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

By Mosi Secret, ProPublica. Posted March 12, 2009.

Prosecutors call the ACCS program a win-win. Like traffic school, it allows them to divert defendants away from court into educational classes after a finding of probable cause that they have committed a criminal act. Merchants get repaid about a third of the time; DAs free up resources to handle serious crimes and get a modest budget boost.

"This particular function is one that we can legally outsource to a company experienced in doing this," said Sharon Matsumoto, an assistant district attorney in Los Angeles County. "With all the violent crime in Los Angeles County, we have to concentrate on our core mission."

But Osborn said prosecutors also have an obligation to be upfront. It wasn’t until she sat through the five-hour class and paid the extra fees that she realized the local DA wasn’t directly involved. "I was upset and angry at first," she said, "but in hindsight, I am disappointed -- mostly because the district attorney takes an oath to abide by our laws."

California started for-profit route

Bounced checks were a national scourge in the mid-1980s, when ACCS was born and the notion took hold of creating a diversion program. Debit cards have since slowed the problem since, but U.S. banks still process billions of checks annually. In 2006, the most recent year available, 153 million bounced – less than 1 percent. By comparison, 240 million checks bounced in 2000.

"There was a tremendous problem with insufficient funds in our community," said Grover Trask, a former district attorney in Riverside County, Calif., who pioneered the diversion concept. "We decided the best way to solve the problem was to create a low-level program to handle these crimes."

In 1985, the California Legislature passed what Trask said was the first bill legalizing such programs. Most district attorneys ran them in-house, using their own staff to determine probable cause that a crime was committed and initiate cases. But one part of the legislation allowed prosecutors to privatize the operation. Trask ran his Riverside County program internally for several years until it strained resources. By 1993, he decided to contract out the program and turned to ACCS.

The company was founded in 1987 by Don Mealing. A Nevadan who’s called himself a "serial entrepreneur," Mealing and a partner launched the business by writing a series of counseling intervention curricula for different offenses -- petty theft, assault and battery and domestic violence. Municipal courts in Nevada adopted the programs, Mealing said, and the business quickly spread to Northern California, where in 1988 the first bad check program began in Merced County.

"I was really the first one in the country to figure out how to engineer this for district attorneys to make it work," said Mealing, who sold most of his interest in the business in 2004.

Mealing said ACCS was bringing in $18 million a year at the time and has since grown. Court records (PDF) show that he and his partners were paid more than $25 million. The company, headquartered in San Clemente, Calif., is now primarily owned by a partnership that includes Schreck and other ACCS executives. As a private corporation, it is not required to report its revenue, but a court filing says ACCS has 292 employees and a $500,000 monthly payroll.

Today, an estimated 200 of the nation’s more than 3,000 counties have bad check programs. About 150 outsource the operation to ACCS, which in court papers said it sends out 200,000 "repayment proposal letters’’ a month on behalf of district attorneys.

ProPublica obtained ACCS contracts with 15 counties through public records requests. Typical terms (PDF) allow ACCS to collect fees that can far exceed the value of the check that bounced.

A $10 restitution charge goes to the merchant. ACCS typically charges a class fee of $150 to $165, a $10 convenience fee if clients opt for a payment plan, a $25 rescheduling fee if someone misses class, and an administrative fee of $35 to $50. The latter fee is typically split 50-50 with prosecutors’ offices.

In return, ACCS provides the prosecutors with boilerplate administrative forms, letters to check bouncers and operational guidelines, which the prosecutors are free to change but seldom do. ACCS hires instructors for the financial accountability classes, leases classrooms and works with the check-bouncers to schedule attendance and payment.

"The district attorney could hire a bunch of young lawyers and go about the investigation in the way they might in a violent crime," said Jenkins, the ACCS attorney. "The other way to go is for the DAs to say to themselves, ‘What are the elements of this crime?’ Then they set up a mechanism where the merchant has to do certain things."

See more stories tagged with: barney frank, public citizen, american corrective couns, accs, house financial services , jennifer osborn, fair debt collection prac, district attorneys, deepak gupta, michael schreck, sharon matsumoto, grover trask, don mealing, shirley simeon, michael o’neill, brownstein hyatt farber s, national consumer law cen, margot saunders, mike oxley, levine leichtman capital

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