Once again, federal regulators are cracking down on companies running “phantom” debt collection schemes that go after individuals for money they did not actually owe. This time, the Federal Trade Commission shut down an operation that collected more than $690,000 in fake debts by threatening consumers with lawsuits or arrests. 

The FTC announced today that it obtained a court order halting the business operations of Hardco Holding Group and S&H Financial Group, a debt collection operation accused of using deceptive and abusive practices to collect fake debts.

According to the FTC complaint [PDF], since June 2015, the companies — along with operators Daryl M. Hall and Dequan M. Sicard — illegally collected supposed payday loan and other debts from consumers using the treat of legal action or arrest.

Often doing business as Alliance Law Group, the companies employed a two-step collection process. The first step, the complaint alleges, involved calling victims claiming that a lawsuit had been or would soon be filed related to an outstanding debt.

In many cases, the collectors told individuals that they must call another number for more information, providing them with a callback number and a phony “case number” for reference. The FTC claims that during most of these calls, the operators of the scheme did not identify themselves as debt collectors.

When an individual called the provided number, they were often connected to a debt collector who falsely claimed to be an attorney or be working on behalf of attorneys, the complaint states.

To make these assertions seem legitimate, the FTC notes that the collectors would often possess or claim to possess individuals’ personal information, or claim to be from an unrelated, legitimate small business.

The rep then alleged that the individual was delinquent on a payday loan or other debt and that legal action would be taken.

The reps advised callers that they could settle the action by making a payment over the telephone using a credit or debit card.

In some cases, the complaint states, the collectors would threaten consumers with arrest if they failed to pay an alleged debt immediately.

Despite these claims, the FTC notes in its complaint that the collection agency was not working on behalf of a law firm, the callers were not lawyers, and often the debts being referenced were either not real or the operation had no authority to collect them.

In all, the FTC claims that Hardco and S&H Financial collected at least $690,000 in payments for alleged debts that were not owed and the company had no authority to collect.

The FTC charged Hardco and S&H Financial with violating the FTC Act and the Fair Debt Collection Practices Act, and seeks to refund individuals affected by the fake debt collection scheme.

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