Debt Collector Sentenced for Defrauding Numerous Credit Unions

Charles V. Stanley Jr., 65, of Agua Dulce, Calif., will spend the next six years of his life in a federal prison for a multimillion-debt fraud scheme that victimized eight credit unions in California, Nevada and Washington, other businesses and individuals.

U.S. District Judge John A. Mendez in Sacramento rendered Stanley’s sentence last week after he pleaded guilty to conspiring to commit bank fraud and wire fraud, McGregor W. Scott, U.S. Attorney for the Eastern District of California said.

Stanley owned Creditor Specialty Service Inc., an Acton, Calif.-based debt collection company. Credit unions and other businesses contracted with CSS to collect debts from members and customers.

CSS filed for Chapter 7 bankruptcy in 2016. According to court bankruptcy documents, more than 30 individuals, business and organizations, including credit unions, initially made more than $20 million in monetary claims against CSS.

Federal prosecutors indicted Stanley on fraud charges in June 2017.

Under Stanley’s direction, CSS employees collected money from debtors but under-reported to creditors the amounts the company collected. Stanley also caused CSS to file lawsuits or settle with debtors without his clients’ knowledge or authorization.

Prosecutors said even after one credit union terminated its contract with Stanley, he continued to demand and collect money from members using coercive tactics. What’s more, he persisted in this fraudulent conduct even after a court ordered Stanley to cease collecting from the credit union’s debtors.

When one of the victimized credit unions, the $3 billion SAFE CU in Folsom, Calif., learned of Stanley’s scheme, it advised debtors they did not have to pay CSS.

“SAFE Credit Union learned that debtors had continued to pay CSS because they were scared of CSS,” federal prosecutors wrote in court documents. “One debtor told the credit union that CSS had threatened to take his home and the credit union learned that (the debtor’s) experience was not atypical.”

CSS also threatened SAFE CU members with court action and wage garnishment. In one instance, CSS drew more funds from a debtor’s deposit account than what he initially agreed to pay, causing him to incur overdraft fees.

Other credit unions that had filed monetary claims against CSS were the $4.5 billion Redwood Credit Union in Santa Rosa, Calif., the  $2.6 billion Provident CU in Redwood City, Calif., the $789 million Silver State Schools CU in Las Vegas, the $3.5 billion Chevron FCU in Oakland, Calif., the $647 million Safe 1 CU in Bakersfield, Calif., the $363 million Sea West Coast Guard FCU in Oakland, Calif., and the $68 million American Lake Credit Union in Lakewood, Wash.

Stanley blamed his wrongdoing on his alcohol and cocaine addictions, according to court documents.

But prosecutors had little sympathy for Stanley.

“He lied for money. He falsified records,” prosecutors wrote in court documents. “He bullied poor people into paying him money to which he was not entitled and then he concealed their payments from the creditors who could have reduced their debt balances.”

Evidence presented at the sentencing hearing showed that CSS maintained three sets of books and that Stanley used about $839,608 of the collected funds for his own personal spending. He also used funds to pay other clients to whom CSS owed money and to cover the company’s operating costs.

Stanley’s fraud caused clients and debtors to lose more than $4 million, according to federal prosecutors.

A restitution hearing is scheduled for August.