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.

Each year ACCS lobbied Congress for an exemption, consumer advocates objected. "We have the information but not the muscle," said Margot Saunders, legal counsel of the National Consumer Law Center. "DAs have a lot of muscle."

Documents from the class action litigation shed light on the lobbying effort. In one deposition, Mealing testified that Brownstein lobbyists advised him to make campaign contributions to district attorneys with whom the company had contracts, and that he did so.

Former Rep. Mike Oxley, R-Ohio, added the exemption to a draft of the Financial Services Regulatory Relief Act, a wide-ranging bill rewriting rules governing banks and other financial institutions that cleared Congress in the fall of 2006. But in an interview, Frank confirmed that the amendment would not have been included without his support.

"When you have the national association of district attorneys urging something on their behalf, it’s very hard to resist that," he said. Frank said he was not aware of complaints about the program. "They argued that this was an alternative to people being prosecuted," he said. "I would assume the prosecutor wouldn’t send (a repayment letter) to them if they didn’t intend to take any action at all."

As Osborn’s case reveals, that is indeed happening. Contracts and budget documents show that some counties set a threshold of $500 or higher for prosecution review; the overwhelming majority bounced checks are for smaller amounts. In Los Angeles County, where the threshold is $500, Kroger supermarket led all retailers with 1,536 bounced checks in December 2008. The average check amount was $89. The average bounced check at Safeway supermarkets was $83 and $64 at CVS drug stores.

"Sound" business takes bankruptcy for cover

In March 2008, lawyers for ACCS asked the judge in Florida to toss out the class action case there on the basis of the exemption. Their argument: Congress only intended "to curb abuses by civil debt collectors (ACCS emphasis). Criminal restitution, however, is not civil debt collection."

But as the judge was set to rule on Jan. 20, ACCS took an unusual step. The day before hearing, the company filed for reorganization under Chapter 11 bankruptcy, effectively halting all four lawsuits.

In a declaration to the court, chief financial officer Michael Wilhelms said ACCS remains "fundamentally sound and healthy." But one of the company’s backers, Levine Leichtman Capital Partners, a private equity firm, had "expressed its unwillingness to risk an adverse ruling" and threatened to foreclose on the $32 million it loaned to the business. Levine Leichtman did not return a call seeking comment.

With the legal challenges on hold, ACCS faces less pressure to review the way it operates, although Frank said it may be worth looking into the issue of whether the program makes empty threats.

Paul Walsh was the DA in the biggest county in Frank’s congressional district and led the lobbying effort for the exemption while serving as president of the National District Attorneys Association. He defended getting tough with check bouncers to help merchants get paid back.

"Prosecution is coercion," Walsh said. "That’s how you get people to do things."

Jenkins said everything ACCS does is under authority of the DAs. "We serve at their pleasure," he said. "American Corrective could not do this on its own."

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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