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WNY debt collectors feel heat of state probes; Shutdown, penalties prompted by abuses

State regulators ordered one Western New York debt collector to shut down operations and directed another to pay $175,000 in penalties and change his practices after both were found to be deceiving consumers into thinking they were in trouble with the law.

The actions against Frank Davis and John Chebat followed a pair of investigations by the State Attorney General's Office into the actions of their debt-collection businesses. Both Davis and Chebat reached settlement agreements with the state to end the probes.

"These settlements put dishonest businesses that engage in deceptive practices on notice," Attorney General Eric T. Schneiderman said in a news release. "Our office will prosecute unscrupulous debt collectors to the fullest extent of the law."

The investigations are also the latest in a series of state probes into an industry that has grown rapidly in Western New York. Not all debt collectors are violating the Fair Debt Collection Practices Act and other laws -- many are careful to follow the rules -- but the local industry has nevertheless developed a reputation nationally for bad and illegal behavior.

In one agreement, the state directed Davis, who owned a debt-collection business called the Lombardo Davis Goldman Firm LLC, to close the business and permanently barred him from participating in any consumer debt-collection business in New York State. He was also ordered to pay a $5,000 fine.

The state found that the name of the company was misleading because it sounded like a law firm's name, and its website included a photo of a gavel and law books, while referring to litigation experts.

Last year, Davis had reached a prior agreement with the state to stop using a name that mimicked that of an unrelated law firm and to set up a monitoring system of his employees to discourage improper and illegal conduct. He was also ordered to pay a $20,000 fine.

The state learned that he had violated that agreement after it began investigating him again early this year. He had again started using a name that sounded like a law firm, had changed the name and location of his business without telling the Attorney General's Office and failed to monitor his employees.

"More and more debt collectors are giving their businesses names that mimic law firms as a way to deceive individuals into thinking they are in legal trouble," Schneiderman said. "Predatory scams that prey on Western New Yorkers will not be tolerated."

In the other case, Chebat was ordered to pay $175,000 in fines and change his debt-collection practices.

Chebat operates several debt-collection businesses under the names Western New York Capital Inc., International Asset Group LLC, Unified Asset Solutions LLC, Outsourced Legal Prep LLC, Argos Alliance Group LLC and Check Systems Recovery LLC.

State investigators found that his companies' employees violated state and federal debt-collection laws by illegally contacting the employers of consumers and illegally sending verification-of-employment forms to employers demanding information they weren't entitled to, such as Social Security numbers. They also illegally sent letters to consumers on the letterhead of a local attorney.

The collectors also told consumers, wrongly, that if they didn't settle debts, their cases would be referred to in-house counsel or a national network of attorneys. They also wrongly told consumers that they were about to serve them with legal process or had taken civil judgments, and falsely claimed to consumers that, if they didn't pay up, Chebat would pursue action under "Bad Check Laws."

And they used Caller ID spoofing technology to cause local court phone numbers or fictitious numbers to be displayed on a consumer's Caller ID.

"Our Buffalo regional office received hundreds of complaints from consumers about this company," Schneiderman said.

As with Davis' agreement last year, Chebat was also required to install a system allowing him to monitor his employees' calls without their knowledge, and he must monitor them on a regular basis. The agreement also barred his employees from using spoofing or claiming they are legal process servers. And he must appoint a compliance officer.