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American Corrective Counseling Services, a San Clemente, Calif.-based collection agency, earlier this week agreed to settle a lawsuit alleging violations of the Fair Debt Collection Practices Act.
Furthermore, an attorney familiar with the company says the collection industry needs to keep a close eye on the company's pending court cases.
The lawsuit was filed by thousands of Pennsylvania consumers who claim they were led to believe they faced criminal charges for bouncing checks, according to the Associated Press. Implying they were from various Pennsylvania district attorneys' offices, ACCS employees allegedly sent letters to consumers stating that the matter could be rectified if they paid off the checks along with various fees and attended a financial accountability class. The company has agreed to pay $2.55 million as part of the settlement.
ACCS admits no wrongdoing as part of the settlement agreed to in a Delaware bankruptcy court. ACCS is being wound down in connection with its reorganization proceedings, and CorrectiveSolutions is a new company that has assumed the role of supporting local prosecutors in connection with misdemeanor diversion programs.
"Not only is there no admission of liability, the fact is the novel legal theory, meaning there is no precedent for it, that the FDCPA applies to criminal bad-check diversion programs has never been proven against ACCS, CorrectiveSolutions or any companies with which they affiliate," says Charles Jenkins, an attorney representing CorrectiveSolutions, and partner with San Francisco-based Jenkins Goodman Neuman & Hamilton LLP.
"The only bounced checks that find their way into these criminal diversion programs are criminal matters as opposed to civil disputes. That is the key distinction," Jenkins tells Collections & Credit Risk. Local prosecutors typically employ bad-check diversion programs, what Jenkins likens to traffic school for bad-check writers.
"This company is essentially renting out the name and authority of the prosecutor and using it to collect on civil check cases," Deepak Gupta, an attorney with consumer group Public Citizen, tells Collections & Credit Risk.
"This is not a privilege that an ordinary debt collector has. Ordinary debt collectors have to play by the rules. They are not allowed to make false threats of criminal prosecution, and they are restrained in the fees they can charge by whatever state law says," Gupta adds.
Gupta is not involved in the recent settlement in Pennsylvania and he would not comment on the settlement in particular, however he is involved with three other lawsuits filed against ACCS in California, Florida and Indiana that cite similar FDCPA offenses.
"This is the criminalization of civil debt collection. It's using the prosecutor's badge to allow practices that would otherwise not be allowed for civil debt collection cases," Gupta says.
The company, according to Gupta, "uses the name of the prosecutor but all of this is run out of a centralized collection floor in California." When consumers are called, he adds, they believe they are talking to a local prosecutor, but it is really a collection agency employee.
Gupta says the issue is not one that pits the collection industry versus consumer groups. "This is a rogue practice that the whole collection industry should be concerned about." This particular case concerns bounced checks but, Gupta says, there is no reason the practice could not expand to other forms of debt.
"This is something that should concern everyone in the debt collection industry because it puts them at a competitive disadvantage," Gupta says. "If companies that have contracts with prosecutors are able to make threats of criminal prosecution and demand higher fees, and then pass that revenue onto merchants and prosecutors, then merchants are going to choose those companies over ordinary debt collectors. Debt collectors and consumers are going to lose as a result."
