In the last six months I have seen a spat of fake debt collectors attempting to scam people out of money. Here is how these organizations work, the tricks they use to intimidate and seem legitimate, and the warning signs that betray their true nature.
How Fake Collectors Get Your Debt
First, the debt they are calling about may be real. Say you get calls about an old U.S. Bank account: chances are you actually remember having an old U.S. Bank account, and you may remember forgetting to pay overdraft fees before leaving the bank.
This is how a typical debt moves from your bank (or other lender) to a fake collector: banks sell unpaid debts to a large, debt-buying middleman that purchases debts by the thousands at a fraction of the actual amounts of the debts. These companies do not collect debts-- they merely buy in bulk, vet out debts that are too old or discharged through bankruptcy, and sell them in smaller batches to local collectors. Most people who've dealt with debt collectors deal with these local collectors; they call, write letters, and offer to set up payment plans. They are registered in the states they do business in, and are licensed to collect by the state department of commerce.
For a variety of reasons, these collectors may choose to sell some debts to other companies. At this point in the chain a debt is valued very low, and a collector sells it for pennies on the face dollar value of the debt. Who they sell it to depends on the collector; it may be another middleman; it may be directly to the illegitimate collector. A sale of thousands of debts generally requires little more than an address, phone number, and signature, so credentials are easy to fake. This exchange happens frequently, and it is easy for a careless collector to sell to a fake company.
What Makes A Collector "Fake"
A legitimate collector must be registered with at least one state's Secretary of State (as a corporation, LLC, PA, etc.). This registration is public record, and the discerning consumer can easily search state databases for legitimate organizations (here is Minnesota's database, for example). Business registration requires a publicly-listed physical address.
In Minnesota and many other states, legitimate collectors must also be licensed to collect by the Department of Commerce. Like business registration, these records are also searchable (in Minnesota, at least).
A fake debt collector will claim to be a company but will not be registered or licensed. Making false representations like this while attempting to collect debts is a violation of the Fair Debt Collection Practices Act.
What Fake Collectors Do
Once a fake company buys a pile of debts third- or fourth-hand, its goal is to harass as much money out of each debtor as possible before it gets noticed. It will generally make contact exclusively by telephone, and will demand immediate over-the-phone payment by credit card or bank routing number. It will use flagrantly illegal tactics like threatening criminal charges. Sometimes it leaves robo-call voicemails on the answering machine of the debtor, their family, their neighbors, or any other number it can get its hands on. It will ask for an address where it can serve a lawsuit, and will threaten to tell family or employers. The tone of the caller is often dodgy, threatening, and overzealous.
If pressed for an address, the collector will provide a PO box or a UPS Store post box, often falsely claiming that it is its physical office address.
Eventually it causes enough trouble to attract the attention of an attorney or the government. Unless the collector is caught red-handed, it will pack up its operation as soon as it smells trouble, change its name, and start the whole scam over again.
How To Tell If A Collector Is Fake
Here are some ways to tell if you are getting calls from a fake collector:
1. Search your state's Secretary of State business registry for the collector. If the collector gives you an address outside your state, search that state's registry as well. A real collector will be registered; a fake one will not. You can also search your state's Department of Commerce's website for its collection license.
2. Ask for a physical address. A legitimate business must have a registered office address and should have nothing to hide; a fake collector, if it tells you at all, will give you a PO box. It may even tell you "Suite Number ###" in an attempt to disguise the fact that it is giving you a PO box number (a letter addressed to "Suite Number 123" sent to a UPS Store will actually go to Box 123 and not an office suite at all). Search and Google Street View the provided address; if it is a post office or a UPS Store, call the store and ask if the collector is in their building, or if there are other office suits with the same base address as them. A 'no' response is a pretty sure sign of a scam.
3. Google the company; if there is no mention of it at all on the internet, or if all mentions of it are from the last month or two, this is a good indication of a scam. Folks very rarely have good things to say about collectors online, but a legitimate collector will have months and years of complaints, and perhaps even a website. Fake collectors only stick around for as long as they go unnoticed, so their internet history will be sparse.
4. Fake collectors use particularly malicious scare tactics in an attempt to shake money out of people over the phone right away. If it threatens to press criminal charges, prosecute, or mentions the words "crime" or "felony," this is a good sign it is fake. Most legitimate collectors know that making these threats violates the Fair Debt Collection Practices Act and won't.
Other tactics include asking for an address so it can serve a lawsuit (a fake collector won't actually serve a suit, but this question is scary enough on its own), identifying itself as calling from the "litigation department" or any other legal-sounding buzzwords, and saying that a lawsuit is already underway. Sometimes even the name of the fake company is designed to sound like a law firm.
5. A fake collector will often demand immediate payment over the phone. A real collector may be impatient, but will readily accept mail-in payment, payment plans, and payment within a reasonable time frame (days and even weeks). I've heard of fake collectors demanding debtors make payment within a few hours or else face the consequences.
If you believe you are getting calls from a fake collector, please report everything you know about them to your state's Attorney General's office immediately, and consider reaching out to a consumer protection lawyer for advice and representation.
Bennett Hartz is an associate attorney at Drewes Law, PLLC who specializes in defending against debt collection and foreclosure. He can be reached by email at firstname.lastname@example.org.
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