Why it matters

The operators of a scam that processed more than $5.2 million in payments from consumers for payday loans that were not owed to the operators are now banned from the debt collection business, the Federal Trade Commission (FTC) announced. In 2012, the agency filed a complaint against California-based Broadway Global Master Inc., In-Arabia Solutions, and a related individual, alleging that the defendants employed callers that harassed consumers into paying fake debts. Some of the calls even impersonated law enforcement officials or claimed to be from the "Federal Crime Unit of the Department of Justice" to intimidate consumers, the FTC said. In less than two years, the defendants' operations made more than 2.7 million calls to at least 600,000 different phone numbers across the country and collected more than $5.2 million. The individual defendant pleaded guilty to mail and wire fraud in a separate criminal proceeding and was sentenced to one year in prison. To settle the FTC action, the defendants agreed to a ban from the debt collection business, a prohibition on misrepresentations about any products or services, and a judgment of over $4.3 million, suspended upon payment of $608,500.

Detailed discussion

The debts collected by Kirit Patel and two companies under his control, Broadway Global Master Inc. and In-Arabia Solutions Inc., allegedly were not real, but the regulatory action against them certainly was.

In 2012, the Federal Trade Commission (FTC) filed a federal court complaint against Patel and the two companies, charging them with violations of Section 5 of the FTC Act for tricking consumers into paying debts they did not owe. After somehow obtaining consumer information from payday loan applications, the agency said the defendants demanded several hundred dollars at a time.

The defendants used harassing tactics and obscene language, the agency said, repeatedly calling consumers and impersonating law enforcement agents or claiming to be from nonexistent government agencies such as the "Federal Crime Unit of the Department of Justice." One consumer told the agency that a caller threatened to have her children taken away if she did not pay while another reported that the defendants contacted her neighbors.

Over the course of just two years, the defendants processed more than $5.2 million in payments from consumers on purported payday loan debts they did not owe and in many cases did not have the money to pay, the FTC said, having made more than 2.7 million calls to over 600,000 phone numbers nationwide.

The California federal court judge halted the defendants' operations and froze their assets. In a separate criminal proceeding brought by the Department of Justice (DOJ), Patel pleaded guilty to mail and wire fraud charges and was sentenced to a one-year prison term.

To settle the FTC's action, the defendants agreed to a permanent ban from the debt collection business, whether directly or through an intermediary. They also promised not to make future misrepresentations about any product or service, profit from the personal information of customers, and properly dispose of customer information.

The settlement order imposed a judgment of over $4.3 million. Based on the defendants' inability to pay, the amount was suspended upon payment of $608,500, which the FTC said would be used for consumer redress.

To read the stipulated order in FTC v. Broadway Global Master, Inc., click here.