The federal Consumer Financial Protection Bureau (CFPB) recently settled a lawsuit it filed against National Corrective Group (NCG), a debt collection agency that was working under contract for various district attorneys’ offices in California, Maryland, Colorado, Nevada, Illinois, Indiana, Iowa, and Pennsylvania. The settlement put a stop to the abusive practices NCG was using against people in bad check writing diversion programs.
What??? Why Are District Attorney Offices Hiring Debt Collectors?
In many states, if you are charged with writing a bad check (bouncing a check) the prosecutor can refer you to a diversion program instead of pursuing prosecution. If you comply with the terms of the program within a certain time period, you won’t be prosecuted. Most diversion programs require the defendant to repay the creditor, pay limited fees, and participate in an education class.
For example, under California law, the diversion program requires that the defendant:
- repay the creditor
- pay certain fees (which are limited in amount by law),
- and participate in a check writing financial management class. Cal. Penal Code §§ 1001.60 to 1001.67.
The law allows prosecutorial offices to contract with private companies to run these diversion programs.
Enter NCG, a company that some state district attorney offices contracted with to run their diversion programs.
Lies, Threats, and Exorbitant Fees
You would think that law enforcement offices would want to do business with companies that follow the law. Unfortunately, that doesn’t seem to be the case.
According to the lawsuit that the CFPB filed, NCG:
- pretended it was a law enforcement agency
- threatened people with arrest and possible imprisonment if they didn’t participate in the diversion program, and
- charged hundreds of dollars of excess fees.
Allegedly, NCG kicked back a small portion of the fees it collected to the district attorneys’ offices.
Letters Sent Using District Attorney Letterhead and Seal
The CFPB also alleged that the various district attorney offices allowed NCG to use their letterhead and sometimes their seal. The CFPB’s suit, however, did say that NCG sent out the letters without getting approval from the district attorney offices.
That’s both good and bad news: It’s good to know that the district attorneys didn’t authorize the threatening and deceptive letters. But why didn’t the offices have a better handle on what their contractors were doing?
The CFPB Slap
In the CFPB settlement, NCG agreed to not use district attorney letterhead or signatures, pretend to be a law enforcement agency, or use deception or threats in their letters. The CFPB will be watching (there’s a compliance piece to the settlement order) – so this is good news for people wanting to take advantage of the bad check writing diversion programs. (You can read the settlement order here.)
NCG will also pay a penalty of $50,000. Needless to say, that’s not much of a financial disincentive.
Civil Class Action in the Works
But NCG is not completely off the hook. According to the San Francisco Chronicle, in December 2014, a civil lawsuit was filed in San Francisco against the California arm of the company – CorrectiveSolutions. The lawsuit seeks to recover millions of dollars that CorrectiveSolutions allegedly mischarged for fees. The plaintiffs’ attorneys are seeking class action status.