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The �鶹��ý Trade Commission has taken action against a debt collection company that allegedly placed bogus or highly questionable debts onto consumers’ credit reports to coerce them to pay the debts. Under a settlement with the FTC, the company, Midwest Recovery Systems (Midwest Recovery), is prohibited from the practice, known as “debt parking,” and required to delete the debts it previously reported to credit reporting agencies.

The FTC alleged that Midwest Recovery collected more than $24 million from consumers on such debts, largely by debt parking.

Also known as “passive debt collection,” debt parking can result in a consumer only finding out that a purported debt exists when his or her credit report is accessed in connection with buying a car or home, opening a credit card, or seeking employment. While the debts may not be valid, consumers can feel pressured to pay them off.

“The defendants parked fake or questionable debts on people’s credit reports and then waited for them to notice the damage when they were trying to get a loan or a job,” said Andrew Smith, Director of the FTC’s Bureau of Consumer Protection. “The defendants used this illegal ‘debt parking’ to coerce people to pay debts they didn’t owe or didn’t recognize.”

The FTC’s complaint alleges that Midwest Recovery received thousands of complaints each month about the purported debts from consumers, with the company itself finding that between 80 and 97 percent of the debts it investigated were inaccurate or not valid. In addition to payday lending debts, the complaint notes that the company parked significant quantities of medical debt, which is often a source of confusion and uncertainty for consumers because of the complex, opaque system of insurance coverage and cost sharing.

In one example from the complaint, a consumer was told when applying for a mortgage that an outstanding $1,500 medical debt placed on his credit report by Midwest Recovery had lowered his credit score and jeopardized his purchase. The consumer contacted the hospital to whom the debt was owed, who told him that he only owed an $80 co-pay. In spite of that, Midwest refused to remove the $1,500 debt and threatened the consumer with a lawsuit if he didn’t pay.

The FTC’s complaint alleges that the company and its owners, Brandon M. Tumber, Kenny W. Conway, and Joseph H. Smith, violated the FTC Act, the Fair Debt Collection Practices Act (FDCPA), the Fair Credit Reporting Act (FCRA), and the FCRA’s Furnisher Rule.

Under the terms of the settlement, Midwest Recovery and its owners will be prohibited from debt parking and pursuing consumers for alleged debts without a reasonable basis. The settlement also requires Midwest Recovery and Tumber to contact credit reporting agencies and request all debts reported by the company be deleted from consumers’ credit reports.

The settlement includes a monetary judgment of $24.3 million, which is partially suspended based on an inability to pay. Tumber and the company will be required to pay $56,748, and Tumber will also be required to sell his stake in another debt collection company and provide the proceeds from that sale to the FTC. In addition, Midwest Recovery will be required to surrender all of its remaining assets. If the defendants are found to have misrepresented their ability to pay, the full amount of the judgment would become immediately payable.

The Commission vote authorizing the staff to file the complaint and stipulated final order/injunction was 4-1, with Commissioner Rohit Chopra voting no and issuing a statement. Commissioner Rebecca Kelly Slaughter issued a concurring statement. The FTC filed the complaint and stipulated final order in the U.S. District Court for the Eastern District of Missouri.

NOTE: The Commission files a complaint when it has “reason to believe” that the named defendants are violating or are about to violate the law and it appears to the Commission that a proceeding is in the public interest. Stipulated final injunctions/orders have the force of law when approved and signed by the District Court judge.