Disclaimer. This is not an article, this is republished opinions and orders from the federal court and the CFPB.
Marcus Brown, the Ringleader Collected more than $5 million dollars from the scheme via a collection of entities and with the help of co-conspirators
From 1991 to 2005—years before the events giving rise to this lawsuit—Marcus Brown held jobs at multiple collection agencies.
In 2005, he pleaded guilty in New York to grand larceny, scheme to defraud, and identity theft. Among other things, the State charged Brown with committing credit card fraud.
Years later, Brown began traveling between Buffalo and Atlanta to help the LLC Defendants collect consumer debts. Brown was an owner, officer, or registered agent of nearly all the LLC Defendants. Notably, he organized Universal Debt Solutions then advised the company’s clients on how to organize a debt-collection business.
Brown also taught WNY Solutions Group ow to improve collectors’ performances and drafted collection letters. Similarly, when asked to help set up a debt-collection business in Atlanta, Brown provided Credit Power with what he called the “Brown Doctrine.” It included call scripts and recommendations on how to motivate debt collectors to increase productivity. Later, Brown took control of Credit Power, along with Mohan Bagga. Furthermore, Brown purchased and sold debt for WNY Account Solutions. He also paid the bills for its merchant processing and Global Connect accounts. And he used S Payment’s merchant processing accounts as well.
In addition to the advice he provided, Brown also drafted scripts that the LLC Defendants’s employees used when making collection calls, as well as demand letters that were sent to consumers. He also recruited employees for the LLC Defendants, owned or controlled nearly half of the 70 phone numbers the debt collectors used, and opened Global Connect accounts for three LLC Defendants—UDPS, WNY Account Solutions, and Check & Credit Recovery—which they used to broadcast collection calls. Brown further compiled information about consumers by purchasing payday loan leads and alleged debt portfolios and performing skip tracing.
He also facilitated the collection of debts by using payment processing accounts “to take and process consumers’ credit and debit card payments.” In the end, Brown received $321,492.00 in checks from the LLC Defendants. That does not include cash payments or personal expenses Brown paid using the LLC Defendants’ corporate accounts.
Judgment against Sumat Khan and S Payment and Processing Solutions, LLC, including;
A judgment for equitable monetary relief and damages is entered in favor of the Bureau and against Stipulating Defendants, in the amount of $633,710.00, for the purpose of providing redress to Affected Consumers
“A debt collector should not be able to avoid liability for unlawful debt collection practices simply by contracting with another company to do what the law does not allow it to do itself.” Janetos v. Fulton Friedman & Gullace, LLP, 825 F.3d 317, 325 (7th Cir. 2016) #law #debt
— LawsInTexas (@lawsintexasusa) September 2, 2019
CFPB Website Press Release; CFPB Sues Participants in Robo-Call Phantom Debt Collection Operation
(April 2015) Bureau Also Obtains a Temporary Restraining Order to Halt Illegal Operation and Freeze Assets of Operation’s Leaders
WASHINGTON, D.C. — The Consumer Financial Protection Bureau (CFPB) announced today that it has filed a lawsuit against the ringleaders of a robo-call phantom debt collection operation, their companies, and their service providers. The debt collectors, using various aliases, allegedly deployed automated calls to threaten, harass, and deceive consumers in attempts to collect debt the consumers did not owe to them, and in most instances, to anyone else. The complaint alleges that the debt collectors’ scheme depended on the participation of the telemarketing company that sent the robo-calls and payment processors that allowed the collectors to access consumers’ bank accounts.
“Our lawsuit asserts that consumers were harassed, threatened, and deceived as part of a reprehensible scheme to collect debt that was not even owed,” said CFPB Director Richard Cordray. “We are taking action against the many parties that allegedly contributed to this phantom debt collection operation. The ringleaders of the scheme, the telemarketing company that broadcast millions of robo-calls, and the companies that processed the payments should all be held accountable for taking advantage of vulnerable consumers.”
The CFPB alleges that Marcus Brown and Mohan Bagga led a group of individuals and entities that threatened, harassed, and deceived consumers in order to collect phantom debt. Phantom debt is debt consumers do not actually owe or debt that is not payable to those attempting to collect it. According to the complaint, Brown and Bagga and those working with them used many fictitious names as they threatened consumers with arrest, wage garnishment, and “financial restraining orders.” The CFPB’s claims against these defendants are based on the Consumer Financial Protection Act and the Fair Debt Collection Practices Act.
The CFPB’s complaint alleges that consumers were tricked into believing that the collectors were legitimate because the collectors verified consumers’ personal information, such as date of birth, social security number, the names of family members, and employment information. According to the complaint, Brown and Bagga purchased consumers’ personal information from debt brokers and lead generators. They then used a telemarketing firm, Global Connect, to automatically broadcast robo-calls to millions of consumers. The calls alleged that the consumer had engaged in check fraud and threatened to contact the consumer’s employer.
In response to the debt collectors’ threats and false statements, consumers provided credit or debit card payment information. The complaint alleges that once the debt collectors got consumers’ payment information, they would submit it to the payment processors, who enabled the collectors to access consumers’ bank accounts to withdraw money, despite the many indications of misconduct.
On March 26, 2015, the Bureau filed its complaint under seal, which has since been lifted. The Bureau obtained a temporary restraining order on that same date. After a public hearing held on April 7, 2015, a preliminary injunction was entered halting the misconduct and freezing the assets of the individual defendants and their businesses.
Brown and Bagga’s Alleged Scheme
Marcus Brown is a New York resident while Mohan Bagga resides in Georgia, and they based the operation in those two states. The complaint contends that Brown and Bagga did not operate alone. According to the CFPB’s complaint, Brown’s wife, Tasha Pratcher; his sister, Sarita Brown; Bagga’s ex-wife, Varinderjit Bagga; and another individual, Sumant Khan, also helped carry out the alleged scheme.
All of these individuals are named in the CFPB’s suit. Also named in the suit are debt collection companies Brown and Bagga formed to run these alleged operations: Universal Debt and Payment Solutions, LLC; Universal Debt Solutions, LLC; WNY Account Solutions, LLC; WNY Solutions Group, LLC; Check & Credit Recovery, LLC; Credit Power, LLC; and S Payment Processing & Solutions, LLC.
The CFPB’s lawsuit alleges that the debt collectors violated the law by attempting to collect debts that were not owed to them and by harassing and lying to consumers in that process. Federal law prohibits the use of abusive conduct or any false, deceptive, or misleading representation or means in connection with the collection of any debt. The debt collectors are alleged to have violated the law in the following ways, among others:
- Harassed consumers with threatening robo-calls: Many consumers received multiple robo-calls about the alleged debt that they owed. The debt collectors set a call-back number in the messages that consumers received. The call-back number has been traced to Brown and Bagga. When consumers called back, they were told that they had committed crimes by failing to pay certain debts, and that if they did not agree to pay the caller, they would be served with papers or arrested for fraud.
- Collecting or attempting to collect phantom debt: The Bureau alleges that the collectors falsely represented the status of the debt when they sought to collect debts that were not owed, or, at least, that were not owed to the debt collectors themselves.
- Threatening legal action against consumers: The Bureau alleges that the collectors implied that if consumers did not pay the debt, they would be arrested or have their wages garnished. In reality, the Bureau alleges that the collectors had no intent to do so, nor the ability to take such action. The collectors also allegedly threatened to take action that they could not legally take or did not intend to take, when they threatened to “issue paperwork for you to appear in court.”
- Deceiving consumers to collect debts: The Bureau alleges that the collectors accused consumers of check fraud and sought to disgrace and threaten the consumers. The collectors also used fake business names such as “LRS Litigations,” “IRS Equity,” “Worldwide Requisitions,” and “Arbitration Resolution.” Such names gave consumers the false impression that they would be subject to litigation if they did not pay the debt.
Holding Service Providers Accountable
As described in the complaint, Brown and Bagga’s debt collection scheme depended upon the participation of a telemarketing company and payment processors. The Bureau alleges that Global Connect, the telemarketing company, sent millions of automated messages to consumers as part of the scheme. Global Connect is alleged to have broadcast these messages even though the company knew they contained unlawful content.
According to the complaint, Brown and Bagga could not have run a successful operation without the assistance of the payment processors Global Payments, Pathfinder, Frontline, and Electronic Merchant Systems. Without payment processing capability, the collectors could not accept debit and credit card payments. The payment processors are alleged to have ignored numerous red flags of the debt collectors’ illegal conduct, including consumer disputes that described the scheme and communication problems with the debt collectors. The CFPB contends that by enabling the debt collectors to accept payment by credit and debit card, the payment processors helped to legitimize the collectors’ business and facilitated millions of dollars in ill-gotten profits.
The CFPB’s complaint was filed in the United States District Court for the Northern District of Georgia. The complaint is not a finding or ruling that the defendants have actually violated the law.
Definition of a “Debt Collector”
In the way of the CFPB’s reasoning, though, is the statutory verbiage, “collects.” To collect is “[t]o call for and obtain payment of,” or “[t]o recover control of.” Collect, AMERICAN HERITAGE DICTIONARY OF THE ENGLISH LANGUAGE (4th ed. 2006). An obvious example of someone who collects debt is the proverbial “repo man”—or the one who actually reclaims the property from a defaulted debtor. Henson v. Santander Consumer USA Inc., 137 S. Ct. 1718, 1720 (2017). And in this case, the “repo man” (or men) would be Brown and his affiliates.
Instead, it seems to the Court that one who indirectly collects a debt must nonetheless take part in the initial securing of the debt—for example, a principal who hires an agent to send collection letters. Janetos v. Fulton Friedman & Gullace, LLP, 825 F.3d 317, 325 (7th Cir. 2016) (“A debt collector should not be able to avoid liability for unlawful debt collection practices simply by contracting with another company to do what the law does not allow it to do itself.” (emphasis added)).
The Court also cannot say as a matter of law, if Mr. Khan was or was not a debt collector. Of course, if S Payment was engaged in debt collection, then so was Mr. Khan.
See Kistner v. Law Offices of Michael P. Margelefsky, LLC, 518 F.3d 433, 438, 441–42 (6th Cir. 2008) (finding that the sole member of a law office—and one of its only two attorneys—could be personally liable for a form collection letter that allegedly violated the FDCPA even without evidence that he actually mailed the letter, but remanding the case to determine whether the letter was in fact “deceptive” under the FDCPA).
But the converse is also true: “vicarious liability [can]not be imposed [if] the company itself d[oes] not meet the definition of ‘debt collector’[.]” Pollice v. Nat’l Tax Funding, L.P., 225 F.3d 379, 404 (3d Cir. 2000).
As alluded to earlier, there is authority suggesting that a principal can be held vicariously liable for the FDCPA violations of its agent.9 E.g., Janetos, 825 F.3d at 325; Pollice, 225 F.3d at 404–06; Fox v. Citicorp Credit Servs., Inc., 15 F.3d 1507, 1516 (9th Cir.1994).
Thus, if Brown was acting as S Payment’s agent when he carried out any—of the many—unlawful collection activities that the CFPB has already proved, then S Payment could also be held responsible for those infractions.
And by extension, so could Mr. Khan as S Payment’s owner. Kistner, 518 F.3d 433, 437–38; see also LeBlanc v. Unifund CCR Partners, 601 F.3d 1185, 1201–02 (11th Cir. 2010).
Accordingly, the Court finds there are issues of material fact concerning S Payment’s relationship with Brown and, hence, the extent of its and Mr. Khan’s collection-related activities.