FTC, New York AG File Suit Against Debt Broker and Collection Agency for “Phantom Debts”

The Federal Trade Commission and New York Attorney General charged an asset buying and debt collection operation with using intimidation and deception to take money from consumers for debts they did not owe, or that the defendants had no right to collect.

6/28/2018 6:00 AM

FTC, New York AG File Suit Against Debt Broker and Collection Agency for “Phantom Debts”

Curbing deceptive debt collection tactics across all financial products has remained a top priority for the Federal Trade Commission and, increasingly, State Attorneys General as well. Hylan Asset Management, LLC, a distressed consumer debt broker, and Worldwide Processing Group, LLC, a third-party debt collector, are only the latest target.

The FTC and New York State Attorney General filed a complaint June 26 in the Western District of New York against Hylan and Worldwide, as well as the companies’ corporate officers, who are involved in acquiring, collecting and/or reselling portfolios of distressed or charged-off consumer receivables from lenders, creditors, financial institutions and other holders of trade receivables.  The complaint alleges that the defendants violated the Federal Trade Commission Act, the Fair Debt Collection Practices Act and New York State law by marketing and selling debt portfolios that are allegedly “fake or the result of fraudulently originated loans, and attempting to harass consumers into paying debts that they do not owe.” The complaint requests, among other relief, a permanent injunction, consumer refunds, and civil penalties of up to $5,000 for each violation of New York law.

According to the complaint, the defendants “profited from collecting on [two types of] ‘phantom debt’” that consumers did not legitimately owe:  “counterfeit debts fabricated from misappropriated information about consumers’ identities and finances; and debts purportedly owed on bogus ‘autofunded’ payday loans that fraudulent enterprises foisted on consumers without their permission.”

The FTC and New York attorney general claim that Hylan purchased from Hirsh Mohindra allegedly “fake” debts originating from Joel Tucker. [Mohindra was a defendant in a separate 2016 FTC counterfeit debt portfolio action that resulted in him being banned from the debt collection industry.  Similarly, a federal court in Kansas ordered Tucker to pay more than $4.1 million for selling “phony” debt portfolios and banned him from handling sensitive consumer debt information after the FTC sued him in 2016.]  The FTC and New York attorney general allege in the complaint that Hylan continued to purchase, sell and place Tucker portfolios for collection despite having knowledge about the federal government’s actions against Mohindra and Tucker and internal concerns at Hylan about the accuracy and veracity of the information contained in the portfolios.

The complaint notes that in a November 2014 email message to Mohindra regarding a debt portfolio that originated from Tucker, Hylan’s corporate officer wrote, “’There is a MAJOR problem with data on this file. Either there was a data transformation error or there is major FRAUD with this file. [A Hylan employee] discovered that there are debtors with the same name and address that have different SSNs, same bank accounts but different names and/or SSN’s. THIS IS NOT KOSHER!’”

As for Worldwide, the FTC and the New York attorney general allege in the complaint that the collection agency attempted to deceive and intimidate consumers into paying the counterfeit debts and unauthorized loans Hylan placed with it for collection. Specifically, the FTC and the New York attorney general claim that Worldwide:

  1. Refused to provide consumers with information about the debts;
  2. Failed to send statutorily required validation notices about how to dispute the debts; and
  3. Made unlawful threats to harass consumers’ friends and family members.

Hylan’s counsel, Dennis Vacco, partner with Lippes Mathias Wexler Friedman and former New York state attorney general until 1999, was not available for comment by press time.

When there are admissible facts evidencing egregious conduct, ACA International supports law enforcement efforts to target bad actors, stop illegitimate debt collection activity, and safeguard consumer rights by removing known violators from the financial marketplace.  ACA has worked consistently with the FTC and other regulators to help them understand the complex issues that legitimate debt collectors face, and takes pride in its frequent and varied industry compliance educational services and offerings in support of the overwhelming majority of legitimate debt collectors who operate lawfully, take consumer protection seriously and play a unique and much-needed role in our credit-based economy.

ACA International will continue to follow this story.

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