FTC Cracks Down on “Debt Parking” Scheme, Orders Debt Collector to Remove Fraudulent Debts from Consumer Credit Reports

In a significant action aimed at protecting consumers, the Federal Trade Commission (“FTC”) has recently intervened in a case involving a debt collection company accused of using deceptive tactics to coerce individuals into paying debts they did not owe. The FTC has reached a settlement with Midwest Recovery Systems (“Midwest Recovery”), which is alleged to have engaged in the illegal practice of “debt parking,” a scheme that caused widespread harm to consumers’ credit scores and financial well-being. Debt parking, also known as passive debt collection, occurs when a debt collector reports questionable or entirely bogus debts to credit bureaus, without the consumer’s knowledge. Often, individuals only become aware of these fraudulent debts when they try to make a major purchase, like buying a car or a house, or when they apply for credit or employment. The presence of these false debts can cause serious disruptions in people’s lives, pressuring them to settle disputes they never knew existed. The FTC’s complaint alleges that Midwest Recovery collected over $24 million from consumers through this deceptive practice. The company is said to have been placing questionable medical and payday loan debts onto credit reports, even though many of the debts were found to be either inaccurate or not valid at all. The company’s own investigations revealed that between 80 and 97 percent of the debts they reviewed were erroneous.