At a complaint filed by the Federal Trade Commission (FTC), a US district court ordered stopping making of such calls.
Consumers received millions of collection calls from India, and that since January 2010 the operation took in more than USD five million from victims, FTC said.
"This is a brazen operation based on pure fraud, and the FTC is committed to shutting it down," said David Vladeck, Director of the FTC s Bureau of Consumer Protection.
This is first of its kind case that has come to light in the US wherein call centers in India have been used to make fake debt collection calls to the US.
The FTC alleges that information submitted by consumers who applied online for these loans found its way into the hands of the defendants.
The FTC filed suit against American Credit Crunchers, related company Ebeeze LLC and their owner Varang Thaker.
According to the FTC's complaint, Thaker obtained information often including Social Security or bank account numbers about consumers who had inquired about, applied for, or obtained online payday loans.
Thaker worked with telephone callers in India who called consumers using deceptive statements and threats to convince them to pay debts that were not owed or that he was not authorized to collect, the FTC alleged.
He also profited handsomely from this scheme, according to documents filed with the court. Thaker has withdrawn tens of thousands of dollars from the American Credit Crunchers and Ebeeze bank accounts, the FTC alleged.
"Consumers should not be pressured into paying debt they don't remember owing. Legitimate debt collectors must provide consumers with both written information about the debt, and instructions for protecting themselves if they don't think they owe the debt," Vladeck said.
According to the complaint, Thaker and his companies falsely told consumers they were delinquent on a loan, they must pay it, and the defendants had the authority to collect it; and falsely claimed to be law enforcement authorities or attorneys.
Thaker and his companies made false threats against consumers who refused to pay the alleged debts, including threats of arrest or imprisonment and harassed and threatened consumers so that they often paid the alleged debts out of fear of being arrested or sued, it said.
Often pretending to be law enforcement or other government authorities, the callers working with the defendants would falsely threaten to immediately arrest and jail consumers if they did not agree to make a payment on a delinquent payday loan, the FTC s court papers stated.
Claiming to be law enforcement, such as a local police department, the "Federal Department of Crime and Prevention," or simply a "federal investigator," the callers typically demanded more than USD 300, and sometimes as much as USD 2,000.
At other times, the callers said they were filing a large lawsuit against the consumer because of the delinquent payday loan or would have the consumer fired from his or her job, according to the FTC.
FTC said, but the consumers did not owe money to defendants either the payday loan debts did not exist or the defendants had no authority to collect them because they are owed to someone else.
The court order stopped the illegal conduct and freezes the operation's assets while the FTC moves forward with the case.
FTC said the case of Mark Merola is typical of consumers the defendants targeted.
A caller with an Indian accent reached his wife at home and told her Merola would be arrested and immediately imprisoned if he did not pay what he owed on a payday loan.
The caller later said he knew where Merola worked and threatened to send police there to arrest him.
Despite not being delinquent on any loan and not owing money to the caller, Merola was afraid of the threatened arrest, so he paid USD 523.87 to the defendants, the FTC said in a news release.
Over the last two years, consumers have filed more than 4,000 complaints with the FTC and state attorneys general about fraudulent debt collection calls.
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