How to fight phantom-debt collectors

New scam artists already know personal data about you

Tougher rules on debt collection are coming, but consumers still need to be on guard with callers demanding money -- especially now that a new, data-driven scam is on the rise.

As your identifying data becomes easier for crooks to discover, shadowy callers are using it to collect "phantom debt," which either doesn't exist or they're not entitled to collect.

How to fight phantom-debt collectors

Debt collection draws more complaints than any other financial industry. Our two-part examination of the subject looks at proposed new rules for collectors, and how you can protect yourself from collections cons.

How to fight phantom-debt collectors
Tougher rules coming for debt collectors

"A lot of times they're calling with information that convinces people they are real," said Steven Baker, Midwest director for the U.S. Federal Trade Commission.

Sue Lindner found this out the hard way after paying $1,400 to a pushy caller. The Owasso, Oklahoma, resident got a call from "Transcontinental Process Servers" demanding $2,800 that was supposedly owed on her First National Bank of Omaha credit card.

"The representative knew my name, address, phone number and claimed to have my credit card number," Lindner said in a sworn statement to the FTC. She agreed to make payments because she and her husband did, in fact, owe money to the Omaha bank.

"The woman also threatened to garnish my wages and clear out my bank account," Lindner said.

But the supposed "process server" had no right to collect Lindner's debt, though she seemed to know about it. The FTC shut down the company behind Transcontinental in 2014, in one of three court crackdowns involving phantom-debt collectors.  

"What we've traditionally seen are people collecting debts, going beyond legal tactics," Baker said. "The real difference here is the people we've been suing have no right to collect the debt -- at all."

Sensitive data not secret
It's important to remember your identifying details are not necessarily secret anymore, even if you are cautious about the information you share. Just because a caller knows a lot about you doesn't make them legitimate. Scammers can piece together sensitive information from numerous sources:

  • Data breaches. Cybercriminals sell stolen account numbers plus Social Security numbers and birth dates on a global underground market. Investigators have probed anonymous online bazaars where millions of people's identifying details are sold.
  • Data brokers. Information warehouse companies put together details about you for marketing purposes, but that data can also be turned to less legitimate uses. Federal investigators found that data brokers were often willing to sell people's data to companies they had failed to check out. In at least one case, people's files were sold directly to a cybercriminal.
  • Debt sales. Billions of dollars in unpaid debts are passed around on an unregulated market, sometimes with little regard for debtors' privacy. In 2014, the FTC went to court against two debt sellers, Bayview Solutions and Cornerstone and Co., which publicly posted 70,000 people's sensitive information online. The data included bank account and credit card numbers, birth dates, contact information and even the names of people's employers. Spreadsheets containing the information were viewed more than 500 times before court injunctions removed them from the Internet, according to the FTC's annual review of debt collection actions.

The representative knew my name, address, phone number, and claimed to have my credit card number.

-- Sue Lindner
Collection fraud victim

Some phantom-debt collectors targeted by the FTC in 2014 obtained information from online lead-generating companies. People looking for payday loans on the Internet were lured into providing identifying details, Baker said. The leads -- which sold for 50 cents per person -- included information about the loans people sought, as well as their identifying details.

"This is incredibly sensitive," Baker said. "This is names, addresses, Social Security numbers -- I would be exceedingly cautious about applying for a payday loan online."

ID theft connection
Erica Benning of Enola, Pennsylvania, had already been a victim of identity theft when she started getting calls about a legal claim against her for a vague debt. She thought the unfamiliar debt was a fraudulent account set up in her name and offered to send the caller a copy of her ID theft police report. But instead of backing off, "The representative told me that I was lying to her in order to avoid paying the debt," Benning said in a sworn statement to the FTC in 2013.

The caller had few details of the supposed debt, but she did have Benning's full Social Security number. The FTC was able to connect the caller's phone number to Pinnacle Payment Services, one of the three phantom-debt collectors shut down in 2014.

With shadowy collectors masquerading as the real thing, how do you determine if a call is legitimate?

Questions are the silver bullets to use against a phantom-debt collector, experts say. While collectors -- legitimate and otherwise -- may brush off challenges about their right to collect, the first step in dealing with a collection attempt is to pin down the caller's link to your financial past.

That's how Lindner fought back against a phantom debt. After turning over her bank account number for a partial payment, she had second thoughts. She called Transcontinental Process Servers back, this time with a debt-settlement representative on the line.

The people we've been suing have no right to collect the debt -- at all.

-- Steven Baker
Federal Trade Commission

"During the three-way call, the man working to settle our debts called the TPS representative's bluff by asking all kinds of questions that the TPS representative could not answer," Linder's statement said. At that point she knew she'd been scammed and called her bank to stop payment. The $1,400 payment she'd already made was covered by the bank after Lindner filed affidavits describing the fraud.

The FTC says to start by asking for the caller's name, company, address and telephone number. Once you've asked for that information, you can go online to further investigate the collector. The agency has a list of banned collection companies and individuals to check. Many states license or oversee collection agencies and can help spot a scammer. The North American Collection Agency Regulatory Association has state-by-state list of contacts for consumer complaints and information.

Know your debts
People with a loose grasp of their own outstanding debts are most susceptible to phantom collections, said Todd Mark, vice president of education at the Consumer Credit Counseling Service of Greater Dallas.

"There's enough reasonable doubt in their mind, they think, 'Maybe I do owe this,'" he said. That uncertainty, combined with stress-inducing threats, makes them vulnerable to bogus claims. The antidote, Mark said, is to be familiar with your own credit report, and to resist pressure tactics.

"Never negotiate under duress," Mark said. Legitimate collectors will take their time and send written information about your debt. "A phantom-debt collector, they're not going to want to get anything in writing," he said.

Bogus collectors often omit a routine collection disclosure, victims' statements say. Collectors are supposed to inform you that the purpose of their call is to collect a debt, and the information you give them will be used for this purpose. If a caller from a company you don't recognize demands payment before issuing the disclaimer, it is a sign they are not on the up and up.

Spot the rule-breakers
Knowing this and other provisions of debt collection law -- the Fair Debt Collection Practices Act -- can help screen out phantom collectors. Consumer advocates say to:

  • Get it in writing. Professional debt collectors are required to provide you with a written notice within five days after first contacting you. Legitimate collectors usually drop these notices in the mail before calling. At the least, the name of the current creditor should be on this letter, and the amount of the debt claimed. It also spells out your right to dispute the debt.  
  • Resist time pressure. This can be difficult, as both scammers and legitimate collectors will push for immediate payment. But take threats of court action -- especially jail time -- with a healthy dose of skepticism. While it is remotely possible to be jailed for debt -- the American Civil Liberties Union is fighting laws in Georgia that jailed teenager Kevin Thompson over an unpaid traffic ticket -- it is rare. And real police will not call to warn you first or offer to let you off the hook in return for payment, as some fraudsters posing as police have done.
  • Check the paperwork. If there is a lawsuit filed against you, you must receive legal papers. Ask the collector for the jurisdiction of the supposed lawsuit and the case number. This can be checked with the local records hall. Many county records offices now have online systems that can confirm -- or disprove -- the existence of a lawsuit against you.
  • Validate the claim. Maybe you have a dim recollection of a debt that might remain unpaid, but it doesn't match the collector's demands. You have the right, within 30 days of first being contacted, to demand validation of the debt, if you do so in writing. Check's  form letters for communicating with collectors

A phantom-debt collector, they're not going to want to get anything in writing.

-- Todd Mark
Consumer Credit Counseling Service of Greater Dallas

Find out whether the collector in fact owns your debt. If a collector calls with the correct details of a debt you owe, you might still be suspicious of the collector's authority to collect. The details of your debt might have been exposed to more than one collector via the debt market, where sellers show samples of their portfolios to prospective buyers. When in doubt, experts say to check with the original creditor and confirm whether a collector is legitimate.

"They should be able to give you enough information to determine if it was a legitimate collector," Mark of the Dallas credit counseling service said.

Sometimes even knowing that calls are bogus isn't enough to get them to stop. Kathy Lynn Burns, a teacher in Ohio, was bombarded with threatening calls at home and at work similar to the threats slung at Susan Lindner. After confirming that her $250 payday loan from CheckNGo had been paid off, she told the callers from Williams, Scott and Associates that she was filing complaints against them with the FTC and local police.

Instead of diminishing, the threatening calls stepped up. "These calls were very disruptive for me at work because I teach in a classroom and could not take personal calls," Burns said in a sworn declaration in 2014.  

The FTC eventually shut down the phantom-debt collector. But if you know a collection attempt is groundless, you can launch your own legal crackdown. Under the FDCPA you may send a "cease communication" letter telling the collector not to contact you, period. If this is ignored, you have grounds for a lawsuit against them with a penalty of $1,000 plus legal costs.

Another important step is to file a complaint, Baker said. "We know the vast majority who are ripped off never complain," he said. "Even if we can't get your money back [a complaint] can help show the pattern." By helping to stop a scammer, a complaint "can help your friends, your neighbors."

 See related: FTC: Debt collectors go hunting with skimpy info for debtors

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Updated: 01-22-2018