Finance

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Debt Collectors Masquerade as Local DAs with Their Blessing

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.

envelope

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:

DA letter

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.

Cost Triples

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.

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AMEX Allows You to Opt-Out of Mandatory Arbitration

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

*MOUSE PRINT:

AMEX

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).

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Do Banks Ever Listen to their Customers?

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.