The undersigned representatives of consumers urge you to resist the efforts
of check diversion companies to obtain an exemption from the Fair Debt Collections
Practices Act (“FDCPA”). If this exemption is granted, hundreds of
thousands of innocent American consumers will pay unnecessary and unauthorized
charges to these for-profit companies in response to deceptive threats to criminally
prosecute them for writing bounced checks.
The FDCPA does not stop or inhibit the legal activities of check diversion
companies. In fact, most collectors of bounced checks operate fruitful businesses
while fully complying with the FDCPA. However, check diversion companies, which
operate under contract with the local District Attorney’s office, are so
profitable that they share their income with the DA’s office, providing
funds to this government office rather receiving money from it to perform a
governmental function. There is no actual involvement by the DA’s office
in the collection of checks by these companies. They send letters which
only look like they come from the DA, threatening prosecution if the consumer
does not pay the full amount of the bounced check, plus legal fees, plus
additional amounts for classes or other fees which are generally only permitted
to be assessed by the courts after a conviction.
Yet, in these check diversion programs the DAs have not done any investigation
to determine the critical requirement of the crime – an intent to defraud.
Indeed most of these consumers have not intended to defraud, and quickly pay
off the checks upon receiving notice. As a result, many consumers who have inadvertently
bounced small checks are deceived into paying as much as $140 extra to avoid
a criminal prosecution which would never occur if the DA were actually handling
the case. Indeed, regardless of the involvement of the for-profit check diversion
program, the majority of bounced check cases are not criminally prosecuted because
there is no intent to defraud, a required element of the crime.
The FDCPA only limits the activities of check diversion companies in its
requirements that no deception be committed, that consumers be advised of their
right to request validation of the debt, and that only authorized fees be collected.
These are requirements that all debt collectors collecting bounced checks
are able to comply with and still successfully collect. Specifically, check
diversion companies have consistently been found by the courts, or have settled
cases alleging, three types of illegal conduct:
Deceptive Behavior. The check diversion companies’ letters
to consumers were deceptive because they looked like they actually came from
the District Attorney and implied that the DA had determined the consumer
had committed a crime. In fact no DA ever reviews cases before the letter
threatening criminal prosecution is mailed. In many situations, if the DA
had reviewed the case, no intent to defraud would have been found, and no
criminal prosecution would have been threatened.
Failure to Provide Notice of the Right To Verify the Debt. Unlike
all other private debt collectors collecting debts, including bounced checks,
the check diversion companies refuse to provide notice to consumers that they
have the right to request verification of the debt. In many situations this
right would allow consumers to explain that they have already paid off the
check, or do not believe they owe it.
Attempted Collection of Illegal Fees. Generally, state laws specifically
provide the extra fees that consumers owe when they write a check that bounces.
Often the courts can impose monetary penalties after a conviction for writing
a bounced check (which must include a finding of intent to defraud). Yet the
check diversion programs insist upon the payment of these fees even when no
court has found – or would find – the consumer guilty of bouncing
a check. For consumers, this often turns a mistake of a $10 or $20 bounced
check into a cost approaching $200.
The majority of District Attorneys in the nation do not use check diversion
companies, finding alternative, far less abusive, ways to enforce laws against
writing checks which bounce for insufficient funds. Many DAs use dispute
settlement programs to resolve bounced check issues between merchants and consumers.
Other DAs simply write their own letters explaining the process to consumers.
These letters do not require the payment of the exorbitant additional fees charged
by the check diversion companies, they simply advise of the process involved
when a payee of a check which has bounced brings the case to the criminal court.
These DAs find that even without employing private companies which make
millions of dollars in profit from consumers who have inadvertently bounced
a check, only a very few cases are criminally prosecuted.
Check diversion companies do not need an exemption from the FDCPA. They can
operate profitable, effective businesses without this exemption, simply by complying
with the law. This would only mean that 1) the check diversion company not imply
that the DA has reviewed the consumer’s case and found that a crime has
been committed, unless the DA has done so; 2) the letter to the consumer includes
the required notice of the consumer’s right to request validation of the
debt; and 3) the company only collect fees that can be legally charged.
The Fair Debt Collection Practices Act does not inhibit the collection of debts;
it only prohibits deception and abuse, and requires that consumers be allowed
an opportunity to show they do not owe the debt. These requirements are appropriate
and necessary for private individuals who are collecting debts – whether
they are acting for private creditors or government officials. As Congress determined
when passing the FDCPA, once the incentive of profit is injected into the collection
effort, more protections are required.
We urge you to resist the effort of one small part of the collection industry
to evade compliance with the Fair Debt Collection Practices Act. Bounced checks
can be collected quite effectively by collectors complying with this important
consumer protection law.
Sincerely,
Margot Saunders
National Consumer Law Center
Ira Rheingold
National Association of Consumer Advocates
Four Real Consumer Cases – In Current Litigation
with Check Collectors
The following are true stories. Each is not only illustrative of hundreds
of other examples of abuses by the check diversion industry, but is also the
subject of pending litigation against a check collector using District Attorney
diversion programs. In each case the violations of the FDCPA include:
1) The FDCPA prohibition against deception is violated because the letters
falsely lead the consumer to believe that the DA has determined the consumer
could be prosecuted for a crime, when there was no crime committed because
there was no intent to defraud; and
2) The FDCPA notice of the right to verify the debt – which would have
provided the consumer the opportunity to explain why the debt was not owed,
or that it had already been paid – was not provided to the consumer.
A. Class Action of Payday Loans in Washington State. In a case against
BounceBack, hundreds of payday loans were processed through the program using
a letter with language similar to that in the American Corrective Counseling
Services (“ACCS”) letters. The letters to consumers indicate that
the district attorney has received a criminal complaint and that the consumer
is subject to prosecution for bouncing a check. Yet, no one in the DA’
s office had actually reviewed the cases, and the consumers could not be found
guilty of the crime of passing a worthless check for writing a postdated check
to obtain a payday loan.
B. Delayed Electronic Deposit of Social Security Funds. This elderly
consumer’s Social Security funds were deposited in the bank on the same
day every month. One month, the consumer wrote a check based on this anticipated
deposit, yet the electronic deposit was delayed and the check bounced. The bounced
check was sent directly to the check diversion program (through a mail drop
with the DA’s name on it), and the consumer was never given a chance to
pay off the bounced check.
C. Small Check Paid By Consumer. A consumer in Florida wrote a check
to the grocery store for approximately $25. When the check bounced, the consumer
was notified by the store and the consumer went in and paid it off, plus the
fees due. Nevertheless, the consumer received a notice from a check diversion
program, that if the consumer did not pay the check again, plus court costs,
administrative fees, and the course fee – all totaling close to $200 –
the consumer would be prosecuted for writing a worthless check.
D. Check Stopped for Ineffective Car Repair. A consumer in Florida wrote
a check to an automobile mechanic for over $1400 to fix her car. When the car
turned out not to have been repaired, the consumer exercised her rights under
the Uniform Commercial Code and stopped payment on the check. Rather than sue
in civil court for the amount due, the merchant referred the case to the diversion
program, which sent the standard letter threatening criminal prosecution if
the consumer did not pay the check, plus the extra fees, despite the fact the
district attorney would not have prosecuted this case, as there was no intent
to defraud.
In each instance, if the program had actually been operated by the DA’s
office, none of these cases would have occurred, because the preliminary evaluation
by prosecutors would have found that there was no prima facie case to indicate
an intent to defraud – an essential element of the crime of passing a worthless
check. Yet the for-profit, privately run, diversion program was able to
collect as much as $140 in course fees from these consumers based on the deceptive
threat of criminal prosecution.
and NCLC