Imagine the fright you would feel if you check your mail and see a letter from the IRS Audit Division. You might experience a similar sinking feeling getting an envelope from the local district attorney suggesting some wrongdoing on your part.

When you open the envelope, inside is a letter from the district attorney on his letterhead, official seal and all, that proclaims “Official Notice – Immediate Attention Required.” It goes to say that you have been accused of bouncing a check, and that according to the criminal law of your particular state, you could be imprisoned for up to X years and face a fine of Y dollars. However, if you participate in the “Bad Check Restitution Program,” repay all the money, take a class on financial responsibility, and pay a variety of fees, the district attorney will drop any criminal charges it could file against you and consider the case closed.

Here is page one of a sample four-page letter (click to enlarge) similar to ones used by about 140 DAs in 13 states:

In your fright, you probably didn’t read the letter carefully, and may have missed a key point:

*MOUSE PRINT:

“The Bad Check Restitution Program is administered by a private entity under contract with the XXX County District Attorney.”

So this letter is NOT actually from the local district attorney, but rather from a private debt collection company that is using the stationery of the local DA to very effectively scare the you-know-what out of the recipient as a means of collecting the debt (and their fees).

Speaking of their fees, this is a very lucrative business for these debt collectors, and most of the DAs even get a small cut of the proceeds. In one Massachusetts county, for example, when fees are added, the cost of bouncing a check could inflate the total you owe to two or three times the original check amount.

This can’t be legal, you are probably saying. Well, the district attorneys and the private debt collectors in this line of business lobbied Congress, and received an exemption from the federal Fair Debt Collection Practices Act. That law actually makes illegal many of the practices allegedly engaged in by these people. For example, using envelopes that disclose that the contents relate to a debt, threatening arrest or criminal prosecution when such action is not actually taken or contemplated, impersonating a law enforcement agency, and charging fees beyond those disclosed in the original contract are all prohibited practices.

Some state laws have their own debt collection laws with similar provisions, and it appears that these bad check programs may be running afoul of them in some cases.

The Boston Globe [alternate link] just published the results of its four-month investigation into the practices of the DAs and their debt collection companies in Massachusetts. And the New York Times looked at the workings of these programs across the country. Be sure to look at the graphics in the NY Times story for copies of the actual letters sent to check bouncers.

In a rather unusual move, American Express is letting cardholders opt-out of the mandatory arbitration provision in their credit card agreements.

*MOUSE PRINT:

The rejection notice (a sample is here) must be mailed by February 15, 2013 or 45 days after you make your first purchase with the card, whichever is later.

They are also instituting a mediation program to resolve disputes. But, the new agreement requires if you are not able to resolve the problem with customer service, that you file a notice with them before resorting to mediation, arbitration or court.

Why did AMEX decide to let you opt-out of required arbitration?

One consumer lawyer put it this way: “Just another attempt to make the arbitration provision bulletproof. What could be fairer than giving consumers the choice to opt-out?”

Everyone knows that opt-out rates are very low, and since there is a relatively short deadline, few people are likely to do it. The result: virtually all cardholders will be left without the legal remedy of going to court over a major problem (or be part of a class action for smaller but widespread issues).

This week’s installment is about a “gotcha” without a fine print warning. It offers lessons for both consumers and bankers.

MrConsumer is in the habit of making deposits and withdrawals at the ATM machine at Century Bank, a local bank with 25 branches. One of them is only a few blocks from home, and they are part of a network that serves the bank where my account is actually located (a few miles away).

For the past 14 years, after making a withdrawal that is solely composed of $20 bills, I will go inside and ask a teller for smaller denomination bills for one or two of the twenties. Last week, when tendering a $20 bill under the glass, the teller asked if I had an account there. After I said no, she informed me that bank policy had just changed and they no longer make change for non-customers. What?

MrConsumer went home and proceeded to send the following email to the bank’s Chairman, and to its President and CEO:

I should note that the cc: on the email was to the banking reporter at the Boston Globe. Just a bit over an hour later, the President of Century Bank wrote back:

Wow, wow, wow. Isn’t that impressive from so many standpoints? I wrote back immediately to thank him for his swift action. Too bad bigger banks can’t be persuaded to come to their senses as easily.

Pew Charitable Trusts released two studies over the past couple of years about checking account agreements that only a lawyer would understand.

Buried in these lengthy documents are some nasty clauses, including one like this:

*MOUSE PRINT:

Disputes Involving Your Account

You agree to be liable to us for any loss, costs, or expenses, including reasonable attorney’s fees, that we may incur as a result of any dispute involving your Account. You authorize us to deduct any such loss, costs or expenses from your Account without prior notice to you. This obligation includes disputes between you and us involving the Account and situations where we become involved in disputes between you and an authorized signer, another joint owner, or a third party claiming an interest in the Account. Also, it includes those situations where you, an authorized signer, another joint owner, or a third party take some action with respect to the Account which causes us to seek the advice of counsel, even though we do not actually become involved in the dispute. -PNC Bank disclosure

In plain English, this says that if they have to hire a lawyer because of a dispute relating to your account, whether you sue them or they sue you, or something else causes them to consult a lawyer, they can deduct the cost from your account without notice. They make no exclusion should you be right and win your case.

According to the Pew study, four of the 12 banks they examined had clauses similar to this, including HSBC Bank and TD Bank. They are asking the Consumer Financial Protection Bureau (CFPB) to look at issues like this, and require better disclosure or elimination of unreasonable contract terms.

For more information about this sneaky practice, you can read this LA Times story.

Incredible Bank is a teeny tiny division of a teeny tiny bank in Wisconsin, that has consistently offered very attractive interest rates on deposit accounts.

Last year, they were offering a checking account that paid 1.35% with “no pain.”

They even reimburse ATM fees nationally and offer free bill pay.

However, like most banks, they have some fees. And they warn that some fees might reduce earnings.

*MOUSE PRINT:

Just how painful are the fees?

*MOUSE PRINT:

They charge $20 per check? On a checking account? That’s pretty painful. Their explanation is that they offer free ATM withdrawals and free bill payments, so to keep costs low, they want to discourage the use of checks. So why is it called a checking account? A bank representative said it was because you could get checks printed on your own and use them with this account, thus providing a means of paying others.