SMOKINCHOICES (and other musings)

September 26, 2012

Debt collector targets innocent

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Debt collector targeted innocent

DeWine: Firm used nasty tactics to collect on fraudulent charges

By Jill Riepenhoff and Mike Wagner THE COLUMBUS DISPATCH

The Ohio debt-collection company now in the cross hairs of Ohio Attorney General Mike DeWine has been squeezing victims of credit-card fraud for years for illegal charges racked up by others on adult websites.

The victims include a 74-yearold Virginia lawyer, a 90-year-old Missouri grandmother and a university administrator who needed help from attorneys general in two states to clear his name.

More than 400 consumers across the country have complained to DeWine’s office and the Better Business Bureau since 2009 about Collection and Recovery Bureau, based in the Toledo suburb of Sylvania.

  • All told identical stories: They were harassed, cursed at and threatened with ruined credit, lawsuits or jail if they didn’t pay debts they didn’t owe.

Those consumers likely represent just a fraction of people who have fallen prey to the company. A man who said he worked for CRB posted on an Internet complaint board in 2011 that the company collected on 20,000 accounts each month.

Consumer advocates fear that many people paid the debt just to make the problem go away because they didn’t want to be associated with pornography.

The Dispatch discovered CRB’s suspect business practices during an investigation into rogue debt collectors who are using the nation’s flawed credit-reporting system to place fraudulent, erroneous and questionable debts on consumers’ credit reports. At the same time, DeWine’s office was closing in on the company.

  • DeWine sued CRB on Thursday in Lucas County Common Pleas Court, charging that its practices have violated the federal Fair Debt Collection Practices Act and the Ohio Consumer Sales Practices Act.
  • “Their methods with consumers have been unfair and deceptive,” DeWine said. “And these kinds of practices have to be stopped.”

In a telephone interview with The Dispatch on Wednesday, President Ron Burnard said he closed the company and fired its seven employees on Aug. 31 because it had become too expensive to operate in the current regulatory climate. He also said that the attorney general’s investigation had no bearing on his decision.

“We decided to get out of the collection business after 10 years. For a small business, the regulatory environment is too tough,” Burnard said.

The CRB website also was shuttered. However, a recording at its phone number last week says “ERS,” and gives extensions for Burnard and others who worked for CRB. Burnard had no explanation for the new phone greeting.

  • Burnard founded the debt-buying and -collecting company in 2002 and carved a niche in the marketplace: buying debt from adult websites for pennies on the dollar.
  • CRB bought portfolios of debt that had been charged back — or returned — to adult websites by credit-card companies because they were fraudulent purchases. CRB then pursued the consumers who were defrauded.

The Dispatch spoke with dozens of consumers who said they were harassed relentlessly by CRB. Most were embarrassed that their names were connected to sex websites.

“(CRB) has committed unfair, deceptive acts or practices by engaging in any conduct to harass, oppress or abuse any person in connection with the collection of a debt,” the state’s lawsuit charges.

  • CRB is not the only debt-collection company that buys charged-back debt, but no one really knows how widespread the practice is.

DeWine and consumer advocates are alarmed by the business model because innocent people are finding the fraudulent, charged-back debts in their credit reports.

“It’s a concern. The practice is unconscionable,” DeWine said.

Robert J. Hobbs, deputy director of the National Consumer Law Center, put it bluntly: “It’s basically a blackmail tactic.”

The CRB story is part of the Dispatch’s ongoing investigation into problems with the U.S. credit-reporting system. The first installment of Credit Scars, a three-part series on Dispatch.com/credit,  found that mistakes on credit reports have inflicted widespread damage on consumers. Errors range from misspelled names to mixed reports in which multiple people are blended into a single credit profile.

In the past 2 1/2 years, the Ohio attorney general’s office has logged more than 11,300 consumer complaints against 3,101 debt-collection companies, a Dispatch analysis shows.

CRB has received more complaints than any other Ohio-based debt collector and trailed only Minnesota-based Allied Interstate, which last year paid a $150,000 fine to DeWine’s office for pursuing consumers who did not owe debts.

Nearly 85 percent of the complaints against Allied were received before DeWine sued the company in August 2011. By comparison, two-thirds of the complaints against CRB have been logged since January 2011.

The Better Business Bureau of Northwest Ohio also frequently heard complaints from consumers about CRB — 163 of them in the past three years.

When contacted by the attorney general’s office or the BBB on behalf of a consumer, the company almost always said they had made an innocent mistake and would cease collections.

“They are smart enough to know to respond,” said Dick Epstein of the Toledo-area BBB. “They know if they just keep their nose clean with the AG and the BBB … they can operate with impunity.”

While CRB employees communicated often with officials, they virtually ignored federal lawsuits consumers filed against the company.

A Colorado man won a $3,437 default judgment against the company for pursuing him on a chargeback to an online dating website called Adult Crowd. “They bully people and most just pay it,” said Jill Gookin, the man’s attorney. “The whole debt-collection industry is just nasty.”

  • Gookin’s client fought back and won last year but has yet to see a dime from CRB.

Hundreds of other consumers turned to DeWine.

Joshua Morgan was among them.

About once a week, a quiet dinner with his wife would be interrupted by the same phone call, one that would make Morgan lose his appetite.

A woman representing CRB would leave a message at the speed of an auctioneer’s voice claiming the Pittsburgh man owed $64.95, including a $25 fee, for using some type of web-based porn service.

“They were trying to scare me into paying,” Morgan said. “That charge didn’t belong to me and was a fraud on my account. No way was I going to just pay.”

Morgan, 31, a university computer administrator, first noticed the $39.95 charge on his Bank of America credit card in August 2009. He called the bank and explained that the charge was fraudulent. Someone had accessed an email address created back when he was in high school. Morgan signed an affidavit with the credit-card company, which agreed that the charge was phony and removed it from his account.

Morgan thought the ordeal was over until May 2010, when he received the first of many phone calls from CRB. It was around the same time that he and his new wife were on the verge of buying their first home.

“My heart sank, and it made me sick,” he said. “I feared this thing would end up on my credit report and cause me to lose my mortgage or have to pay more.”

He explained to CRB that the charge was deleted from his account by Bank of America and that he had an affidavit from the credit-card company.

But CRB ignored the explanation and continued to hound him for months with calls and letters.

Investigators from Bank of America’s fraud unit advised Morgan to not pay the charge. He filed a complaint with the Pennsylvania attorney general’s office, which got directly involved in the case but was unsuccessful in getting the company to stop contacting Morgan.

The dispute was then transferred to the Ohio attorney general’s office, which also intervened.

The letters and calls finally stopped, and Morgan hasn’t heard from the company since the summer of 2011. The charge never made it on to his credit report.

Morgan said he was thrilled when he learned that CRB was being targeted by DeWine’s office.

“I hate that company with everything I have,” Morgan said. “I would tell the world this story if it meant they can’t keep doing this to other people.”

In most cases, one letter from DeWine’s office was all that was needed to halt the harassment.

The consumers who challenged CRB said they initially didn’t know where to turn or how to defend themselves, until they found online a consumer-protection notice from DeWine’s office.

“I kept that letter from Mr. DeWine in my pickup truck,” said Charles McCall, an offshoreman for an oil company in Acme, La. “I about had a seizure when I saw the porn charge on my credit card. I figure that letter brought me luck with getting rid of it, so I kept it.”

Francis Biros, a retired contract attorney from Vienna, Va., credits DeWine’s office for keeping him out of trouble with more than a collection agency.

“I never used that sex service or whatever that thing was, but what if my wife had seen that false claim before I did?” said Biros, 74. “If I even thought about doing something like that, I’d be in big trouble. It’s not right people have to go through all that trouble.” jriepenhoff@dispatch.com   @JRiep mwagner@dispatch.com   @MikeWagner48

• Read the full Dispatch series at Dispatch.com/credit  .

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