Jail Time for a $14 Bounced Check? How Private Debt Collectors Cash in Posing as the Government

With the seal of Santa Barbara County’s district attorney on its cover, the envelope caught Jennifer Osborn’s attention immediately. And when she opened it, Osborn read something startling: She was being accused of a crime.

Osborn, the letter alleged, had "violated criminal statutes by issuing a bad check." She faced as much as a year in jail and a $2,500 fine unless she made good, paid an additional $215 in fees and spent a Saturday at a "financial accountability class."

The letter stunned the 20-year-old college sophomore. Osborn was unaware that a $92 check she’d written to her school bookstore had bounced, the result of a mix-up with her mom, she said. "Failure to pay in full and schedule class within TEN DAYS from the date of this Notice may result in your case being forwarded for criminal prosecution," the letter threatened.

Alarmed, Osborn signed up for the class. But there were some things she didn’t know at the time.

Despite the official seal, the letter wasn’t sent by the DA's office. Osborn had no obligation to attend a class to avoid prosecution. And there was virtually no chance she’d be charged with a crime – in fact, the DA’s explicit policy was not to consider prosecution for bounced checks under $100.

Osborn is among the approximately 2 million people a year who receive similar letters (PDF) from American Corrective Counseling Services, a privately held firm that has turned bad checks into a thriving business. The California-based company has deals to run "diversion" programs on behalf of some 150 county DAs. In return, the DA offices get a cut of the fees.

The company’s contracts are careful to note that ACCS is working in a supporting role only. Though it operates under a local DA’s "name, authority and control," contracts say, the prosecutor’s office "does not delegate to ACCS any aspect of the exercise of prosecutorial discretion." But that legal nuance is lost in the sternly-worded form letters the company issues to people like Osborn.

The firm’s methods have drawn the ire of consumer advocates and class action attorneys who say prosecutors and ACCS are not enforcing criminal law, as they contend, but cashing in by using deceptive debt collection practices. After federal lawsuits were filed in several states, lobbyists for ACCS and district attorneys turned to Congress. They persuaded Rep. Barney Frank, D-Mass., to offer critical support for an amendment exempting the program from the Fair Debt Collection Practices Act, and thus legitimized ACCS’s practices.

The exemption went through in 2006 without a public hearing. Frank, now chairman of the House Financial Services Committee, said he went along after being told the program was a path for participants to avoid a criminal charge.

But that’s not always true.

ProPublica obtained ACCS contracts (PDF) under open records laws and found that DAs who contract with ACCS are asked to specify a minimum check amount subject to prosecution review. The DAs allow ACCS to send threatening letters to thousands who, like Osborn, wrote checks under the limits.

Budget data from a dozen of the biggest counties that use ACCS show that DA offices have cashed in. Over the past four years, Los Angeles County received $1 million. In Illinois, Cook County collected more than $160,000 over a 12-month period. Florida’s Miami-Dade County raked in $375,000 between April 2005 and September 2008 (see list).

"They are renting the prosecutor’s seal, and they are using that name and authority to collect bad check debt," says Deepak Gupta, director of the Consumer Justice Project at Public Citizen, a consumer advocacy group that joined much of the litigation against ACCS.