On November 2, the Consumer Financial Protection Bureau (CFPB) and New York Attorney General filed a lawsuit in federal district court in New York over an alleged “massive, illegal debt-collection scheme” that supposedly involved improperly increased debts and threats of arrest or legal action against delinquent borrowers.

Douglas MacKinnon and Mark Gray are accused of operating a network of companies that harassed, threatened, and deceived millions of consumers into paying inflated debts or amounts they may not have owed.  The CFPB claims that the defendants violated the Fair Debt Collection Practices Act (FDCPA).  The New York Attorney General joined the CFPB in claiming that the defendants violated the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act).  The complaint also alleges repeated fraudulent acts and deceptive acts or practices in violation of New York law, as well as violations of New York state debt-collection law.

According to the lawsuit, the companies purchased tens of millions of dollars of debt, often added $200 to each portfolio acquired, and then either collected the inflated debts themselves or sent the inflated debts off to be collected by dozens of other affiliated entities.  The CFPB and New York Attorney General said agents of the companies engaged in illegal activities to collect the debts, including impersonating law enforcement and court officials.  Furthermore, they allege that the scheme has been ongoing since 2009 when MacKinnon established Northern Resolution Group, LLC (NRG).  The company changed its name to Enhanced Acquisitions, LLC in 2014, but purportedly, its business practices remained unchanged.  When MacKinnon and Gray learned in 2012 that a debt seller from which NRG bought payday loan debt would no longer sell to or place debt with companies that did not have FDCPA-compliant collection policies and procedures, they created a new company with policies the CFPB referred to as, “window dressing.”

The CFPB and the New York Attorney General seek to shut down the operation and to obtain compensation for victims and a civil penalty against the companies and partners.  FDCPA compliance can be onerous, but scrutiny of debt collectors remains vigilant by state and federal regulators.  Accordingly, businesses that collect debt should ensure that they (and their partners) have FDCPA-compliant policies, procedures, and practices in place.