The Federal Trade Commission announced today that a U.S. district court has stopped an operation that allegedly collected millions of dollars in payday loan debts that consumers did not actually owe.

The FTC alleges that personal information about consumers who turned to payday loans during hard times found its way into the hands of the defendants, who then used it to threaten to arrest and jail consumers if they did not agree to make payments on a supposedly delinquent loan.

From the FTC:

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.

The FTC says that the consumers who were contacted did not actually owe any money, either because the payday loan didn’t actually exist, or because the person on the phone didn’t have the authority to collect the debt.

In the “typical” case provided by the FTC, a caller with an Indian accent reached a consumer’s wife at home and told her that her husband 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 her husband worked and threatened to send police there to arrest him. Despite not being delinquent on any loan and not owing money to the caller, the couple was afraid of the threatened arrest, so the husband paid $523.87 to the defendants.

Here at Consumerist, we’ve been hearing about similar behavior from “debt collectors” since at least 2008. Our favorite part of the scam was the way in which the callers would sometimes say they were from “Steve Martin’s office,” and explain that they were from a semi-secret government agency that had the authority to arrest people. It sounds silly when you read about it, of course, but because the person on the other end of the line had access to personal information that often included Social Security or bank account numbers, the calls were actually quite terrifying and effective.

Court Halts Alleged Fake Debt Collector Calls from India, Grants FTC Request to Stop Defendants Who Often Posed as Law Enforcement [FTC]
FTC Complaint (PDF) [U.S. District Court for the Northern District of Illinois Eastern Division]

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