, Thaker obtained information – often including Social Security or bank account numbers – about consumers who had inquired about, applied for, or obtained online payday loans.  Thaker worked with telephone callers in India who called consumers using deceptive statements and threats to convince them to pay debts that were not owed or that he was not authorized to collect, the FTC alleged.

Thaker also profited handsomely from this scheme, according to documents filed with the court.  He has withdrawn tens of thousands of dollars from the American Credit Crunchers and Ebeeze bank accounts, the FTC alleged.

According to the complaint, Thaker and his companies:

• falsely told consumers they were delinquent on a loan, they must pay it, and the defendants had the authority to collect it.
• falsely claimed to be law enforcement authorities or attorneys.
• made false threats against consumers who refused to pay the alleged debts, including threats of arrest or imprisonment.
• harassed and threatened consumers so that they often paid the alleged debts out of fear of being arrested or sued.

For more information about how to handle callers who claim to be debt collectors, see Who’s Calling? That Debt Collector Could Be a Fake.

The Commission vote authorizing the staff to file the complaint was 4-0.  The FTC filed the complaint and request for a temporary restraining order in the U.S. District Court for the Northern District of Illinois Eastern Division on February 13, 2012.  The next day, the court granted the FTC’s request.  

The FTC would like to thank the following agencies for their help in this case: the Colorado Department of Law; West Virginia Attorney General; Kentucky Attorney General; Idaho Department of Finance; Wisconsin Department of Financial Institutions; and County of Santa Clara – Office of the District Attorney.

NOTE:  The Commission files a complaint when it has reason to believe that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The complaint is not a finding or ruling that the defendant has actually violated the law.  

The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them. To file a complaint in English or Spanish, visit the FTC’s online Complaint Assistant or call
1-877-FTC-HELP (1-877-382-4357). The FTC enters complaints into Consumer Sentinel, a secure, online database available to more than 2,000 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC’s website provides free information on a variety of consumer topics. Like the FTC on Facebook and follow us on Twitter.

(FTC File No. 1023191)
(American Credit Crunchers NR)