Debt collection is a $12 billion-a-year business in the United States, with about 30 million Americans overdue on some type of financial obligation.
By any measurement, that’s a lot of people who owe a lot of money. And in general, it’s difficult to sympathize with people who are writing bad checks or who have run up egregious personal debt.
And yet, it’s just as hard to condone certain practices by the debt collection industry — especially when they have manipulated the levers of government into giving them carte blanche to frighten, intimidate and threaten a certain class of debtors into making good on bad promises.
First, a little history and then, some present context.
A small, but nonetheless significant number of the delinquents in the United States are people who wrote bad checks — either by accident or design — to retail merchants who would, understandably, like to get their hands on the money owed them. More than $100 billion dollars a year in bounced booty from checks that have been returned for “insufficient funds.”
In the past, stiffed merchants typically had to try and retrieve the cash themselves. Or they could hire a private debt collection company to do it for them.
Results often weren’t very good. However, if a merchant suspected a check writer had not simply made an innocent mistake but was deliberately trying to defraud him, he could always send the returned check to the local district attorney’s office for potential legal action. Official threats of prosecution provided, at least, a chance that the merchant would eventually get paid.
But because there is really no way of knowing for sure whether a particular check writer was intentionally breaking the law, many of the bounced checks simply got passed along.
California and District Attorneys
In 1985, the California Legislature tried to relieve the state’s D.A. offices from being overwhelmed by a growing inundation of bad check reports and passed a bill legalizing the institution of Bad Check Pre-Trial Misdemeanor Diversion Programs.
These programs were intended to allow first-time offenders to avoid criminal prosecution for their miscreant behavior, provided they pay for and attend an educational seminar “addressing the causes and prevention of bad check writing” and pay restitution to the victim of their worthless paper promise. The first program began in Merced County, California, in 1988.
The popularity of the programs spread, and at first they were run internally by the D.A.s. But by the mid-1990s, strained resources and the fact that too much staff time was being spent tracking down small amounts from either illicit or careless check writers, led more and more D.A. offices to outsource the work to private contractors.
Enter companies like CorrectiveSolutions in California (formerly American Corrective Counseling Services, Inc.) and BounceBack in Missouri, which today have contracts with more than 300 District Attorneys’ offices across the country.
On the surface, these partnerships seem like a win-win:
- They serve a public good by keeping non-violent lawbreakers out of the criminal trial system
- They remove burdensome clerical chores from D.A. offices
- And they help merchants get remunerated – all at no cost to the taxpayer.
Cozy Private-Government Relationships
It’s certainly a good gig for the private companies: they charge a returned item fee, a hefty administrative charge and they get to keep the cost of the educational seminars that they now run and which can cost up to $180 for an eight-hour class.
Their District Attorney partners have also cashed in admirably over the years, typically getting 50 percent of the administrative charge (between 2005 and 2008, Los Angeles county, alone, received over $1 million from its program).
But these cozy relationships between D.A.s and debt collectors have their share of losers, too.
Here’s why: the collection companies are allowed to use official district attorney stationery, complete with seal and signature, when contacting negligent bad-check writers. And although it is highly unlikely that a D.A. office will investigate, much less take legal action against a particular scofflaw, especially if the amount owed is negligible, many of the letters sent to debtors contain language that threatens criminal prosecution and even jail time for tardy delinquents.
Getting dunned by a debt collector is bad enough. Being threatened with incarceration by a duly authorized law officer – well, that’s downright scary.
Now, normally, this kind of practice would be illegal. The Fair Debt Collection Practices Act (FDCPA), passed in 1978, specifically prohibits debt collectors from “representing or implying that the failure to pay a debt will result in criminal measures, such as an arrest.”
In fact, in the early 2000s several federal lawsuits were filed against American Corrective Counseling Services for employing these very deceptive debt collection practices.
That’s when lobbyists for the company and the district attorneys went to work, persuading Congress to amend the FDCPA.
It’s Only District Attorney Letterhead
In 2006, after $660,000 was spent lobbying for the change, legislation was passed exempting these partnerships from the former prohibition, essentially allowing collectors to continue using the official D.A. letterheads in their written communications – even when merchants would send their bounced check reports directly to the collection agencies, bypassing the D.A. offices, altogether.
Critics of the system maintain that bad-check writers are being presumed guilty without any review by the D.A.s of their individual cases. So court challenges continue.
A class-action lawsuit is currently pending in federal court in San Francisco that claims that CorrectiveSolutions “has constructed an elaborate artifice” to terrify borrowers into paying. Naturally, the company is contesting the claim.
Debtors who receive these frightening missives — and there are many thousands — have a few choices. They can’t appeal directly to the merchants they have ostensibly gypped – the contracts between the collection agencies and the merchants generally restrict merchants from taking payment from customers once accounts are turned over for collection.
So they can either choose to pay the fees and take the class, which will wipe their record clean, or pay only what they owe on the bad check and no more, risking potential legal difficulties up the road. Finally, they can contact an attorney to learn about their options on joining a class-action suit.
Again, there’s no excuse for passing bad checks. But there’s also no justification for harassing and threatening U.S. citizens, some of whom have merely made an innocent accounting error and never tried to defraud anyone. And when debt collectors have succeeded in coercing both district attorneys and the U.S. Congress to abet their deceptive practices, it’s clearly time for a serious court challenge — if not a full-scale debtors’ revolt.
Bill “No Pay” Fay has lived a meager financial existence his entire life. He started writing/bragging about it in 2012, helping birth Debt.org into existence as the site’s original “Frugal Man.” Prior to that, he spent more than 30 years covering the high finance world of college and professional sports for major publications, including the Associated Press, New York Times and Sports Illustrated. His interest in sports has waned some, but he is as passionate as ever about not reaching for his wallet. Bill can be reached at [email protected].