Are you receiving demanding phone calls from debt collectors? Being threatened with a lawsuit? If your situation remotely resembles that of a loan shark hunting down its prey, then consider waiting before turning your wallet inside out – because there is a chance that you’re the target of a debt collection scam.
Debt collection scams have grown more prevalent in recent years, catching thousands of U.S. consumers off-guard. These schemes often involve fraudsters impersonating debt collectors to con individuals into repaying their “debts,” while simply pocketing the money themselves.
For more information about how debt collection scams work, what to do if you think you’re a victim and to get tips for protecting yourself, continue reading below.
How Debt Collection Scams Work
Fraudsters orchestrate debt collection schemes through a form of fraud called “phishing,” in which they’ll pretend to work for a legitimate institution to try to collect your “debt.” Whether they contact you via phone, e-mail or a letter, they’ll carry out their scam using these same techniques:
- Authoritative Identities – In order to grab your attention and trust, the scammers will claim that they are an employee from a police department, law firm, court office, collections agency or bank.
- Dire Consequences – Scammers aim to instill a sense of urgency in order to draw money out of you as quickly as possible. They’ll start by notifying you that the ramifications are extremely dire if you don’t pay up immediately and will threaten you with consequences such as lawsuits, arrests, wage garnishment, severe credit score damage or even deportation (if applicable).
- Phantom Debts – Fake collectors sometimes demand for repayment on a debt you don’t even owe, by seeking to convince you, for example, that someone else has taken out a loan in your name.
- Suspicious Payment Methods – These schemers will request for payment through a non-in-person method, typically asking for the money via a wire transfer or a credit card, debit card or prepaid card transaction.
Scammers May Know Who You Are
Fraudsters are adept at retrieving the sensitive consumer information needed to impersonate legitimate institutions collecting real debts. Therefore, you shouldn’t hand over your trust simply because the person speaking with you has your name, address, Social Security number, the type and amount of debt you owe and/or other pieces of personal data.
How do they obtain that information? There are a number of ways:
- Fake Payday Loan Websites – Scammers have been known to create phony payday loan websites, luring individuals in need of cash to enter their financial and personal information into an application online. Obviously, applicants never receive these loans and are led to believe that they were simply not approved.
- Identity Theft – Sensitive information can be stolen through the same methods used for identity theft, such as mail theft and dumpster diving for bank statements, utility bills, receipts and credit card offers.
- Credit Report – Fraudsters are also known to purchase consumer credit reports for as little as $10 from online black markets. Given the sheer amount of sensitive information included in your report, scammers can obtain the information they need to mimic representatives of legitimate entities.
Debt Scam Protection Checklist
If you are contacted by a debt collector, it may be difficult to determine whether the person you’re dealing with is a legitimate employee. With that being said, we’ve created a checklist that you can use to ensure you’re not falling prey to a scam:
- Check Your Report – Get a copy of your credit report to verify whether you actually owe the debt in question. If the balance is not listed, you’re probably dealing with a phantom debt collector.
- Ask for Their Information – Request the collector’s name, company, address, telephone number and license number (if your state necessitates collectors to be licensed). Inability to provide this information easily is a sign that they are not genuine.
- Ask for Your Information – Turn the tables on the collector and see if they can provide you with your own information (i.e. your name and billing address), as well as the name of the original creditor for the debt owed. Phantom collectors may struggle to provide this information, especially if they are simply using “cold calling” tactics. Even more, if the collector instructs you to contact your original creditor for this information, or even dares to ask you to provide it, then this is a major indicator that you may be victim of a debt collection scam.
- Demand it in Writing – Ask to not be contacted until a debt validation notice is received. This is a letter delineating the details of your debt (such as the amount owed and the name of the original creditor), which legitimate collection agencies should send within 5 days of first contacting you.
- Do Your Research – Use the Internet to your advantage and look up the collector’s phone number to see if it is listed under a legitimate institution. Alternatively, if it is a scam number, sometimes it has already been recorded by another consumer and reported online.
- Call Your Original Creditor – The original lender will be able to inform you whom they sold your debt to, which should enable you to cross-reference the information.
- Observe Their Attitude – If the collector uses abusive and threatening language, that is a red flag and you should report the individual.
- Make Sure the Collector Plays by the Rules – Debt collectors must abide by certain rules in their collection methods, such as not calling you after 9 p.m. or using profane and abusive language. If the collector is not following protocol, this should raise some red flags and spur you to look into the company’s background a bit more.
- Call the Agency Office Yourself – Ask the person for the phone number to the agency and initiate a call from your end. If a collector picks up the phone straightaway (and you are not first directed to an automated system or a receptionist), or if there is only one person you are able to speak with, then it is possible that there isn’t actually a real collection office after all.
What To Do If You’re A Victim
If you suspect that you‘re a victim of a debt collection scam, stop responding to the potential fraudster immediately and report the scam to the following organizations:
Biggest Debt Collection Scams
Let’s take a look at some of the most notorious debt collection schemes in recent history and see which incidents make the scammers hall of shame.
- The Green Dot MoneyPak Card – In 2013, this prepaid card – notorious for being virtually untraceable – was used for a number of debt collection scams across the United States, racking up about $30 million in fraudulent transactions. Fraudsters would instruct debtors to purchase these cards at nearby supermarkets, load it with money as “repayment” and to pass the serial number back to them. The scammers would then use that number to top up their own cards, which they’d drain at an ATM anonymously.
- The Indian Call Center – Two Californian companies, set up by Varang Thaker, used a call center in India to execute a two-year debt collection scheme between 2010 and 2012. Generating about $5 million in fraudulent profit from over 17,000 transactions, workers at the center targeted victims they already had information on (through retrieving it from payday lenders).
- The Spanish-Speaking Heist – In 2014, a group of individuals in South Florida – working for a company called Centro Natural Corp. and Sumore LLC – posed as government officials and targeted Latinos to obtain repayments on non-existent debts. Using cold-calling tactics, these fraudsters used abusive, persistent and threatening language and were able to retrieve an estimate of $2 million in total.
- Debt Collecting Goes South– Seven employees at a company located in Georgia, called William, Scott & Associates, were charged with committing debt collection fraud in 2014. Impersonating legal personnel under multiple aliases, such as FBI agents or Justice Department workers, they managed to collect over $4 million from intimidating 6,000 people with legal prosecution.
- How prevalent are debt collection scams in the U.S. and how are the tactics of scammers changing?
- What are the most effective measures consumers can take to prevent debt collection fraud?
- Do you expect any new federal regulation aimed at debt collection fraud in the near future?