Washington, DC - We’ve all heard about counterfeit money and counterfeit handbags. But counterfeit debt? It’s the subject of a $4.1 million judgment entered last month by a federal court in Kansas – and it illustrates yet another example of the injury inflicted by debt collection deception.

Last year the FTC sued Joel Tucker, SQ Capital, and related companies, alleging that the defendants engaged in illegal conduct when they sold lists of fake payday loans to debt collectors. Some of the loans supposedly came from an outfit called Castle Peak. The defendants said others came from an online payday lender known as 500FastCash. That’s an important detail because to sell those lists, Joel Tucker invoked the name of his brother Scott Tucker, a payday loan operator who did business under the 500FastCash brand.

That was the defendants’ story, but here are the facts as alleged by the FTC. First, Castle Peak was a made-up name for a made-up lender selling made-up debts. Second, the 500FastCash portfolio wasn’t really from 500FastCash and the purported debts on those lists were – we’ll go in alphabetical order here – counterfeit, fake, false, non-existent, phony, sham, and spurious. Third, the sale of those bogus portfolios yielded the defendants more than $4 million.

What did consumers get? The nightmare of being hounded to pay debts they didn’t owe and, in many instances, the financial injury of forking over cash just to get the harassment to stop. But that wasn’t the only concern. Although the debts were fake, the portfolios contained a substantial amount of genuine information of a highly sensitive nature, including consumers’ bank account, credit or debit card, and Social Security numbers.

Joel Tucker appeared in court on a number of occasions to respond to the charges against him. But he ultimately failed to file an answer to the FTC’s complaint, leading to the entry of a default judgment. The Court concluded that the defendants illegally placed in the hands of debt collectors the means to mislead consumers regarding their debt obligations. In addition, the Court stated that distributing counterfeit debt portfolios was an unfair practice, in violation of the FTC Act. In addition to the $4.1 million financial remedy, the order prohibits the defendants from handling consumers’ sensitive debt information and requires them to destroy the personal information they used.

The message for industry members is to kick the tires before buying a portfolio of debt. Some debt sellers are building their business by selling loans that are phony or are owned by someone else. Buyers that take on loans with a checkered history or flawed documentation risk paying for worthless bytes. They also could find themselves on the FTC’s list of Banned Debt Collectors in the company of others who collected on fake loans bought from Joel Tucker. Furthermore, debt collectors should recognize that when consumers keep telling you they don’t owe the debts you’re trying to collect, warning bells should ring. For companies in possession of counterfeit debts, we have one word of advice about trying to sell or collect on them: Don’t.

As a side note, Scott Tucker and his 500FastCash operation are no strangers to the FTC. Last year a federal court ordered Tucker to pay $1.3 billion for deceiving consumers and illegally charging them undisclosed and inflated fees, a decision currently on appeal. A jury recently convicted Scott Tucker of criminal charges related to his lending practices.