New Scam Targets Creditors!

As if the latest development in the home foreclosure debacle (no documents, improper documents, forged or falsified documents, foreclosing on the wrong home) were not enough, we have seen an upswing in so called collection agencies (“scam artists”) contacting business owner-creditors (“creditor”), offering to collect money owed by customer-debtors (“debtor”). Problem is, these collection agencies do collect money from the debtor, but the creditor never sees any of the money collected. To make matters worse, the debtor may have to pay the creditor again.

How the Scam Works

Contractors make especially attractive targets. The mechanic’s liens they file in order to protect themselves are a matter of public record.  The scam artist (almost always from another state) contacts the creditor with a very convincing story about how they are able to collect when the creditor hasn’t been able to.  The creditor may authorize the scam artist to collect on their behalf; some even sign contracts. 

In other cases, the creditor may not authorize the scam artist to engage in collection work, but the scam artist now has enough information to be convincing when contacting the debtor.  Many debtors pay the scam artist believing they are legitimately resolving a debt.

Months, maybe even years, go by with no word.  The creditor then decides to attempt collection itself, or to resume collection if didn’t authorize the scam artist.  The creditor may file a lawsuit to collect, or may simply send a collection letter.

The debtor responds, claiming to have paid the debt, or to not owe the debt (meaning the debt has been paid).  Of course, the creditor doubts this, as the creditor hasn’t seen any funds.  The debtor (assuming the debtor has kept the records) responds with copies of the settlement agreement, canceled check, money order, cashier’s check, or wire transfer.  Almost always, the settlement agreement accepts much, much less than was originally owed as payment in full.  In some cases, the scam artist has actually committed the creditor to complete work which it never agreed to complete, causing the creditor to actually go out of pocket on the collection.

If the creditor did have an agreement with the scam artist or the debtor had good reason to believe the scam artist really did represent the creditor, the debtor is off the hook. Good for the debtor.  Bad for the creditor. 

The creditor now has to pursue the scam artist.  In many instances, the scam artist admits they collected the funds.  They then engage in a delay, stall, ignore and disappear tactic, so the creditor doesn’t get paid.  Too often, when the creditor contacts the scam artist, the phone numbers may be disconnected, the email accounts closed, and mail returned undeliverable.

Even if the scam artist can be found, if they are in another state, it may cost the creditor more than it’s worth to pursue.  In some instances, the creditor may be able to sue in the state where the creditor resides; in others they may have to go to the state where the scam artist resides.  In any event, the creditor will have to use the courts in the state where the scam artist resides, even if they can get a judgment through their home state courts.  This deprives the creditor of capital it could be using to pay its bills, provide jobs, and conduct business.

If the scam artist didn’t have authority, even apparent authority, the debtor may end up paying the bill twice.  While there have always been some debtors who poorly manage their credit or use the current economic climate to avoid paying legitimate bills, most don’t pay because they simply cannot pay, perhaps because they are unexpectedly unemployed.  They may have borrowed money from family members, friends, used title loans or other high interest sources of funds to resolve the debt because the discount offered by the scam artist made such things worthwhile.  The last thing this genuinely financially distressed debtor needs is double the debt.  But that can easily be exactly what they get.

What Can You do to Protect Yourself?

Creditors.  If you carry accounts receivable or have money owed to you, be very wary.  Investigate any collection agency that contacts you with an offer to collect for you.  Keep in mind that it is very simple to set up a corporate or limited liability company identity, including a website.  It is very easy to look legitimate.  Dig beneath the surface.  Check with the Better Business Bureau®.  Run an internet search, particularly on sites with consumer complaints.  Check with your state’s attorney general’s office or consumer protection office.  Make the same inquiries with the state where the collection agency is located.

Consider using only in-state collection agencies.  Check references.  Stay involved in the process, demand frequent updates.  Do not give the collection agency authority to accept offers on your behalf without your express, written approval.  Advise the debtor that their account has been turned over to a collection agency, identifying the agency and the collector assigned to your account.  Let the debtor know you must approve all agreements accepting less than the full amount due as payment in full.  If you have given a collection agency authority to act for you but don’t feel they are getting the job done or that they are not legitimate, terminate their services in writing.  Send a copy to the debtor.

Debtors.  If you are contacted by a collection agency, you should ask the collection agency for written proof they have the authority to represent the creditor.  You can also contact the creditor to verify that the right collector has contacted you; get phone numbers, fax numbers, email contacts, and a person’s name.  Get it in writing.

What if I’ve Already Been Scammed?

If you believe you have been scammed, whether you are a creditor or debtor, you should immediately contact your local state’s attorney general or consumer protection agency. They may already be investigating and prosecuting; you can join in without additional cost to you (other than the time it takes to complete the inevitable forms).  If your state isn’t currently taking any action, check with the state where the collection agency is located.  If neither is taking action, consult with an attorney to see if there is a cost effective solution for you.  If not, or if advised to do so by your attorney, consider filing criminal charges in both states. You may not get your money back, but you may help to prevent someone else from getting ripped off.

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