In today’s hectic world it is easy to make basic financial and bookkeeping errors. With multiple bank accounts, electronic transfers, direct deposits, random fees, and more, it is not uncommon for consumers to accidentally find that they have overdrawn an account or written a check that bounces. In fact, entire industries have sprung up making money off these simple accounting errors–banks annually make about $30 billion in overdraft fees according to recent estimates.
Some are raising red flags about troubling practices that debt collectors are using to get even more money out of those who make these basic errors. For example, as discussed in a recent investigative article, some district attorney’s office are outsourcing “bad check” cases to collection agencies. The result is that residents who make a simple overdraft mistake are now being hit with much more than a $20 or $30 fee. Instead, they are facing threatening letters indicating felony charges, imprisonment, and demands for hundreds of dollars in fees.
Here’s how it works: Instead of conducting actual investigations into claims of bad checks being written to intentionally defraud, some district attorney offices simply pass all complaints along to private debt collection companies. One entity called “Corrective Solutions” works with at least 140 separate DA offices across the country. Other businesses working in this field are BounceBack and Check Diversion Program. Once referred a case, the company uses DA letterhead to send threatening letters to get consumer to pay fees. What’s more, in the letter the company offers “voluntary” financial accountability classes–at a cost of $175. The consumer is told to mail a check for the total amount to a random P.O. Box number.
While this sounds like a scam, the sad reality is that it is often legal. Prosecutors’ offices get a cut of the class fee for every person who signs up. Those critical of the system point out that the private companies do nothing to actually weed out those cases which involve fraud and those which are simple math mistakes. Instead, all claims are plugged into the same system. Countless consumers are understandably confused and intimidated by the process and ultimately pay up for “classes” that they do not need or want.
The Fair Debt Collection Practices Act forbids collection agencies from threatening jail time or making certain claims about being a part of a governmental entity. However, in 2006 Congress created a loophole for collection businesses “working on behalf of law enforcement agencies.” The legislation included a requirement which required DA offices to have probable cause to determine that a crime was committed before the debt company could contact the consumer. However, those familiar with the situation point out that the probable cause requirement is almost universally ignored.
Perhaps unsurprisingly “Corrective Solutions” spent about $600,000 in lobbying money to help push the legislation through which now allows them to aggressively threaten consumers while working for prosecutor’s offices across the country. Just a few years prior, before the loophole took effect, the owner of Corrective Solutions, operating under a different name, lost a class-action lawsuit as a result of their deceptive conduct. But now, with the law changed for their benefit, the company is back in business and working in virtually the same manner as before.
These deceptive practices are yet another reminder of the need for consumers to visit debt collection attorneys whenever they have questions about their rights and responsibilities.