Illinois A/G, FTC announce $7M settlement, ban 'phantom' debt collectors

By Dee Thompson | Nov 24, 2017

CHICAGO — A recent settlement involving the Federal Trade Commission and the Illinois Attorney General's Office against Chicago-based "phantom" debt collectors could bring in several million dollars.

“Operation Collection Protection” is a joint effort by the FTC and the Illinois Attorney General’s Office. They announced a settlement on Nov. 1 in an action against six Chicago-based debt collectors. The debt collectors had allegedly told consumers they were law firms and would file suit against them for non-payment.

The FTC and Illinois Attorney General's Office “alleged in March 2016 that Stark Law, Stark Recovery and Capital Harris Miller targeted people who had obtained or applied for payday or other short-term loans. Since 2015, they pretended to be a law firm with authority to sue and obtain substantial judgments against delinquent consumers. They also sold bogus payday loan debt portfolios to other debt buyers, who then tried to collect the fake debts,” according to a statement from the Illinois Attorney General's Office.

The statement also said that the settlements ban the operators from the debt collection business and from selling debt portfolios. The settlements also require the operators to surrender their assets totaling at least $9 million, much of which will be returned to impacted consumers across the country.

The action was initiated after complaints to the Better Business Bureau.

Levi Swank, an attorney at Goodwin Procter LLP in Washington, D.C., told the Cook County Record Illinois Attorney General Lisa Madigan is determined to curtail unfair collection practices. Madigan's term is set to expire in 2019, and she has announced she is not seeking reelection in 2018.

“The Illinois Attorney General [Madigan] is one of the most active attorney generals in terms of consumer financial enforcement actions, and actions against debt collectors have been a particular feature of AG Madigan’s agency," he said. "On March 10, 2017, she actually filed criminal charges against a debt collector who tried to go into business again after the debt collector was banned from the industry for activities similar to this one. So she has shown a willingness to police these kinds of orders that result in bans or fines and bring criminal charges when they’re violated."

Swank noted that not all of the judgment money is collectible, noting much of the $7 million judgment will be "suspended."

“In the order itself, it listed certain bank accounts that Stark Law and the individual defendants need to turn over to the FTC and the [Illinois] Attorney General. They estimate that those amount to about $9 million," Swank said. "That money is going to be put into a fund for consumers that paid money because of these allegedly false or misleading representations... and if there is any money left over, it’s going to get split evenly between the FTC and the [Illinois] AG.”

Swank would advise debt collection agencies to proceed carefully in light of this action and settlement.

“[D]on’t misrepresent the status of consumer debts," he said. "I think some of the less-obvious advice is for debt collectors. The representations that they can make to consumers in the course of trying to collect a debt can result in liability and them being banned from the industry."

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Federal Trade Commission Goodwin Procter LLP IL Attorney General Office

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