The calls went out by the millions to unsuspecting consumers across the country.
Phony debt collectors -- based in Southern California and using call centers in India -- demanded immediate payment on delinquent loans. Often posing as attorneys or law enforcement officials, they threatened consumers with lawsuits or arrests if payments weren't made.
They were highly effective. In 8.5 million calls tracked over four months in late 2010 by the Federal Trade Commission, the callers raked in more than $5 million in payments from intimidated consumers.
Only problem: Nobody owed them a dime.
The "phantom-debt" collection calls originated from two companies -- American Credit Crunchers LLC and Ebeeze LLC, based in Orange County. In late February, the FTC announced both companies have been shut down by court order and their assets frozen while an investigation continues.
"This is a brazen operation based on pure fraud, and the FTC is committed to shutting it down," said David Vladeck, director of the FTC's Bureau of Consumer Protection, in a statement.
According to the FTC, the deceptive collection calls focused on short-term, high-interest payday loans. In many cases, the victims had not even taken out a payday loan, but had filled out an online application that disclosed their bank account, Social Security or other personal financial information.
Why would victims pay for loans they'd never made? In a press conference, one victim, JanLaree DeJulius of Las Vegas, said she was so rattled by the call to her workplace that she paid more than $700 just to make the caller go away.
In its complaint, the FTC said payday loan applicants are often financially stressed and "overwhelmed with bad finances," causing them to be confused or scared into paying.
"It's very frightening," said FTC staff attorney Elizabeth Scott. "... They have so much personal information on you -- your bank accounts, etc. -- that they're believable."
During the four-month investigation, about 17,000 payments were taken from consumers' credit or debit cards, ranging from $300 to more than $2,000 each.
The so-called "phantom-debt" calls occurred in virtually every ZIP code across the country.
The companies' owner, Varang Thaker, could not be reached for comment.
According to the FTC, a review of Thaker's company bank accounts show plenty of deposits by consumers, but no money going back out to known lenders or debt sellers. The accounts also show payments to outsourcing companies in Gujarat, India.
Debt collection ranked No. 2 among consumer complaints received by the FTC in 2010, making up 11 percent of the 1.3 million complaints filed that year.
Under the federal Fair Debt Collection Practices Act, it's illegal for debt collectors to threaten arrest, use abusive language, or pose as a law enforcement or government official. Within five days after first contacting you, debt collectors must send a written verification notice listing the creditor and the amount you allegedly owe.
If you get a call from a debt collector, be savvy. "Immediately ask for a written verification of the debt owed," said Scott. Red flags: If the debt collector can't or won't provide one or suggests you could be arrested if you don't pay.
Although the massive Southern California operation got shut down, the problem isn't going away. As FTC's Scott noted: "We are certain there are other entities engaging in similar activity" across the country.
(Contact The Sacramento Bee's Claudia Buck at firstname.lastname@example.org.