The Federal Trade Commission acted this month to halt the operations of a California-based company that it claims defrauded consumers out of $5 million in more than 17,000 transactions.
The court filings [PDF], a complaint seeking a temporary restraining order and freeze of company assets, claim that Orange County-based American Credit Crunchers LLC and affiliate Ebeeze LLC obtained personal information that people had entered in online payday loan applications.
Workers in Indian call centers then contacted consumers and claimed they were delinquent on a loan. The callers often impersonated law enforcement or government officials and threatened consumers with lawsuits and arrest, according to the filings. In reality, consumers did not owe the callers money. Victims of the scam often paid the company several hundred dollars.
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The owner of the companies, Varang K. Thaker, could not be reached for comment.
The company assets have been temporarily frozen. If a judge finds in the FTC's favor, the assets will be permanently frozen and redistributed to victims of the scam. The FTC also has passed along information on the case to Indian law enforcement, who theoretically could pursue legal action against the overseas call centers, said Elizabeth Scott, an attorney for the FTC's Midwest region.
Mark Merola, who lives in a Florida retirement community, was one of the victims. The company called him continually, said his wife, Janice."They said they were going to send cops and have him arrested," she said.
Although Merola did not think he owed any money on a loan, he became scared and paid $523.87, according to the filings.
The threats of arrest were a red flag that the company was operating a scam, because no one can be arrested for outstanding debts, said Tena Friery, research director at the Privacy Rights Clearinghouse, a nonprofit that aims to educate consumers about privacy issues.
The FTC doesn't yet know how the debt collection company obtained consumers' personal information. Legitimate sites could have been hacked, or fake payday lending websites could have lured unsuspecting consumers.
But the information also might have been sold to American Credit Crunchers. Many payday lending websites are operated by lead generators, which are marketing firms that do not process loans. They simply sell application data to the highest bidder, said Jean Ann Fox, director of financial services for the Consumer Federation of America, an advocacy organization. Because they are not lenders, they don't have to be licensed and don't face the same regulations, she added.
“This is the Wild West of the loan market,” she said.