A U.S. district court has temporarily halted the operations and frozen the assets of a debt collection company accused of engaging in abusive and deceptive practices.
The Federal Trade Commission claims that Rincon Management Services LLC of Corona called consumers’ family and workplaces, falsely claiming that a lawsuit was being filed against them. Debt collectors told consumers that they would be served with legal papers, arrested, or even have their property or wages garnisheed if they did not call back promptly. In fact, none of the consumers had lawsuits filed against them, and the company was not authorized to serve legal papers, withhold wages or arrest anyone, according to the FTC.
“They gave them a phony case number making it sound like it was a filed case in court, all in what was an apparent attempt by the debt collector to get the debtor to call back,” said Tom Syta, assistant regional director for the FTC.
Help us do more.
Once the consumer called back, the debt collector would offer to settle the imaginary case in exchange for immediate payment, the FTC alleges. Rincon Management Services, which targeted both Spanish- and English-speaking consumers, earned at least $9.4 million since 2009.
In many instances, the company targeted consumers who did not owe any money, according to the complaint [PDF].
The FTC has asked for a temporary injunction against the company. After that is granted, the FTC and the companies listed in the complaint will go through civil proceedings. If the judge finds for the FTC, the companies will have their assets permanently frozen, and the agency will try to return money that was wrongfully taken from consumers. The FTC does not handle criminal complaints, but other law enforcement agencies still have the option of investigating the company for criminal wrongdoing, such as racketeering and extortion.
According to the complaint, Rincon Management Services was doing business under at least 10 names, including Rincon Filing Services, Pacific Management Recovery and Union Management Services. The complaint also names company President Jason R. Begley and Manager Wayne W. Lunsford as defendants.
The Better Business Bureau gives the company a rating of D-, with four complaints over the last year. Ripoff Report, a website that allows users to post descriptions of shady business practices, lists 11 complaints against Rincon Management Services, which could not be reached for comment.
Rogue debt collection agencies can be difficult to stop because they often set up many disposable shell corporations, said Michael Petersen, a private investigator with Diversified Arbitration in Palm Desert, who is investigating Rincon Management Services as part of a separate lawsuit.
Even if consumers file suit and the court rules against a company, the owners can simply transfer money to another shell corporation and start the process all over again, he said. Because the collectors may use fake names when calling consumers, it can be difficult to stop the people responsible.
"You might as well be suing a cartoon character," Petersen said.
Such illegal practices are "incredibly rare," said Vickie Kirk, executive director of the California Association of Collectors, a trade organization for debt collectors. Debt collectors must abide by rules laid out in the federal Fair Debt Collection Practices Act, as well as the state's Rosenthal Act.
"This is one of the most highly regulated industries imaginable," Kirk said.
In 2010, debt collection was the No. 1 consumer complaint in California, according to the FTC's Consumer Sentinel Network report [PDF], which tracks consumer complaints. The database received 19,197 fraud and other complaints against debt collectors last year.
Debt collectors are not required to register, hold a license or receive any certification before going into practice in California, Syta said.
Last month, the FTC filed another complaint against Forensic Case Management Services Inc. In that case, the FTC contended that the company cursed at debtors, threatened to kill and eat their pets, and in one instance threatened to disinter and desecrate the body of a woman’s daughter if she did not pay her daughter's funeral costs. The Better Business Bureau received 178 complaints against that company over the past three years.