Debt collection regularly ranks among the top consumer complaints to the Federal Trade Commission (FTC). The agency notes a range of deceptive and abusive tactics used to get debtors to pay up, including repeated phone calls, verbal harangues, and threats to disclose debts to employers and family members.
But many Americans are confronted by a problem even scarier than aggressive debt collectors: aggressive fake debt collectors, who try to bully their targets into paying money they don’t owe.
The FTC calls it “phantom debt collection.” You get a call, text, email or social media message from someone claiming to be a debt collector, law enforcement officer, attorney or process server. They insist you have a delinquent payday loan, credit card balance or some other sort of consumer debt and demand immediate payment of hundreds or thousands of dollars, threatening lawsuits or imminent arrest if you don't comply.
Occasionally such situations arise from mistaken identity: A legitimate debt collection agency slips up, confusing a consumer with a debtor who has a similar name (an error known as “debt tagging”). Often, though, it’s a scammer, combining bits of personal information harvested from sources such as old loan applications and hacked accounts to fabricate bogus debts that consumers might be deceived into thinking are real. Some large-scale operators package these phony liabilities into portfolios and sell them to debt brokers for collection.
In recent years, federal and state authorities have upped the pressure on abusive collectors and phantom-debt predators. A joint crackdown by the FTC, other federal agencies and authorities in 16 states produced more than 50 cases in 2019 and 2020, putting many collectors out of business and securing multimillion-dollar judgments.
But the problem remains widespread. In 2021, the FTC received more than 77,000 consumer reports of collectors using abusive or threatening tactics or trying to collect money that wasn't owed, a 45 percent increase from the previous year. And a federal rule change that took effect in November 2021 allows collectors to contact debtors by email, text or social media direct message as well as by phone (previously the only sanctioned method), opening new routes for fake-debt scammers to reach their targets.