The Federal Trade Commission sued and obtained a temporary restraining order against three corporate defendants and their principals, all based in Secaucus, New Jersey, to halt an alleged nationwide scheme to extract millions of dollars from consumers by falsely threatening them with arrest and prosecution unless consumers immediately pay them amounts that the consumers do not owe.
The complaint alleges the six defendants violated the FTC Act and the Fair Debt Collection Practices Act (FDCPA) by: 1) threatening to initiate civil and/or criminal charges against consumers if they failed to pay the debt, when the defendants had no intention to do so; 2) making harassing telephone calls and using abusive techniques to collect or attempt to collect purported debt; 3) falsely claiming that consumers owed up to $130 more than the amount of the actual debt; and 4) stating or implying that certain communications were from an attorney, when often they were not. The complaint also charges the defendants with misrepresenting the amount of the debt when they added extra charges without telling consumers. In addition, the defendants allegedly failed to inform consumers of their right to receive more information about the debt or to dispute the defendants' claims prior to payment.
The following defendants are named in the complaint: 1) Check Investors, Inc., d/b/a National Check Control (NCC), a New Jersey Corporation with its principal place of business in Secaucus, New Jersey; 2) Check Enforcement, Inc., d/b/a Goldman Check Systems, of Secaucus, New Jersey; 3) Jaredco, Inc., d/b/a Goldman & Co., of Secaucus, New Jersey; 4) Barry S. Sussman of Fort Lee and Secaucus, New Jersey, principal of Check Investors, Jaredco, and Check Enforcement; 5) Elisabeth M. Sussman (a.k.a. Elisabeth Rabin), wife of defendant Barry S. Sussman and a principal and sole director of Jaredco; and 6) Charles T. Hutchins of Farmingdale, New Jersey, an attorney who has been general counsel to corporate defendants Check Investors, Check Enforcement, and Jaredco.
"Threats, lies, and harassment are never legitimate debt-collection techniques," said Howard Beales, Director of the FTC's Bureau of Consumer Protection. "In this case, they were the foundations of a fraud. These defendants not only extracted money that consumers didn't owe, but also falsely threatened them with criminal prosecution."
According to the Commission, between 1995 and the present, the defendants operated Jaredco, Check Enforcement, and Check Investors (the NCC defendants), firms designed to collect consumer debts for checks returned for non-sufficient funds (NSF checks). Since at least January 2001, the companies employed defendant Hutchins as their general counsel.
According to the FTC, NCC first buys NSF checks at a substantial discount from large commercial retailers and others. It then collects payment on the checks - most of which are more than two years old - on their own behalf. NCC contends it holds more than three million NSF checks and makes initial contact with more than 150,000 consumers per month nationwide in order to collect payment.
NCC collects the debt through letters and telephone calls to consumers. The FTC alleges that for every purported NSF check, NCC demands immediate payment of a total sum that includes the face value of the NSF check and additional fees of $125 or $130, regardless of the amount of the original NSF check. While most states limit the amount a debt-collector can charge for an NSF check to about $30 per check, NCC typically charged consumers three to four times as much, according to the FTC. For example, one woman allegedly wrote an NSF check for $22 to a pizza delivery company in 1999. Although she had already paid the debt, NCC contacted her in 2002 and demanded $152.
In its letters and phone calls to consumers, NCC does not explain the basis for the additional charges, the FTC alleges. NCC's letters to consumers lump together the amount of the initial check and the additional charges, identifying the debt as "Total Due," "Amount Due," or "Amount Required." These additional charges are illegal in many states.
According to the FTC, the letters also represent that NCC, or commercial clients of NCC, will bring civil and/or criminal action against the consumers unless they pay the full amount NCC claims they owe. For example, one form letter sent to consumers under the letterhead "Charles T. Hutchins, Attorney at Law" warns that Hutchins' "client" is considering criminal and civil action against the consumer for issuing "fraudulent checks." Another form letter identifies itself as a "NOTICE OF INTENT TO RECOMMEND CRIMINAL PROCEEDINGS," stating, in part: "YOU ARE HEREBY ADVISED THAT CRIMINAL CHARGES ARE BEING RECOMMENDED AGAINST YOU."
Along with the threatening letters, the Commission alleges that defendants often called the purported debtor and his/her relatives as well, threatening arrest for check fraud if they failed to make immediate payment to NCC for the full amount demanded. These phone calls continued for up to six months, during which time the defendants allegedly failed to inform consumers of their right to verify the debt or file a dispute of the charges as required by the FDCPA. Despite NCC's alleged threats to prosecute, the FTC is aware of no consumers who were ever arrested for failing to pay NCC.
The FTC complaint charges defendants with numerous violations of the FDCPA, which protects consumers from unfair or threatening debt collection practices, and the FTC Act, which prohibits unfair or deceptive acts or practices in or affecting commerce. The complaint contains seven separate counts:
Alleged FDCPA Violations -
FTC Act Violations -
The Commission vote authorizing the staff to file the complaint was 5-0. It was filed in the U.S. District Court for the District of New Jersey on May 12, 2003. The court verbally granted the FTC's request for a temporary restraining order on May 15, 2003. The FTC would like to thank the U.S. Postal Inspection Service; Postal Inspectors from the North Jersey/Caribbean Division; the U.S. Attorney's Office for the District of New Jersey; the Secaucus, New Jersey Police Department; and the following states for their invaluable assistance in investigating this matter and bringing the complaint: Colorado, Idaho, Maine, Minnesota, New Jersey, North Dakota, Washington, and West Virginia
NOTE: The Commission authorizes the filing of a complaint when it has "reason to believe" that the law has or is being violated, and it appears to the Commission that a proceeding is in the public interest. A complaint is not a finding or ruling that the defendants have actually violated the law.
Copies of the Commission's complaint are available from the FTC's Web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint, or to get free information on any of 150 consumer topics, call toll-free, 1-877-FTC-HELP (1-877-382-4357), or use the complaint form at http://www.ftc.gov. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.
(FTC File No. 023-3268; Civ. No.: 03-2115 (JWB))