Debt Collectors Settle with FTC for $3.1 million

The Federal Trade Commission (FTC) announced Tuesday that it had settled charges against a debt collection agency and its executives for $3.1 million, most of which will be suspended.

The FTC said in a press release Tuesday morning that the owner of Luebke Baker and Associates, Inc. and several company defendants had signed a settlement order. The firm is a debt collection agency that focuses on magazine subscription recoveries.

The FTC alleged in its complaint that the defendants knew, or should have known, that some of the magazine subscription debts they were collecting were not valid. The defendants, who handle collection of hundreds of thousands of accounts each year, violated the FTC Act, the Fair Debt Collection Practices Act (FDCPA), and the Telemarketing Sales Rule, according to the complaint.

The defendants allegedly collected on debts for magazine subscriptions despite the fact that the FTC had successfully sued the company that originally sold the magazine subscriptions for deceptive marketing. The defendants were notified of a 2003 federal court order against Cross Media Marketing Corp. that placed special requirements on anyone attempting to collect payment for these magazine subscriptions.

The complaint also alleges that the defendants:

• illegally masked their identity and sent false information over caller ID, falsely posing as Ed McMahon, attorneys from a law firm, and other entities;

• falsely told consumers that magazine subscription debts are exempt from the statute of limitations; and

• illegally threatened to garnish wages and take other unintended legal actions.

The proposed settlement order, filed by the Department of Justice on the FTC’s behalf, bars Luebke Baker and Associates, Inc. and the named defendants from representing that a consumer owes a debt without having a reasonable basis to do so, and from making any other misrepresentations when collecting debts or selling goods and services. It also requires the defendants to conduct a reasonable investigation when a consumer disputes a debt or when the defendants otherwise have reason to question whether the debt is valid.

Under the proposed settlement order, when the defendants attempt to collect debts, they must provide consumers with disclosures about their rights under the FDCPA. The proposed order also requires the defendants to inform their collection employees of their personal obligations under the Act.

The order also imposes monetary judgments totaling $3.1 million: $2.3 million in civil penalties for violations of the Fair Debt Collection Practices Act, $730,000 in disgorgement for collecting Cross Media Marketing Corp. accounts in violation of the FTC Act, and $45,000 in restitution to consumers for charging an advance fee for a credit repair product in violation of the Telemarketing Sales Rule. In addition, a judgment is imposed against relief defendant Julissa Luebke for $420,000. The judgments will be suspended, based on most of the defendants’ inability to pay, when defendant Leslie M. Farrar pays $20,000. If it is later determined that the financial information the defendants provided was false, the full amount of the judgments will become due.