FTC Lawsuit Shuts Down Debt Collection Scheme

Following FTC actions, a federal court has temporarily halted a scheme involving “bogus debt collection companies” that sent fake collection notices to consumers nationwide.

The Federal Trade Commission filed a lawsuit in the U.S. District Court for the Central District of California this week to shut down operations of a “phantom debt collection scheme and its operators,” according to a news release.

The FTC’s complaint (PDF) outlined that “debt collectors working for the scheme’s operators and their affiliated companies have sent consumers deceptive warning and collection letters or called them directly, claiming that consumers owed a debt of some kind and threatening legal action, wage garnishment, negative impacts to consumers’ credit, and even arrest if they don’t pay. The debts described in these letters and calls never existed, according to the complaint, and the defendants have no basis to make legal threats toward consumers.”

The defendants also reportedly sent letters and made phone calls to consumers with claims they owed money to a payday lender, and they would be subject to a lawsuit if they did not pay the bill.

The FTC found that the letters often contained consumers’ personal information, including the last four digits of their Social Security number, that led the consumers to believe the letter may be a legitimate collection attempt.

“When consumers visit the websites set up by the defendants for the bogus debt collection companies, they are again faced with false warnings that failure to pay these fake debts could result in garnishment of the consumer’s wages, along with lawsuits and impacts to their credit,” the FTC reports. “In follow-up calls, the threats increase, with collectors falsely telling consumers that they have defrauded a financial institution, could be arrested at their workplace, or that their homes could be seized if they do not settle.”

The FTC asked the court to stop the defendants’ unlawful conduct and provide redress to consumers impacted by the fraudulent scheme.

ACA’s Take

ACA International will continue to work with the FTC, which is under new leadership of Chair Andrew Ferguson, and other regulators to help them understand the complex issues that legitimate debt collectors face. The association provides comprehensive compliance education and support for the overwhelming majority of debt collectors who operate lawfully, prioritize consumer protection, and serve an essential role in our credit-based economy.

Scams targeting consumers from bad actors posing as legitimate companies harm the accounts receivable management (ARM) industry, consumers and creditor clients.

More importantly, the scam of pretending to be a debt collector creates a misunderstanding among consumers and even elected officials. This misunderstanding obscures how the ARM industry helps consumers manage their debts and access affordable credit, restoring the credit-based economy.

Scams are not unique to the ARM industry, making enforcement from the FTC and other regulators even more important to help correct misconceptions about businesses caused by bad actors.

The lawsuit coincides with the FTC’s National Consumer Protection Week (NCPW), held March 2-8, 2025. This is a great time for ACA members to showcase the ways they educate and assist consumers on financial decisions.

During NCPW, government agencies and consumer protection groups work together to share information about consumer rights and help people learn to spot, report, and avoid scams. The FTC has also provided a list of resources you can use to bring NCPW to your community now, ACA previously reported.