Collection Companies' Tactics: Where's the line?

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Collection Companies' Tactics: Where's the line?

Earlier this month, a collection agency agreed to pay $2.55 million to settle a class action lawsuit. In doing so, it admitted no wrongdoing or liability.

Collection Agency Wound Down After Winding Up Debtors

The company, American Corrective Counselling Services (ACCS), which is based in San Clemente, California, undertook to settle during an appearance in a Delaware bankruptcy court, where it was in the process of being wound down. The collections agency is believed not to have the necessary funds to settle, and the plaintiffs' attorney told reporters that he hoped that the company's insurers would come up with the money.

Collections Agency's Tactics Unique?

The suit alleged that ACCS wrote to about 15,000 people across Pennsylvania who had bounced checks. Each letter appeared to come from one of a number of District Attorneys' offices in the state, and advised the recipient that he or she had committed a crime in writing the bad check. In fact, few cases would have been prosecuted because most of those who wrote the checks lacked intent.

The letters went on to say that the matter could be resolved if the addressee paid the value of the check, plus fees, and attended (and paid for) a class for check bouncers that was roughly the equivalent of traffic school for bad drivers. According to Associated Press, one senior citizen who bounced a check at Kmart for $27.17 was told that she'd have to pay fees of $72.17, along with a further $170 to attend the class.

Not Same Old Same Old

The ACCS story is entirely different from recent cases against rogue collection companies that had pretended to be connected to law enforcement in order to put undue pressure on debtors. ACCS really did have a perfectly proper relationship with the state of Pennsylvania in that it ran its official check bouncers' (more properly 'Financial Accountability') classes.

Indeed, ACCS fought--and won--a similar suit in 2006 in Florida, where it had a similar relationship with the state authorities. The collections agency operated Florida's 'Bad Check Restitution Program', which was a misdemeanor pretrial diversion program. In that capacity, it would write (in at least one case quoted in the judgment) to those who had bounced checks as if from the State Attorney's Office, and it would caption the letter: "Official Notice."

Collection Service Protected by the Constitution

In that case, the relevant United States District Court found that the collection company was protected by the Eleventh Amendment (which, according to the Opinion and Order of John E. Steele, the judge who heard the case, 'precludes most suits in federal court by citizens against their own or other states') because it was acting for the State Attorney's Office.

So summary judgment was granted in accordance with the defendants' motion, and the case was dismissed without prejudice. And the judge never heard allegations about ACCS's possible breaches of the Fair Debt Collection Practices Act (FDCPA).

Do Collections Agencies Win or Lose?

With so many FDCPA cases being brought against collection agency services, it would be understandable if those in the industry welcomed every failure. But was the Florida case a real win?

Unsurprisingly, Deepak Gupta, who is an attorney with Public Citizen, and who represented plaintiffs in the Pennsylvania case, says no. He told Collections and Credit Risk:

This company is essentially renting out the name and authority of the prosecutor and using it to collect on civil check cases. This is not a privilege that an ordinary debt collector has. Ordinary debt collectors have to play by the rules. They are not allowed to make false threats of criminal prosecution, and they are restrained in the fees they can charge by whatever state law says.

More Than a Competitive Advantage at Stake

Gupta goes on to argue that ACCS's tactics put other collection companies at a competitive disadvantage. And he may have a point.

But it's not just a matter of one company being able to outsmart or outperform another. Collection agency services are currently fighting to win over public opinion in order to stave off greater--potentially ruinous--regulation.

And when the public hears about tactics like ACCS's they don't like them-- whether or not the actual practices are strictly legal. If collection companies are constantly pushing at the edges of the law, then the law will change. And that won't be pretty.

Sources

• Associated Press


• Payments Source, Attorney: Industry Should Monitor ACCS Lawsuits


• Pittsburgh Tribune-Review, Debt firm settles lawsuit


• U.S. District Court, Opinion and Order (PDF)

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