The Consumer Financial Protection Bureau issued an enforcement action against a debt collection agency that allegedly threatened borrowers with criminal prosecution and jail time if they failed to pay extra fees for writing bounced checks.

National Corrective Group and its chief executive, Mats Jonsson, contacted consumers who wrote bad checks without the proper approval of district attorneys, according to the CFPB. The San Clemente, Calif., company is said to have used prosecutors' letterheads to deceive consumers about illegitimate prosecution charges.

"The CFPB alleges that less than 1% of consumers who received final warning letters stating that their case was being forwarded for possible criminal prosecution were ever even referred to the prosecutor's office for possible prosecution," the bureau said Monday. "The company also threatened possible criminal prosecution where the amount of the debt was so low that criminal action would rarely or never occur."

The fraudulent letters also told borrowers that they had to enroll in a financial education class in order to avoid criminal charges. These type of classes typically cost $200, the CFPB said, which was often the amount of the alleged bad check debt.

"In reality, consumers are not typically at risk of prosecution, which rarely, if ever, occurs," the release said.

The bureau is requesting that a federal district court impose a $50,000 civil penalty against National Corrective Group, and require new consumer disclosures and oversight of its bounced check program.

Victim Services and American Justice Solutions, entities that purchased all the contracts and assets of National Corrective Group, were also included in the order. Jonsson is currently the top executive of both these firms' bad check diversion programs.

Efforts to find contact information for Jonsson or the companies were unsuccessful Monday.

Specific violations alleged in the CFPB’s complaint include: 

  • Masquerading as state or district attorneys: The CFPB complaint alleges that the National Corrective Group created a false impression for consumers that its communications were from a state or district attorney’s office. The company sent letters on prosecutors’ letterheads that appeared to be signed by the state or district attorney. The telephone numbers and mailing addresses that the company provided to consumers linked directly to its corporate offices, even though the letters indicated that the consumer would be contacting the district attorney’s office.
  • Intimidating consumers with false threats of criminal charges: Under the law, government prosecutors must make the determination to pursue a potential bad check violation. The bureau alleges that National Corrective Group sent collection letters to consumers on prosecutors’ letterheads threatening criminal prosecution before district or state attorneys had even examined whether a criminal violation may have occurred, and whether participation in the diversion program was appropriate.

  • Deceiving consumers into paying extra fees for costly financial education class: According to the complaint, the company deceived consumers into believing that they must pay to enroll in a financial education class in order to avoid possible criminal prosecution for writing a bad check. In reality, consumers are not typically at risk of prosecution, which rarely, if ever, occurs.

Enforcement Action

The CFPB alleged that the defendants violated the Fair Debt Collection Practices Act, which prohibits making misrepresentations to or deceiving consumers. The bureau alleged that the defendants violated the Dodd-Frank Wall Street Reform and Consumer Protection Act, which prohibits deceptive acts or practices in the consumer financial marketplace.

Along with the $50,000 penalty, if entered by the court, the order would:

  • End deceptive communications to consumers: The order would prohibit the companies from stating or implying that they are a state or district attorney. The order would also require that the companies clearly disclose the company name in communications with consumers.
  • Prohibit threats of imprisonment and other intimidation tactics: The order would require that the companies stop falsely representing to consumers that failure to pay a debt or enter the bad check diversion program will result in arrest or imprisonment. It would also require the companies to disclose to consumers that the prosecutor’s office has not made a decision about whether to charge the consumer with a crime and that many cases are never prosecuted.
  • Prohibit use of district attorney letterhead: The order would ban the companies from using district attorneys’ letterheads or duplicating their signatures for their communications to consumers. The operation would also be required to clearly state that the diversion program is voluntary.
  • Require increased program oversight: The order would prohibit companies from contacting consumers about a diversion program unless the operation is under the supervision of a state or district attorney’s office and the office has reviewed and provided written confirmation to the company that there is reason to believe the individual being contacted violated the law. 

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