A U.S. district court has halted an operation that allegedly collected phantom payday loan debts that consumers either didn't owe to the defendants or didn't owe at all.
The scheme involved more than 2.7 million calls to at least 600,000 different phone numbers nationwide, according to the Federal Trade Commission.
Kirit Patel, of Tracy, Calif., and two companies he controls were charged with violating the FTC Act and the Fair Debt Collection Practices Act.
In less than two years, the operation fraudulently collected more than $5.2 million from consumers, many of whom thought the money they were paying would be applied to loans they owed, according to FTC documents filed with the court.
The court order temporarily stops the illegal conduct and freezes the operation’s assets while the FTC moves ahead with the court proceedings and seeks refunds for consumers.
Often pretending to be American law enforcement agents such as "Officer Mike Johnson" or representatives of fake government agencies like the "Federal Crime Unit of the Department of Justice," callers from India who were working with the defendants would harass consumers with back-to-back calls, according to the FTC. One consumer reported that the caller threatened to have her children taken away if she did not pay, according to court documents.
Another consumer told the FTC, “The callers threatened me and claimed they would arrest me if I didn’t pay them the alleged debt. One of the callers even contacted my neighbors and told me he was watching my house. The callers had a lot of . . . personal information about me, including my work address. One caller told me, ‘We just saw you walk into your office building,’ and then listed my office address. Another caller told me there were 55 warrants out for my arrest. Sometimes my caller ID would indicate that the call was from the FBI. Because the callers knew so much about me, I believed they were police officers or FBI agents. The calls scared me and I was often shaking when I hung up the phone."
Patel could not immediately be reached for comment.
The FTC alleges that information submitted by consumers who applied for these loans online found its way into the defendants’ hands. Because the callers had this information – which often included Social Security or bank account numbers – consumers often believed that they owed the defendants the money, according to the FTC.
The defendants typically demanded several hundred dollars and, in violation of federal law, routinely used obscene language and threatened to sue or have consumers arrested, according to the FTC’s complaint. They also threatened to tell the victims’ employers, relatives, and neighbors about the bogus debt, and sometimes followed through on these threats, the FTC alleged.
Once victims were pressured into paying, the callers instructed them to use a pre-paid debit card such as a Wal-Mart MoneyCard, another debit card, a credit card, or Western Union so the money could be deposited into one of the defendants’ merchant processing accounts, the FTC alleged.
Even after victims made a payment, the harassing calls often continued, forcing them to change their phone numbers, or close their credit cards or bank accounts in an effort to get the calls to stop, according to documents filed with the court.
The FTC alleged that of the $5.2 million the defendants collected, almost $1 million was returned or charged back by their merchant processor, resulting in consumer injury totaling more than $4.2 million.