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From Banking and Finance Law Daily, April 4, 2014

FTC recovers $3.3 million from debt collectors and bans them from industry

By Colleen M. Svelnis, J.D.

The Federal Trade Commission has recovered $3.3 million of assets from the owners of Rincon Debt Management, a consumer debt collection company, for violations of the FTC Act and the Fair Debt Collection Practices Act. In addition to the money judgment, the two principals, Jason R. Begley and Wayne W. Lunsford, have agreed to a settlement which also prevents them from participating in debt collection, permanently. The settlement includes a $23,084,885 judgment against the defendants, which will be suspended due to their inability to pay, except for $3.3 million in frozen assets that were held in trust for the victims of their illegal debt collection practices.

The action was brought under Sections 5(a), 13(b) and 19 of the FTC Act, which prohibits unfair or deceptive acts or practices, and 15 U.S.C. Sections 53(b) and 57b, and Section 814 of the FDCPA, to obtain injunctive relief and other equitable relief. The complaint alleges that the debt collectors, a limited liability company in California, which was also doing business as limited liability companies in Delaware, relied on deceptive and misleading representations to collect debt.

Illegal practices. According to the FTC, Begley and Lunsford would falsely claim that a lawsuit was going to be filed against the consumer to collect the debt. They would falsely assert that the consumer owed attorney fees and/or court costs for the fictitious legal action. Additionally, they falsely represented that they were process servers seeking to serve the consumer with legal papers pertaining to a lawsuit. “These debt collectors focused on Spanish-speaking consumers and other people who were strapped for cash, and preyed on them by using abusive collection tactics in violation of federal law,” said Jessica Rich, Director of the FTC’s Bureau of Consumer Protection.

Additionally, in connection with the collection of debts, the two debt collectors allegedly engaged in improper communications with third parties, did not meaningfully disclose their identity during telephone calls with consumers, and failed to notify consumers of their right to dispute and obtain verification of their debts.

Injunctive and monetary relief. The FTC applied for a temporary restraining order and to have the company’s assets frozen, alleging there was good cause to believe that immediate and irreparable harm would result from Begley and Lunsford’s ongoing violations, and that it would damage the court's ability to recover relief for consumers in the form of monetary restitution and asset recovery and sale.

The principals surrendered their personal assets, including “the rights to more than 3,500 American Eagle silver and gold coins.” In addition, Begley must pay a contempt judgment of $176,115 for selling his home in violation of the asset freeze imposed by the court. Lunsford must pay a $134,000 contempt judgment for the proceeds he received when he sold his home in violation of the asset freeze.

The FTC has continuing litigation against other companies that Begley and Lunsford used as part of their debt collection scheme.

Attorneys: Willard K. Tom (Morgan Lewis) for Rincon Management Services; Maricela Segura and Raymond E. McKown for the Federal Trade Commission

Companies: City Investment Services, LLC; Global Filing Services, LLC; National Filing Services; Pacific Management Recovery; Prime West Management Recovery, LLC; Rincon Management Services; Union Management Services, LLC

MainStory: TopStory ConsumerCredit EnforcementActions DebtCollection FairCreditReporting

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