The U.S. District Court for the Western District of New York recently issued orders against two New York-based phantom debt operations and their principals, resolving allegations of the companies’ “deceptive and abusive debt collection practices, including the marketing and selling of portfolios that are fake or the result of fraudulently originated loans, and attempting to harass consumers into paying debts that they do not owe.” The June 2018 complaint alleged that the defendants ran a deceptive and abusive debt collection scheme in violation of the FTC Act, the FDCPA, and New York state law. According to the complaint, the companies and their owners knew that certain debt portfolios the company owned contained fake debts that consumers did not owe, but allegedly placed these fraudulent debts with collection companies, who in turn illegally pursued consumers for payments. Further, the companies also threatened and harassed consumers to attempt to collect debts in violation of state and federal laws.
The settlement order against one company and its owners bans the defendants from debt collection activities, including processing payments on any debt. The order requires the defendants to pay a combined $676,575. The settlement order against the other company and its owner prohibits the defendants from engaging in unlawful collection practices and requires the payment of $118,000. The order also subjects both companies to twenty years of compliance reporting, monitoring, and record-keeping requirements.