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Court Shuts Down California Debt Collectors

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A federal court has halted the operation of seven debt collection companies in California accused of illegally lying to consumers, some of whom didn’t owe any debts at all. According to the lawsuit by the Federal Trade Commission, the companies falsely claimed that consumers had been sued, and faced arrest or seizure of property if they failed to pay.

Instead of contacting the alleged debtors, the companies had a policy of calling consumers’ family members and employers first “to create urgency,” according to internal documents included in the federal lawsuit. If the relatives and employers refused to participate, the debt collectors sometimes threatened them with vague warnings about legal costs and financial damage to their business.

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The companies took in $9.4 million in the alleged scam, which started in March 2009, according to a press release by the FTC.

“Consumers have a right to expect that debt collectors will be truthful and abide by the law,” FTC Commissioner Edith Ramirez said in a prepared statement. ”We allege that, instead, the victims in this case were subject to abusive and illegal debt-collection practices, and that cannot stand.”

The original company involved in the alleged scam was Rincon Management Services, LLC, of Corona, Calif. The other six companies were created later by co-defendants Jason R. Begley and Wayne W. Lunsford, according to the complaint.

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The companies did not respond to calls from Credit.com seeking comment. In an interview with ABC News, Christopher Pitet, an attorney for six of the companies, said that the businesses spent “a substantial amount of resources” to comply with federal fair debt collection practices law, and that an employee who allegedly threatened a woman in Missouri was fired immediately.

“If there are instances where employees did not comply with the act and mistreated debtors or did the things alleged in the FTC’s complaint, I will be the first to say those things never should have happened under any circumstance,” Pitet told ABC News.

All seven companies allegedly used similar illegal tactics to try to win payments from consumers, according to the FTC. Employees usually said they were lawyers when in fact they were not, according to the lawsuit, and sometimes claimed to work for the local county sheriff. Employees were given bonuses as rewards for collecting “legal fees” for lawsuits that didn’t exist.

“Defendants simply use these tactics in an attempt to unlawfully collect money from the consumer,” according to the complaint.

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Image: walknboston, via Flickr.com

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