Debt Collection Scams: #2 Complaint to State AGs

The Typical Debt Collection Scam

1. Initial Contact:
   • Aggressive phone call, text message, or email from "debt collector"
   • Caller claims you owe money to a company (credit card, payday loan, medical bill, utility company)
   • They may use real company names or completely fabricated companies
   • Caller ID may show "law firm," "collections department," or legitimate-sounding business name
2. The Pitch - Aggressive and Threatening:
   • "You owe $2,847 to [Company] from 2019. Pay immediately or face consequences."
   • Uses your real name, Social Security number (last 4 digits), address, or other personal details (obtained from data breaches)
   • References specific amounts and dates to seem legitimate
   • Creates urgency: "Final notice," "Last chance before legal action," "Court date scheduled"
3. The Threats:
   • Arrest: "Police will arrest you if you don't pay today"
   • Lawsuit: "You're being sued and must appear in court tomorrow"
   • Wage garnishment: "Your paycheck will be garnished starting next week"
   • Credit damage: "This will destroy your credit score"
   • Asset seizure: "We'll freeze your bank account and take your car"
   • Criminal charges: "This is check fraud, you'll go to jail"
   • Public embarrassment: "We'll contact your employer and family"
4. Payment Demand:
   • Insists on immediate payment, often today or within hours
   • Demands payment via untraceable methods:
   • Gift cards (iTunes, Google Play, Amazon, etc.)
   • Wire transfer (Western Union, MoneyGram)
   • Cryptocurrency
   • Prepaid debit cards
   • Cash apps (Venmo, Zelle, CashApp) to personal accounts
   • May offer "settlement" for 40-60% of balance if you pay now
5. Refusal to Verify:
   • When you ask for written verification, they become hostile
   • Refuse to provide company address, license number, or debt details
   • Claim "no time" for verification because of impending legal action
   • Hang up and call back with increased threats
6. The Outcome:
   • If you pay, the scammer disappears with your money
   • They may call back demanding more money for "additional fees" or "interest"
   • The debt never existed, or you never owed it

What Real Debt Collectors Do

• Send written notice first: Within 5 days of initial contact, they must send validation notice
• Provide verification when requested: Must provide proof of debt within 30 days
• Give you their information: Company name, address, phone number, license
• Accept normal payment methods: Check, credit card, bank transfer with documentation
• Follow the law: Comply with FDCPA - no threats, abuse, or harassment
• Respect your rights: Stop calling if you request in writing
• Professional communication: Firm but respectful, no threats or yelling
• Allow you to verify: Give you time to confirm debt is legitimate
• Work with you: Willing to set up payment plans if debt is real

Federal Law Protects You - Know Your Rights

The Fair Debt Collection Practices Act (FDCPA) is a federal law that limits what debt collectors can do. Legitimate collectors must follow these rules. Scammers don't - which helps you identify them.

What Debt Collectors CANNOT Do:

• Contact you at inconvenient times: Cannot call before 8am or after 9pm (your local time)
• Contact you at work if prohibited: If you tell them your employer doesn't allow calls, they must stop
• Harass or abuse you: No threats of violence, obscene language, or repeated calls to annoy
• Lie or use deception: Cannot falsely claim to be attorneys, government officials, or threaten actions they can't take
• Threaten arrest: You cannot be arrested for unpaid consumer debt (except in rare fraud cases)
• Threaten to garnish wages without a court judgment: Must sue and win first
• Contact third parties about your debt: Cannot tell friends, family, neighbors, or coworkers about your debt (except to locate you)
• Publish your debt: Cannot post online or create public lists of debtors
• Add unauthorized charges: Cannot add fees not authorized by original agreement or state law
• Deposit post-dated checks early: Must wait until the date you specified
• Continue contact after written cease request: Must stop (though debt still exists)

What Debt Collectors MUST Do:

• Send validation notice within 5 days: Written notice with:
  • Amount of debt
  • Name of creditor
  • Statement of your right to dispute
  • Statement that you can request creditor name/address
• Verify debt if you request it: If you dispute in writing within 30 days, they must provide verification before continuing collection
• Identify themselves: Must tell you they're a debt collector
• Stop contacting you if requested in writing: Cease and desist letter ends contact (but doesn't eliminate debt)

Your Right to Request Debt Validation

This is your most powerful protection against scams

Within 30 days of first contact (or any time if you suspect a scam), you can send a written request for debt validation. The collector must:

1. Stop all collection activity until they provide verification
2. Provide written verification including:
   • Amount of debt
   • Name of original creditor
   • Proof you owe the debt (original contract, account statements)
   • Chain of ownership if debt was sold
3. Prove they're licensed to collect in your state (if required)

Scammers cannot provide valid verification because the debt doesn't exist or isn't legally collectible. This is how you expose the scam.

Debt Validation Letter Template

Send via certified mail with return receipt so you have proof they received it. Keep copies of everything.

Statute of Limitations by State

Each state has different time limits for how long collectors can sue you for a debt. After the statute of limitations expires, the debt becomes "time-barred" - collectors can still contact you but cannot sue.

Common statutes of limitations (varies by debt type):

• 3 years: Alabama, Alaska, Arkansas, California (oral), Delaware, Louisiana, Mississippi, North Carolina, Texas (credit card)
• 4 years: Arizona, California (written), Colorado, Florida, Georgia, Idaho, Kansas, Nevada, New Hampshire, Oregon, Pennsylvania, South Carolina, Tennessee, Texas (written), Utah, Virginia, Washington
• 5 years: Connecticut, Illinois, Minnesota, Missouri, New Mexico, New York, Oklahoma, South Dakota, Vermont, West Virginia, Wisconsin
• 6 years: Indiana, Iowa, Kentucky, Maine, Massachusetts, Michigan, Nebraska, New Jersey, North Dakota, Ohio, Rhode Island, Wyoming
• 10 years: Maryland (some debts)

IMPORTANT: Check your specific state's laws as statutes vary by type of debt (credit card, medical, oral vs. written contract). Consult Nolo.com or a consumer attorney.

WARNING: Making even a small payment or acknowledging the debt in writing can restart the statute of limitations in some states. Never pay or acknowledge an old debt without consulting an attorney first.

Case 1: The Phantom Payday Loan Scam

Victim: 52-year-old teacher, Ohio

Loss: $1,850

Story: Received aggressive call from "National Recovery Services" claiming she owed $2,450 for an unpaid online payday loan from 2021. The caller knew her name, address, employer (teacher at specific school), and last 4 digits of SSN. He threatened to contact her school principal about the debt and said she'd be charged with check fraud if she didn't pay immediately. Caller claimed police would arrive at the school to arrest her during class. Panicked and embarrassed, she paid $1,850 via gift cards during her lunch break, believing it was a "settlement." The caller promised to email a receipt but never did. When she tried to call back, the number was disconnected. She later discovered she never took out any payday loan - the entire debt was phantom. Her information came from a data breach at a retail store where she shopped. Ohio AG's office confirmed this was a widespread scam operation targeting teachers specifically (assuming they'd pay quickly to avoid school embarrassment).

Case 2: The Law Enforcement Impersonation

Victim: 67-year-old retiree, Florida

Loss: $4,200

Story: Received call from "Detective Martinez" with the county sheriff's office. Caller ID showed "County Sheriff" (spoofed). The "detective" said there was an outstanding warrant for her arrest for failing to appear in court regarding an unpaid medical bill from 2018. He said if she didn't pay the $4,200 debt immediately, deputies would arrest her within 2 hours and she'd spend the weekend in jail. He provided a fake case number and said he was calling as a "courtesy" to allow her to pay before arrest. Frightened, she withdrew $4,200 from her bank and deposited it into a Bitcoin ATM as instructed. The "detective" stayed on the phone the entire time (to prevent her from calling anyone for verification). After the transaction, he thanked her and said the warrant was cleared. She would receive paperwork in the mail. Days later, no paperwork arrived. She called the actual sheriff's office and learned no detective by that name existed, no warrant existed, and law enforcement doesn't collect medical debt. The entire call was a scam.

Case 3: The Data Breach Debt Scam

Victim: 41-year-old nurse, Texas

Loss: $2,100

Story: In 2024, a major healthcare data breach affected 100 million Americans, including the victim. Three months later, she received a call from "MedCollect Solutions" claiming she had an unpaid medical bill of $6,850 from a hospital visit in 2022. The caller knew her name, address, date of birth, health insurance provider, and even referenced specific medical procedures she actually had (all from the breached data). This made the call seem completely legitimate. However, the hospital was one she'd never been to, and the procedure dates didn't match her real treatments. The collector was aggressive, claiming the bill would go to collections and destroy her credit if not paid immediately. He offered to "settle" for $2,100 if paid that day. As a healthcare worker, she feared credit damage would affect her professional license. She paid via Zelle. Later, she verified with the actual hospital that no such bill existed. Scammers had used the breached healthcare data to create a convincing phantom debt targeting healthcare workers who would be especially concerned about credit issues.

Case 4: The Zombie Debt Collection

Victim: 58-year-old factory worker, Michigan

Loss: $1,600 (but legally didn't owe anything)

Story: Received call from "Allied Recovery Group" about a credit card debt from 2015. The debt was real - he did have that credit card and defaulted during a period of unemployment. The collector claimed he owed $2,890 in principal plus $1,200 in interest and fees. However, Michigan's statute of limitations for credit card debt is 6 years. The debt was 10 years old and legally uncollectible. The victim didn't know this. The collector threatened to sue, garnish wages, and seize his tax refund. Afraid of losing his job (paycheck garnishment), he agreed to pay $1,600 to settle. The collector refused to provide written verification and insisted on immediate payment via MoneyGram. After paying, he mentioned it to a coworker who told him about statutes of limitations. He consulted a consumer attorney who confirmed the debt was time-barred - he legally owed nothing, and the collector couldn't sue him. By paying, he not only lost $1,600 unnecessarily, but also restarted the statute of limitations in Michigan, making the debt collectible again. Michigan AG filed charges against the collection company for violating state debt collection laws.

Case 5: The Settlement Mill Scam

Victims: 200+ individuals across 15 states

Total losses: $3.2 million in fees

Story: "Freedom Debt Solutions" advertised heavily on radio and social media, promising to settle debts for 40-60% of the balance. They charged clients $2,500-$5,000 in upfront fees (illegal in many states). They told clients to stop paying creditors and instead make monthly payments to Freedom, who would negotiate settlements. For 18 months, clients paid monthly fees totaling $3.2 million. Freedom did contact some creditors but negotiated poorly or not at all. Meanwhile, clients' credit scores plummeted from non-payment, many were sued by creditors, and some faced wage garnishment. When clients demanded results, Freedom claimed creditors were "difficult to work with" and asked for more time. Eventually, the company stopped responding and closed its offices. Clients were left with destroyed credit, lawsuits, and thousands in fees paid to scammers. FTC and state AGs from 15 states filed joint lawsuit. Principals fled to Mexico with client funds. Only $380,000 was recovered for victims. Legitimate non-profit credit counseling (NFCC-accredited) would have helped for free or minimal cost.

Step-by-Step Verification Process

1. DO NOT pay immediately - No matter how aggressive the collector, never pay on the spot
2. Get information from the collector (don't provide information):
   • Collector's name and employee ID
   • Collection agency name, address, phone number
   • Original creditor name
   • Account number
   • Debt amount and date of delinquency
   • License number (if your state requires collector licensing)
3. Tell them you need to verify the debt - Say: "I'm exercising my right under the Fair Debt Collection Practices Act to request written verification of this debt. Please send all information to me in writing. Do not call me again; all future contact must be in writing."
4. Hang up - You don't need to continue the conversation
5. Send debt validation letter (template provided above) via certified mail within 30 days
6. While waiting for verification, research independently:
   • Check your credit reports (free at AnnualCreditReport.com) - is the debt listed?
   • Search your own records - bank statements, old bills, account statements
   • Contact the original creditor directly (use number from their official website, not number collector provided)
   • Check state licensing board to verify collector is licensed (if required in your state)
   • Google the collection agency name + "scam" or "complaint"
   • Check BBB complaints
   • Verify company address exists (not a PO Box or fake address)
7. Review statute of limitations for your state and debt type - is debt time-barred?
8. Wait for written verification - Legitimate collectors will provide it; scammers won't
9. If verification arrives, review carefully:
   • Does it show original creditor and original debt amount?
   • Is there a complete chain of ownership if debt was sold?
   • Do dates and amounts match your records?
   • Is collector licensed in your state?
10. If debt appears legitimate and you owe it:
    • Consult a consumer attorney or credit counselor before paying
    • Negotiate a settlement in writing before paying
    • Never pay with gift cards or wire transfer - use check or credit card
    • Get "paid in full" letter before making final payment
    • Keep all records
11. If verification isn't provided or seems fake:
    • It's likely a scam - don't pay
    • Report to FTC, CFPB, and state AG
    • Document all contact for potential legal action

Immediate Actions

1. Stop all contact with the scammer - don't answer further calls
2. If you paid, try to recover funds:
   • Credit/debit card: Contact your bank immediately to dispute the charge
   • Check: Contact your bank to see if check has cleared; possibly stop payment
   • Wire transfer: Contact your bank and the wire service (Western Union, MoneyGram) immediately - recovery unlikely but try
   • Gift cards: Contact the company (Google, Apple, Amazon) with card numbers and explain scam - recovery unlikely but report it
   • Cryptocurrency: Contact the exchange - recovery nearly impossible
   • Cash app (Venmo, Zelle): Report to the app and your bank
3. Document everything:
   • Phone numbers used by scammers
   • Names and badge numbers they provided
   • Company name they claimed
   • Exact threats made
   • Amount paid and payment method
   • Dates and times of all contact
   • Save voicemails, texts, emails
   • Take screenshots of any online communication

Protect Yourself from Further Damage

• Monitor your credit: Check all three credit reports for fraudulent accounts
• Place fraud alert: Contact one credit bureau to place 1-year fraud alert (automatically applies to all three)
• Consider credit freeze: If you provided SSN or sensitive information
• Watch for identity theft: Scammers may use your information for other fraud
• Alert your bank: If you provided banking information
• Change passwords: For financial accounts, especially if scammers had any access
• File police report: For large losses, especially if threats were made

What Information to Provide When Reporting

• Collection agency name (real or fake)
• Phone number(s) used
• Individual collector names and IDs provided
• Original creditor they claimed (if mentioned)
• Debt amount claimed
• Exact threats made (arrest, garnishment, etc.)
• Payment method demanded (gift cards, wire, etc.)
• Amount you paid (if any) and payment method
• Dates and times of all contact
• Any written communications received
• Recordings or transcripts (if available)