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From Banking and Finance Law Daily, July 22, 2014

FTC, New York AG partner to halt debt collection “hoax”

By Katalina Bianco, J.D.

The Federal Trade Commission and the New York Attorney General’s Office put a stop to the alleged predatory and abusive practices of a debt collection organization when a U.S. District Court heeded their request to issue a temporary restraining order and asset freeze against the collectors. The FTC and AG’s office filed a joint complaint in the U.S. District Court for the Western District of New York seeking to halt a group of Buffalo-based debt collectors that the agencies say used “strong-armed tactics” to pursue a “fraudulent debt collection strategy” that victimizes consumers.

The FTC and AG charged three individuals—Joseph C. Bella, III, Diane Bella, and Luis A. Shaw—and nine interrelated companies under their control. Doing business under various names, including National Check Registry, the operation began using another name, eCapital Services, LLC, to evade detection and continue its illegal behavior after signing an agreement with New York state authorities in October 2013 that prohibited it from violating federal and state debt collection laws, according to the agencies.

Agency memorandum. The debt collectors have been running the operation since February 2010, according to the agencies. Since that time, the operation collected at least $8.7 million dollars in payments for purported debts. In the agencies’ memorandum in support of the TRO and asset freeze, the FTC and AG referred to the organization’s activities as a “pay up or else” collection scheme that is nothing short of a “high-pressure hoax.” According to the memo, there is “no reasonable basis” for the organization’s claims that consumers committed fraud, and the debts are “dubious.” Further, the collectors’ “threats of dire consequences are a sham.”

“These debt collectors continued to harass consumers and violate the law after the validity of the debt was called into question, and after the New York Attorney General’s office ordered them to stop,” said Jessica Rich, director of the FTC’s Bureau of Consumer Protection. “By working together with our state partners, we can leverage our resources to stop these illegal tactics.”

Specific charges against operation. The FTC and AG charged the operation with violating federal and state law, specifically the Federal Trade Commission Act, Federal Debt Collection Practices Act, N.Y. Executive Law, and N.Y. General Business Law. Specifically, the government agencies alleged that the operation:

  • misrepresented that consumers had committed check fraud or other criminal acts;

  • falsely threatened to arrest or imprison consumers, sue them, garnish their wages, or put a lien on their property;

  • failed to provide consumers with debt collection notices and disclosures that are required under state and federal law, making it difficult for consumers to determine whether they owed the debt, and how they could dispute its validity;

  • charged illegal fees, including an illegal $8 “processing fee” when consumers made payments on supposed debts over the phone;

  • improperly revealed consumers’ debts to third parties; and

  • continued trying to collect a debt from a consumer who had discharged the debt in bankruptcy.

Court order. The agencies and the debt collection organization filed a stipulation agreeing to the entry of the preliminary injunction. The court, finding good cause to believe that consumers would suffer immediate and continuing harm from the operation’s ongoing violations, granted the agencies’ request for the TRO and asset freeze and appointed a receiver pending trial so as to provide the FTC and AG with immediate access to the operation’s business premises and records.

Companies: eCapital Services, LLC; National Check Registry.

MainStory: TopStory CrimesOffenses DebtCollection EnforcementActions NewYorkNews

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