FTC v. Performance Capital Management

[David A. Szwak]

For Release: August 24, 2000
California Debt Collection Agency Settles FTC Charges Of Fair Credit Reporting Act Violations
www.ftc.gov/opa/2000/08/performance.htm

The Federal Trade Commission today announced a proposed settlement with a California-based debt collection agency, Performance Capital Management, Inc. (PCM), under which the company would be fined $2 million and enjoined from what the FTC called "serious violations" of Section 623 of the Fair Credit Reporting Act (FCRA). According to the terms of the proposed settlement, payment of the fine would be waived due to the company's poor financial condition.

The FCRA regulates the collection and dissemination of sensitive information about consumers by credit bureaus and other types of consumer reporting agencies. Section 623 was added by Congress in the 1996 amendments to increase the accuracy of consumer reports by imposing specific duties upon any entity that furnishes information to a consumer reporting agency. The settlement announced today is the Commission's first enforcement action under Section 623.

PCM is a California corporation with headquarters in Irvine, California. It specializes in buying and collecting consumer debt that has been charged-off by the original creditor as uncollectible. PCM is currently in bankruptcy, and the Commission has waived the $2 million civil penalty based upon the financial condition of the company.

In its complaint against PCM, the Commission alleges that PCM violated a number of requirements imposed by Section 623. First, the complaint alleges that PCM provided credit bureaus with inaccurate "delinquency dates" for its accounts. Section 623 defines the delinquency date for an account as the month and year that an account first became delinquent. This date is important because it is used by credit bureaus to measure the seven-year period that negative credit information may be reported under the FCRA.

According to the Commission, PCM systematically reported accounts with delinquency dates that were more recent than the actual date of delinquency, resulting in negative information remaining on consumers' credit reports long beyond the seven-year period mandated by the FCRA. The Commission's complaint also alleges that PCM violated Section 623 by ignoring or failing to investigate consumer disputes referred by credit bureaus, and by failing to notify credit bureaus when consumers disputed collection accounts with PCM.

The proposed settlement would require PCM to provide correct delinquency dates when reporting collection accounts to credit bureaus. The agreement also mandates the proper investigation of disputes. Where PCM learns during an investigation that account records no longer exist for a disputed debt, the company must delete the information from credit bureau files within five days. Finally, the agreement would require PCM to report as "disputed" all accounts where consumers have disputed the information with PCM.

The Commission vote to file the complaint and proposed settlement was 5-0. The proposed settlement will be presented to the U.S. Bankruptcy Court for the Central District of California, which is overseeing PCM's bankruptcy. If approved, the agreement will be filed in the U.S. District Court for the Central District of California.


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NOTE: The agreement referenced in this release is for settlement purposes only and does not constitute an admission of a law violation.

Copies of the complaint and proposed settlement are available from the FTC's Web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580; 877-FTC-HELP (877-382-4357); TDD for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.

MEDIA CONTACT:
Mitchell J. Katz,
Office of Public Affairs
202-326-2161

STAFF CONTACT:
Peggy Twohig,
Bureau of Consumer Protection
202-326-3224
FTC File No.: 982-3542
(http://www.ftc.gov/opa/2000/08/performance.htm)

[David A. Szwak]

FTC RULE ENFORCEMENT AND CIVIL PENALTY CASES

California Corporation Settles Charges Of Violating Fair Credit Reporting Laws
The FTC has announced a proposed settlement with a California-based debt collection agency, Performance Capital Management, Inc. (PCM), under which the company would be fined $2 million and enjoined from what the FTC called .serious violations. of Section 623 of the Fair Credit Reporting Act (FCRA). According to the terms of the proposed settlement, payment of the fine would be waived due to the company.s poor financial condition.

The FCRA regulates the collection and dissemination of sensitive information about consumers by credit bureaus and other types of consumer reporting agencies. Section 623 was added by Congress in the 1996 amendments to increase the accuracy of consumer reports by imposing specific duties upon any entity that furnishes information to a consumer reporting agency. This settlement is the Commission.s first enforcement action under Section 623.

PCM, a California corporation, specializes in buying and collecting consumer debt that has been charged-off by the original creditor as uncollectible.

[David A. Szwak]

http://www.ftc.gov/os/2000/08/performconsent.htm

ALEJANDRO N. MAYORKAS
United States Attorney
LEON W. WEIDMAN
Assistant U.S. Attorney
Chief, Civil Division
Assistant United States Attorney
Room 7516, Federal Building
300 North Los Angeles Street
Los Angeles, CA 90012
Telephone: (213) 894-
Facsimile: (213) 894-

Attorneys for Plaintiff
United States of America

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
SOUTHERN DIVISION

UNITED STATES OF AMERICA
Plaintiff
v.
PERFORMANCE CAPITAL MANAGEMENT, INC., a California corporation
Defendant.

CIVIL NO.
CONSENT DECREE

WHEREAS: Plaintiff, the United States of America, has commenced this action by filing the Complaint herein; defendant has waived service of the Summons and Complaint; the parties have been represented by the attorneys whose names appear hereafter; and the parties have agreed to settlement of this action upon the following terms and conditions, without adjudication of any issue of fact or law and without defendant admitting liability or fault for any of the matters alleged in the Complaint;

WHEREAS: Defendant is a debtor in a Chapter 11 bankruptcy case pending in this District; and

WHEREAS: James J. Joseph is the duly appointed and acting Chapter 11 Trustee for the defendant;

THEREFORE, on the joint motion of plaintiff and defendant, it is hereby ORDERED, ADJUDGED, AND DECREED as follows:

FINDINGS

This Court has jurisdiction of the subject matter and of the parties.
The Complaint states a claim upon which relief may be granted against the defendant under Sections 5(a)(1), 9, 13(b), and 16(a) of the Federal Trade Commission Act ("FTC Act"), 15 U.S.C. §§ 45(a)(1), 49, 53(b) and 56(a), and under the Fair Credit Reporting Act, 15 U.S.C. § § 1681-1681u. Entry of this Final Judgment is in the public interest;
The Commission has the authority under Section 13(b) of the Federal Trade Commission Act, 15 U.S.C. § 57(b), and Section 621 of the Fair Credit Reporting Act, 15 U.S.C. § 1681s, to seek the relief it has requested.
The alleged activities of the defendant are in or affecting commerce, as that term is defined in 15 U.S.C. § 44.
DEFINITIONS

As used in this Consent Decree:

1. the "Fair Credit Reporting Act" refers to 15 U.S.C. §§ 1681-1681u, as amended;
2. the term "defendant" means Performance Capital Management, Inc.;
3. the term "consumer reporting agency" is defined as provided in Section 603(f) of the FCRA, 15 U.S.C. § 1681a(f);
4. the term "account" means any debt or other obligation being collected by the defendant; and
5. the term "trustee" means James J. Joseph as Chapter 11 trustee for the defendant.
ORDER

I.

IT IS THEREFORE ORDERED that defendant, its successors and assigns, shall pay to plaintiff a civil penalty, pursuant to Section 621(a) of the Fair Credit Reporting Act, 15 U.S.C. § 1681s(a), in the amount of two million dollars ($2,000,000). Based on financial statements and other information filed with the U.S. Bankruptcy Court, Central District of California, Santa Ana Division, by Performance Capital Management, Inc., and by the trustee, payment of the foregoing monetary settlement is waived.

II.

IT IS FURTHER ORDERED that defendant, its successors and assigns, and its officers, agents, servants, employees and attorneys, and all persons in active concert or participation with any one or more of them who receive actual notice of this Consent Decree by personal service or otherwise, are hereby enjoined, directly or through any corporation, subsidiary, division or other device from:

A. failing to provide correct delinquency dates, as required by Section 623(a)(5) of the Fair Credit Reporting Act, 15 U.S.C. § 1681s-2(a)(5), for accounts that defendant reports to consumer reporting agencies;
B. failing to properly investigate consumer disputes, as required by Section 623(b) of the Fair Credit Reporting Act, 15 U.S.C. § 1681s-2(b), when consumer reporting agencies refer disputes to the defendant pursuant to Section 611(a)(2), 15 U.S.C. § 1681i(a)(2) . In order to comply with Section 623(b) when a consumer disputes the accuracy of information reported by the defendant to a consumer reporting agency, defendant shall either verify the information with the original account records within the time period set forth in the Fair Credit Reporting Act or take all necessary steps to delete the information from the files of all consumer reporting agencies to which the information was reported. In any situation where the defendant either knows that no original records exist, or is informed by the original creditor that no records exist, the defendant shall, within five business days after receiving the consumer dispute, notify all consumer reporting agencies to which the information has been provided that the information is to be deleted from the file of the consumer who has disputed the account;
C. failing to report accounts as "disputed" to consumer reporting agencies as required by Section 623(a)(3) of the Fair Credit Reporting Act, 15 U.S.C. § 1681s-2(a)(3), when consumers dispute accounts either in writing, orally, or by electronic means; and
D. failing to comply in any other respect with the Fair Credit Reporting Act.
III.

IT IS FURTHER ORDERED that defendant, its successors and assigns, shall, within thirty (30) days of the entry of this Consent Decree, provide a copy of this Consent Decree and the Fair Credit Reporting Act to each of defendant's officers and management-level employees, and secure from each such person a signed statement acknowledging receipt of a copy of this Consent Decree and the Fair Credit Reporting Act; and, within ten (10) days of complying with this paragraph, file an affidavit with the Court, and serve the Federal Trade Commission, by mailing a copy thereof to the Associate Director for Financial Practices, Bureau of Consumer Protection, Federal Trade Commission, 600 Pennsylvania Ave. N.W., Washington, D.C. 20580, setting forth the fact and manner of their compliance, including the name and title of each person to whom a copy of the Consent Decree has been provided.

IV.

IT IS FURTHER ORDERED that defendant shall, within sixty (60) days following the date of entry of this Consent Decree, submit to the Associate Director for Financial Practices, Bureau of Consumer Protection, Federal Trade Commission, 600 Pennsylvania Ave. N.W., Washington, D.C. 20580, a full and complete description of how defendants have complied and are complying with this Consent Decree.

V.

IT IS FURTHER ORDERED that, for a period of three (3) years from the date of entry of this Consent Decree, defendant, its successors and assigns, shall, within three (3) business days of receipt of written notice from the Commission, permit representatives of the Commission:

(A) Access during normal business hours to any office or facility of the defendant;
(B) Access to all computerized databases;
(C) To inspect and copy (or have copied by a contract copying agency) all documents at the company's offices or facilities relevant to any matter within the Commission's jurisdiction; and
(D) To interview the officers and employees of the defendant. The person interviewed may have counsel present if he or she so desires.
VI.

IT IS FURTHER ORDERED that defendant, its successors and assigns, shall notify the Associate Director for Financial Practices, Bureau of Consumer Protection, Federal Trade Commission, 600 Pennsylvania Ave. N.W., Washington, D.C. 20580, at least thirty (30) days prior to any change in defendant's business, including, but not limited to, merger, incorporation, dissolution, assignment, and sale, which results in the emergence of a successor corporation, the creation or dissolution of a subsidiary or parent, or any other change which may affect defendant's obligations under this judgment.

VII.

IT IS FURTHER ORDERED that this Court shall retain jurisdiction of this matter for the purposes of enabling any of the parties to this Consent Decree to apply to the Court at any time for such further order or directives as may be necessary or appropriate for the interpretation or modification of this Consent Decree, for the enforcement of compliance therewith, or for the punishment of violations thereof, or as justice may require.

VIII.

IT IS FURTHER ORDERED that James J. Joseph shall not be liable for any breach of this Consent Decree in any capacity other than in his capacity as Chapter 11 trustee. Neither the trustee nor the law firm with whom he is associated shall be subject to any personal liability for the obligations arising from or imposed by this Consent Decree. The trustee's obligations to perform under this Consent Decree shall terminate as of the date he ceases to act as Chapter 11 trustee and he shall have no liability for any act of the defendant or its successors and assigns or its officers, agents, servants, employees and attorneys after such date.

JUDGMENT IS THEREFORE ENTERED in favor of plaintiff and against defendant, pursuant to all the terms and conditions recited above.

Dated this ______ day of ____________, 2000.

UNITED STATES DISTRICT JUDGE

The parties, by their respective counsel, hereby consent to the terms and conditions of the Consent Decree as set forth above and consent to the entry thereof. Defendant waives any rights that may arise under the Equal Access to Justice Act, 28 U.S.C. § 2412, amended by Pub. L. 104-121, 110 Stat., 847, 863-64 (1996).

FOR THE UNITED STATES OF AMERICA
DAVID W. OGDEN
Acting Assistant Attorney General
Civil Division
U.S. Department of Justice
EUGENE M. THIROLF
Director
Office of Consumer Litigation

___________________________

ELIZABETH STEIN
Attorney
Office of Consumer Litigation
Civil Division
U.S. Department of Justice
Washington, D.C. 20530
ALEJANDRO N. MAYORKAS
United States Attorney
Central District of California
LEON W. WEIDMAN
Assistant United States Attorney
Chief, Civil Division


___________________________

Assistant United States Attorney
United States of America
Room 7516, Federal Building
300 North Los Angeles Street
Los Angeles, CA 90012


FOR THE FEDERAL TRADE COMMISSION:

___________________________
David Medine
Associate Director for Financial Practices

___________________________
Peggy Twohig
Assistant Director for Financial Practices

___________________________
William Haynes, Attorney

___________________________
Shoba Kammula, Attorney
Federal Trade Commission
Washington, D.C. 20580

FOR THE DEFENDANT
PERFORMANCE CAPITAL MANAGEMENT, INC.

James J. Joseph, As Chapter 11 Trustee
for the Estate of Performance Capital Management, Inc.

Anne E. Wells, As attorney for James J. Joseph, Chapter 11 Trustee for the Estate of Performance Capital Management, Inc.

[David A. Szwak]

http://www.ftc.gov/os/2000/08/performcomp.htm

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF GEORGIA
ATLANTA DIVISION

UNITED STATES OF AMERICA, Plaintiff,

v.

PERIMETER CREDIT, L.L.C. and ACCOUNT PORTFOLIOS, INC., Defendants.

Civil Action No.

COMPLAINT FOR CIVIL PENALTIES, INJUNCTIVE AND OTHER RELIEF

Plaintiff, the United States of America, acting upon notification and authorization to the Attorney General by the Federal Trade Commission ("Commission"), for its Complaint alleges that:

Plaintiff brings this action under Sections 5(m)(1)(A), 9, 13(b), and 16(a) of the Federal Trade Commission Act ("FTC Act"), 15 U.S.C. §§ 45(m)(1)(A), 49, 53(b), and 56(a), and Section 814 of the Fair Debt Collection Practices Act ("FDCPA"), 15 U.S.C. § 1692l, to obtain monetary civil penalties and injunctive or other relief for Defendants' violations of the FDCPA.
JURISDICTION AND VENUE

This Court has jurisdiction over this action pursuant to 28 U.S.C. §§ 331, 1337(a), 1345, and 1355, and under 15 U.S.C. §§ 45 (m)(1)(A), 49, 53(b), 56(a), and 1692l.
Venue in the Northern District of Georgia is proper under 28 U.S.C. §§ 1391(b)-(c) and 1395(a).
DEFENDANTS

Defendant Account Portfolios, Inc. ("API") is a corporation, with its principal place of business at 5000 Riverdale Court, Atlanta, Georgia 30337-6074. Defendant Perimeter Credit, L.L.C. ("Perimeter"), a subsidiary of API, is a limited liability company with its principal place of business at 3300 Northeast Expressway, Atlanta, Georgia 30341. API has control over the hiring, firing, compensation, and training for the employees of Perimeter. At all times relevant to this Complaint, API and Perimeter have transacted business in the Northern District of Georgia.
API and Perimeter are debt collectors, as the term "debt collector" is defined in Section 803(6) of the FDCPA, 15 U.S.C. § 1692a(6).
The activities of Defendants forming the basis of this Complaint concern the collection of debts from consumers, as the terms "debt" and "consumer" are defined in Sections 803(3) and 803(5) of the FDCPA, 15 U.S.C. §§ 1692a(3) and 1692a(5).
FAIR DEBT COLLECTION PRACTICES ACT

In 1977, Congress passed the Fair Debt Collection Practices Act, 15 U.S.C. §§ 1692-1692o, which became effective on March 20, 1978, and which has been continuously in force ever since that date. Section 814 of the FDCPA, 15 U.S.C. § 1692l, authorizes the Commission to use all of its functions and powers under the FTC Act to enforce compliance with the FDCPA by any debt collector, irrespective of whether that debt collector is engaged in commerce or meets any other jurisdictional tests set by the FTC Act, including the power to enforce the provisions of the FDCPA in the same manner as if the violations were violations of a Federal Trade Commission trade regulation rule.
VIOLATIONS CHARGED

On numerous occasions, in connection with the collection of debts originating from non-performing health club receivables purchased from Bally's Health & Tennis Corporation, Defendants have communicated with consumers at times or places that Defendants knew or should have known to be inconvenient to the consumers, including the consumers' places of employment, in violation of Section 805(a)(1) of the FDCPA, 15 U.S.C. § 1692c(a)(1).
On numerous occasions, in connection with the collection of debts originating from non-performing health club receivables purchased from Bally's Health & Tennis Corporation, Defendants have communicated with consumers at the consumers' places of employment when Defendants knew or should have known that the consumers' employers prohibited the consumers from receiving such communication, in violation of Section 805(a)(3) of the FDCPA, 15 U.S.C. § 1692c(a)(3).
On numerous occasions, in connection with the collection of debts originating from non-performing health club receivables purchased from Bally's Health & Tennis Corporation, Defendants have communicated with third parties for purposes other than acquiring location information about the consumers, without the prior consent of the consumers given directly to Defendants, or the express permission of a court of competent jurisdiction, and when not reasonably necessary to effectuate a post-judgment judicial remedy, in violation of Section 805(b) of the FDCPA, 15 U.S.C. § 1692c(b).
On numerous occasions, in connection with the collection of debts originating from non-performing health club receivables purchased from Bally's Health & Tennis Corporation, Defendants have communicated with consumers after the consumers notified them in writing that they refused to pay a debt or that they wished Defendants to cease further communication with them, in violation of Section 805(c) of the FDCPA, 15 U.S.C. § 1692c(c).
On numerous occasions, in connection with the collection of debts originating from non-performing health club receivables purchased from Bally's Health & Tennis Corporation, Defendants have engaged in conduct the natural consequence of which is to harass, oppress, or abuse a person-- including, but not limited to, the use of obscene or profane language, the natural consequence of which is to abuse the hearer -- in violation of Section 806 of the FDCPA, 15 U.S.C. §1692d.
On numerous occasions, in connection with the collection of debts originating from non-performing health club receivables purchased from Bally's Health & Tennis Corporation, Defendants have used false, deceptive, or misleading representations or means -- including, but not limited to, communicating or threatening to communicate to persons credit information which is known or which should be known to be false, including failing to communicate that a disputed debt is disputed -- in violation of Section 807 of the FDCPA, 15 U.S.C. §1692e.
On numerous occasions, in connection with the collection of debts originating from non-performing health club receivables purchased from Bally's Health & Tennis Corporation, Defendants have failed to notify consumers of their right to dispute and obtain verification of their debts and to obtain the name of the original creditor, either in Defendants' initial communication with consumers or within five days thereafter, in violation of Section 809(a) of the FDCPA, 15 U.S.C. §1692g(a).
On numerous occasions, in connection with the collection of debts originating from non-performing health club receivables purchased from Bally's Health & Tennis Corporation, when consumers have notified Defendants in writing within the thirty (30) day period described in Section 809(a) of the FDCPA, 15 U.S.C. § 1692g(a), that the debts, or any portion thereof, were disputed, Defendants have continued to attempt to collect debts before verification of the debts was provided to consumers, in violation of Section 809(b) of the FDCPA, 15 U.S.C. § 1692g(b).
CIVIL PENALTY AND INJUNCTION

Defendants have violated the FDCPA, as described above, with actual knowledge or knowledge fairly implied on the basis of objective circumstances, as set forth in Section 5(m)(1)(A) of the FTC Act, 15 U.S.C. § 45(m)(1)(A).
Each instance within the five years preceding the filing of this Complaint in which Defendants failed to comply with the FDCPA in one or more of the ways described above constitutes a separate violation of the FDCPA for which Plaintiff seeks monetary civil penalties.
Section 5(m)(1)(A) of the FTC Act, 15 U.S.C. § 45(m)(1)(A), Section 814 of the FDCPA, 15 U.S.C. § 1692l, and Section 4 of the Federal Civil Penalties Inflation Adjustment Act of 1990, 28 U.S.C. § 2461, as amended, authorize the Court to award monetary civil penalties of not more than $10,000 ($11,000 after November 20, 1996) for each violation of the FDCPA.
Under Section 13(b) of the FTC Act, 15 U.S.C. § 53(b), this Court is authorized to issue a permanent injunction to ensure that Defendants will not continue to violate the FDCPA.
PRAYER

WHEREFORE, Plaintiff respectfully requests this Court, pursuant to 15 U.S.C. §§ 45(m)(1)(A), 49, 53(b), 56(a), and 1692l, and its own equitable powers:

Enter judgment against Defendants and in favor of Plaintiff for each violation of the FDCPA alleged in this Complaint;
Award Plaintiff monetary civil penalties from Defendants for each violation of the FDCPA occurring within five years preceding the filing of this Complaint;
Order Defendants to include the following disclosure in each written communication with a consumer in connection with the collection of a debt originating from non-performing health club receivables purchased from Bally's Health & Tennis Corporation:
The law requires us to stop contacting you about this debt if you write us and ask us to stop. However, under the law, we may still contact you for two reasons:

To advise you that we intend to pursue specific remedies permitted by law; or
To advise you that our efforts are being terminated.
This law is enforced by the Federal Trade Commission, Washington, D.C. 20580;

Order Defendants to provide the following notice in writing to each of their present and future employees involved in the collection of debts, and to obtain and retain a signed acknowledgment of receipt of the notice from each such employee:
Debt collectors must comply with the federal Fair Debt Collection Practices Act, which limits our activities in trying to collect money from consumers. Most importantly, Section 806 of the Act prohibits you from harassing, oppressing, or abusing a person, including, but not limited to, using obscene or profane language. In addition, Section 807 of the Act prohibits you from using false, deceptive, or misleading representations, including communicating false information about a person's credit history. Individual debt collectors may be financially liable for their violations of the Act;

Enjoin Defendants permanently from violating the FDCPA in the future;
Order Defendants to pay the costs of this action; and
Award Plaintiff such additional relief as the Court deems just and proper.
Dated: This _____ day of ______________ 1999.

FOR THE UNITED STATES OF AMERICA:

DAVID W. OGDEN
Acting Assistant Attorney General
Civil Division
U.S. Department of Justice

RICHARD H. DEANE, JR.
United States Attorney
Northern District of Georgia

By: __________________________
Assistant United States Attorney
Northern District of Georgia
Richard B. Russell Federal Building
75 Spring Street, SW
Atlanta, GA 30335

EUGENE THIROLF
Director
Office of Consumer Litigation
Civil Division

By: _________________________
ELIZABETH STEIN
Office of Consumer Litigation
U.S. Department of Justice
Washington, D.C. 20530
(202) 307-0486

OF COUNSEL:

David Medine
Associate Director for Financial Practices
Bureau of Consumer Protection

Federal Trade Commission
600 Pennsylvania Avenue, N.W.
Washington, D.C. 20580

Anthony E. DiResta
Regional Director
Atlanta Regional Office
Federal Trade Commission
60 Forsyth Street, S.W.
Suite 5M35
Atlanta, Georgia 30303
(404) 656-1364