New York AG, FTC Bring Major Action against Debt Collection Operation


The New York Attorney General and Federal Trade Commission (FTC) recently announced a joint debt collection enforcement action that had been filed in June in federal court in Buffalo, New York, against several corporations and their principals. The FTC and Attorney General sued multiple defendants in a 10-count complaint alleging, among other things, violations of Section 5 of the FTC Act, the Fair Debt Collection Practices Act (FDCPA), and Sections 349 and 601 of the New York Business Law and seeking compensatory damages, civil penalties, and injunctive relief. This filing is further evidence of the heightened scrutiny faced by debt collectors in New York at both the state and federal level.

More specifically, the complaint alleged that the defendants “operated as a common enterprise” through “an interrelated network of companies that have common officers, managers, business functions, employees, and boiler room locations, and that commingled funds.” The government agencies claimed that the defendants’ violations included:

  • Misrepresenting that consumers committed check fraud in incurring the debt
  • Threatening consumers with arrest, wage garnishment, and imprisonment if they did not make an immediate phone payment
  • Failing to furnish consumers with debt collection notices and other disclosures mandated by law that “would assist consumers in understanding and challenging the purported debts”
  • Assessing unlawful “processing fees” to consumers making payments by phone
  • Attempting to collect debts previously discharged in bankruptcy court
  • Contacting friends, family members, and employers about the consumers’ debt and advising the consumers had committed check fraud

The government also announced that the federal court had issued a temporary restraining order, which included a complete asset freeze and appointment of a receiver for the corporate defendants. The federal court also ordered both the individual and corporate defendants to provide an immediate accounting “within three days of service of this order,” as well as repatriate all foreign assets.

The announcement of this action comes in the aftermath of the New York Department of Financial Services (DFS) issuing revised proposed debt collection regulations. If the DFS proposed regulations are adopted, the regulator would have additional tools to pursue third-party debt collectors and debt buyers. The Attorney General’s latest enforcement action, in conjunction with the DFS’ proposal, illustrates that debt collectors and debt buyers will remain under intense regulatory scrutiny in New York for the foreseeable future.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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