FTC: It’s Illegal to Collect A Debt by Threatening That the Debtors Will Lose Their Kids if They Don’t Pay Up

by Brian Wolfman

It's nice to see the FTC shutting down unscrupulous, outrageous debt collectors. In this complaint filed last month, the FTC charged a debt collection company called Goldman Schwartz and related defendants with a variety of violations of the Fair Debt Collection Practices Act and the Federal Trade Commission Act. As explained in the agency's press release, two weeks after the filing of the complaint, the district court shut down the debt collection operation. The FTC claimed, among other things, that Goldman Schwartz had told "a Virginia woman that
she would be arrested and jailed for three years, and would lose her
disability payments if she did not pay a $980 debt." The FTC also says that the company told alleged debtors that they would lose custody of their children if they did not pay up.

Here is the district court's preliminary injunction, which, in addition to closing down the business, banned the defendants (including the principals of Goldman Schwartz) from engaging in debt collection and froze the company's assets.

An FTC action like this one protects the consumers who would otherwise be harmed in the future by the defendants. A broader question is whether this type of action deters others from engaging in the same or similar illegal behavior. The FTC apprently thinks so and sees the Goldman Schwartz action as part of "its continuing crackdown on scams that target consumers in financial distress." Go here for details on the FTC's crackdown.