FTC Halts $5 million Debt Collection Scam Operating in India

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

The FTC alleges that information submitted by consumers who applied online for short term or payday 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.

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.