Calif. Debt Collection Company Reaches FDCPA Settlement

In a recent Fair Debt Collection Practices Act (FDCPA) lawsuit, a federal consumer agency ordered a California debt collection company to stop using threats of criminal punishment against debtors. In an aggressive attempt to make consumers pay hundreds of dollars in extra fees, the collection company reportedly used district attorneys’ letterheads and included language suggesting criminal prosecution in their notes or letters to debtors.

The federal Consumer Financial Protection Bureau announced a settlement between itself and the debt collection company National Corrective Group, which operates a number of agencies, including CorrectiveSolutions in Orange County, Calif. The settlement consists of $50,000 in civil penalties, and ends what the consumer agency called “deceptive communications to consumers.”

These deceptive debt collection practices reportedly included sending out letters that used a district attorney’s letterhead or signature, impersonating a prosecutor, and threatening to arrest or imprison debtors if they had an unpaid debt and did not participate in the company’s diversion program. This diversion option was essentially a company-run education program for bad-check writers, which the debtors had to pay to attend.

A lawyer for the debtors stated that the government’s actions resolved most of their complaints, except for the fees the company and its affiliated partners collected from the debtors for diversion classes and processing payments.

Overview of the FDCPA Lawsuit

Plaintiffs originally filed this FDCPA lawsuit on Dec. 1, 2014, accusing CorrectiveSolutions of using illegal debt collection practices in several California counties including Alameda, Contra Costa, San Mateo, Sonoma, and other counties. In each of the affected counties, the DA allegedly agreed to let the company use the office’s official seal and letterhead in exchange for a small kickback from the large fees the company charged debtors.

California state law allows district attorneys to enlist private companies to facilitate diversion programs for individuals who write bad checks. Under this provision, the debtor must repay the creditor and could also be required to attend a class in financial management as an alternative to criminal charges. State law sets the fee for the class at $50, along with $15 per bounced check. However, the plaintiffs’ lawyers allege that CorrectiveSolutions went far beyond its legal bounds and charged fees as high as $160 to $200 for their financial management programs. Reportedly, the company gave $25 from each fee to the district attorney’s office.

The Alameda County District Attorney’s office, one of several named in the FDCPA lawsuit, defended its arrangement that allowed the company to contact fraudulent check writers on the office’s behalf after the office reviewed a list of debtors each month. However, the federal consumer agency said that CorrectiveSolutions sent out threatening notifications without first consulting the DA’s office. The San Mateo County District Attorney’s office also indicated it had collaborated with the company, with approval from the California District Attorneys Association, but will change its practices after the federal government’s action.

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If a lender or debt collector engaged in unfair debt collection practices, you may have a legal claim and could be owed compensation for violations of the Fair Debt Collection Practices Act (FDCPA).

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DISCLAIMER: Debt collection itself is not illegal. However, debt collection firms collecting on consumer debts must adhere to the FDCPA. Even though debt attorneys are investigating these companies, their debt collection practices may be legal.