Steve Weisman is a lawyer, college professor, author, and one of the country’s leading experts in cybersecurity, identity theft, and scams. See Steve’s other Con Watch articles.
Receiving a telephone call from a debt collector is never a pleasant experience. But being hounded by someone attempting to collect a debt you do not even owe is even worse. It’s called phantom debt and it constitutes fraud.
These phantom debt collectors use false claims and threats to compel people to pay debts that are largely non-existent, that are beyond the statute of limitations for collection, or that the collectors have no authority to collect. They also violate the law by illegally failing to provide proper notices and disclaimers.
Subject to strict federal laws, legitimate debt collectors are permitted to call debtors; however, the law prohibits them from threatening imprisonment for the failure to pay a debt or attempting to collect a debt that the debt collector knows is bogus. The law also prohibits debt collectors from communicating information about a debt to the consumer’s employer, although they can contact the employer to obtain contact information about the employee.
Debt collection is one of the most complained about consumer issues in America. In 2024, consumers filed 66,796 complaints with the Consumer Financial Protection Bureau (CFPB) against phantom debt collectors for attempting to collect debts not owed.
The FTC has brought legal actions against a number of phantom debt collectors. Since 2010, the FTC has obtained judgments permanently banning 201 phantom debt collectors from working in the debt collection industry.
In 2020, the FTC, along with more than 50 states and federal law enforcement, formed a nationwide outreach initiative called “Operation Corrupt Collector” to protect consumers from phantom debt collection and abusive and threatening debt collection practices.
In 2025, the FTC brought a civil action against Blackstone Legal and its owners in which the FTC alleged that Blackstone Legal deceived and harassed consumers to collect debts the consumers did not owe. According to Christopher Mufarrige, Director of the FTC’s Bureau of Consumer Protection, “This operation collected on false debt and harassed consumers with fake threats of lawsuits and damaged credit if they refused to pay.” A settlement was reached banning Blackstone from ever participating in the debt collection industry and requiring them to turn over substantially all their assets.
It can be difficult to know when someone calls attempting to collect a debt if they are legitimate or not. If you are contacted by a debt collector, do not discuss the debt with the person calling. Demand that they send you a written “validation notice” by mail, which describes the debt they allege you owe and includes a listing of your rights under the Federal Fair Debt Collection Practices Act. This Act requires that within 5 days of first contact, a debt collector must send a validation notice that specifies the amount of the claimed debt and the name of the creditor, and notifies you of your right to dispute the debt with instructions on how to do so. If a consumer disputes a debt, all collection activity must cease until verification of the debt is provided.
Never give personal information over the phone to anyone who calls you attempting to collect a debt. If you receive the validation notice and it appears to be legitimate, you may be better off contacting your creditor directly because the person who called you may not be representing the creditor but may merely have information about the debt.
Some red flags for recognizing a phantom debt collector include:
- Threatening arrest and a prison sentence
- Threatening an immediate civil lawsuit
- Demanding payments by gift card (always the hallmark of a scam), wired funds, or cryptocurrencies
- Claiming to be a government agency collecting the debt
- Calling before 8:00 a.m. or after 9:00 p.m., which is not allowed by law
- Calling more than seven times in seven days, which is not allowed by law
Not only can you not be arrested for failing to pay a debt, even threatening to arrest a consumer for failure to pay a debt is a violation of the Federal Fair Debt Collection Practices Act.
Anyone contacted by a phantom debt collector should report the collector to the FTC, the CFPB, and your state attorney general.
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Comments
Excellent info and guidelines here, Steve. I did collections for years in the 80’s and 90’s for the now defunct Robinson’s dept. store; a premium L.A. competitor to I. Magnin and Bullock’s. I had great success (mostly) following the laws because you could reach people by phone then. The job would be almost impossible now.
The one area where I “bent” the law was with 3rd party disclosure. If I’d left several messages during the billing cycle to no avail with the close date looming, and Mom or Dad would finally ask me what’s going on (often the debtors were college students), I’d tell them I’m trying to prevent Jack or Jill’s account from going 90 days the day after tomorrow.
I’d ask if they were volunteering to help, (“yes”) and I’d give them a minimal “curing” amount of $15-$50 to bring to the store, never disclosing the actual amount; usually between $250-$400. The store could count on me to deliver an omelette every month and I did, breaking a few eggs. Every percentage point over the 78% requirement was $100 commission. Hitting 84, 85% ($600-$700) was comparable to an extra $1,400-$1,500 now.
In 1991 an elderly lady sent me $300 cash. I showed it to my boss and immediately took it onto the floor with her account # for immediate crediting, showed him the receipt, called the woman politely telling her to please never do that again, advising I’m mailing her the receipt today. She was a ‘premium’ customer, with an account going back to 1957.