Checkmate: Prosecutors and Debt Collectors Terrorize Consumers
In just a few years, Julie Orr has gone from running a successful advertising business to being a single mom on disability. This past May, the 54-year-old from Riverside, California, bounced a $91 check at a grocery store. Though she tried to make good, she was told the store had already placed her in collections.
A month later, Orr received a letter from the District Attorney's Office. It inexplicably accused her of intent to commit fraud, noting that she was now eligible for "up to one year in the county jail." But the DA wanted more than Albertson's $91 back. Though California law restricts the penalty on bad checks to just $25, the DA asked for $333.51, which included $175 for a "voluntary" financial accountability class.
Orr called the 1-800 number on the letter but grew suspicious when she was told she could only send a check to a P.O. box. In fact, she had contacted Corrective Solutions, a private company from San Clemente, California, that handles bad-check cases for 140 district attorneys nationwide, including in Miami-Dade County.
Think of it as the privatizing of justice. Instead of investigating bad-check complaints, prosecutors simply pass them along. Unfortunately, the entire system runs on a one-size-fits-all presumption of guilt.
"I just don't see how this is right or even legal," Orr says.
Though Congress passed the Fair Debt Collection Practices Act in 1978, barring collections agencies from threatening jail time and deceiving consumers, it created a loophole in 2006 granting deception immunity for collection agencies working on behalf of law enforcement.
Between 2003 and 2006, Corrective Solutions spent more than $660,000 on lobbying. The firm and others like BounceBack and the Check Diversion Program were allowed to send out notices on DA letterhead, threaten people with jail, and rake in upward of $200 in fines. And it was all perfectly legal.
Consumer advocates and legal experts naturally were horrified. "You don't hand out guns and badges to just anyone," says Adam Levin, a former consumer affairs commissioner of New Jersey and owner of Credit.com.
Congress did include a caveat in the 2006 bill that was supposed to protect citizens. "The prosecutor must determine that probable cause exists to charge a person with a crime before the program sends the letter," Levin says. Unfortunately, prosecutors seem to be universally blowing this off.
During the first ten months of 2012, Corrective Solutions sent out 8,973 letters on Riverside's behalf. Just 23 of those cases were deemed worthy of prosecution. In Miami-Dade, merchants' complaints go directly to Corrective Solutions, which then decides which cases merit prosecution.
"Our office has set the intake criteria for checks to be accepted into the program," says Assistant State Attorney Marie Jo Toussaint. "This criteria ensures that only checks which have violated our Florida statutes are eligible for this pre-arrest diversion program."
The records say otherwise. Of the 1,863 cases opened by Corrective Solutions, only 106 were actually filed in criminal court.
Mike Wilhelms is president and CEO of Corrective Solutions. His LinkedIn profile boasts a photo of a fresh-faced surfer boy in charge of more than 200 employees. The California counties of Los Angeles, San Bernardino, Riverside, and Orange are his biggest customers; all are within driving distance of his palm-tree-lined headquarters in San Clemente, where it's clear business is booming.
Consumer rights lawyers estimate the company sends out 2 million letters annually. (The company did not respond to repeated interview requests.)
Corrective Solutions' website does its best to imply that it's an arm of law enforcement. A slideshow gently fades in and out with statements about "holding offenders accountable for their actions." An interactive map shows its 140 contracts with DAs nationwide.
Nowhere does it say that most of these "offenders" have never been investigated or formally charged with a crime.
District attorneys don't pay a cent for Corrective Solutions' services. Instead, the company pays them to run their bad-check programs. All prosecutors must do is hand over their official letterhead, along with a list of bad-check writers and a bit of "case criteria."
Between 2005 and 2008, Miami-Dade raked in more than $375,000. When asked whether the county's program was little more than a money-making scheme, Toussaint balked. "Diverting such cases out of the criminal justice system gives an individual with no prior record an opportunity to avoid having a criminal record," she says. "It makes the victim receiver of the worthless check whole, and it is done with no cost to the taxpaying citizens of our community. Pretrial diversion programs also allow the courts to focus on other types of criminal activity."
But while prosecutors claim they use collection agencies to decrease caseloads, some companies actually promise to expand them — for the sole purpose of generating more money.
Take BounceBack, the industry's second-largest player. Palm Beach County switched to the firm in 2006 after "merchants and other victims were complaining that they felt intimidated by the people administering the program. Check writers complained of strong-arm collection tactics."
Since then, Palm Beach has "passed the $1.5 million mark," according to BounceBack, which won't discuss its business practices.
Ed Griffith, spokesman for the Miami-Dade State Attorney's Office, believes that if a bad-check writer ignores contact by a merchant, that's proof enough of a crime. "Your failure to make good on that check is an issue of intent. The opportunity to make good and not take advantage of that opportunity speaks to your attitude."
Griffith further argues that even innocent mistakes merit sentencing to financial accountability class. "Even if someone says that their child overdrew their account, we believe putting them in a diversion program is the right move."
In 2010, yet another class-action suit was brought against Corrective Solutions on behalf of more than 600,000 victims in California and Pennsylvania. The company was accused of violating the Fair Debt Collection Practices Act.
In November, it agreed to pay a $3 million settlement. But because the class was so big, each victim would receive less than $3. A federal court refused the settlement, ordering both parties back to negotiations.
As the case against Corrective Solutions languishes in court, advocates hope Congress will finally close the 2006 loophole.
They received a glimmer of hope in October, when the Consumer Financial Protection Bureau announced that it would be overseeing debt collectors starting this year. For the first time, the feds will require debt collectors who make more than $10 million a year to supply regular reports, making sure they aren't deceiving and threatening consumers.
But for now, the only oversight comes from those making money on the deals: the district attorneys themselves. And they show little interest in policing the industry. So victims such as Orr have little recourse but to hire lawyers, paying thousands to defend themselves for bouncing $50 checks at the grocery store.
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