Crosscut Investigation: Prosecutors, debt collectors buddy-up to punish bad checks

Why are state prosecutors contracting with private check companies to send letters threatening legal action and hundreds of dollars in fines to those who wrote a bad check?
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Mike Hewitt, James Hargrove, Adam Kline

Why are state prosecutors contracting with private check companies to send letters threatening legal action and hundreds of dollars in fines to those who wrote a bad check?

A month-long Crosscut investigation into questionable tactics by check collection companies reveals that criminal prosecutors around the Northwest are contracting with private companies, which use prosecutors’ names and letterhead to send threatening letters to thousands of people who’ve bounced checks.

The collection companies demand payment that includes what can amount to hundreds of dollars in discretionary fees for each check and threaten criminal prosecution if recipients don’t pay the fines. They have collected hundreds of thousands of dollars in Oregon and Washington during 2011, only about half of which went to pay back businesses for the bounced checks.

Perhaps you are one of the thousands of people who bounced a check in Washington and Oregon this past year and failed to make good on it. If so, you may have received an ominous letter bearing the letterhead and name of your county criminal prosecutor. It’s a frightening piece of mail, because most likely you’re a law-abiding person who made the dumb but not uncommon mistake of writing a check on an account with insufficient funds while in a tight financial spot.

The letter informs you that the prosecutor’s office received a complaint against you that may result in a criminal charge. You’re told you can avoid prosecution if you immediately send the prosecutor’s office full payment for the check amount, plus as much as $300 in fees, and attend a training course on financial responsibility.

What people receiving these letters don’t know is that the letter didn’t actually come from the prosecutor’s office. It was sent by a private collection company that contracts with the prosecutor, typically paying the prosecutor’s office a fee for each successful collection case.

The letter recipients also don’t realize it’s highly unlikely they will be prosecuted if they don’t pay and don’t take the course -- unless they wrote multiple bad checks and there was strong evidence of deliberate fraud, such as writing a check on a closed account. In Multnomah County, for instance, only 27 bad check cases were prosecuted from 2010-2012.

Now two key lawmakers in Washington and Oregon are questioning the legality and fairness of these privatized check collection programs set up by prosecutors in at least nine Washington counties, including Pierce (Tacoma) and Spokane, and at least four Oregon counties, including Multnomah (Portland).

State Sen. Adam Kline, D-Seattle, chairman of the Senate Judiciary Committee, met Thursday with representatives of the Washington Association of Prosecuting Attorneys to decide whether to seek legislation prohibiting or reforming these programs.

Kline objects to what he sees as the deceptive nature of the letters and that prosecutors do not look for evidence of criminal intent before alleged bad check writers are threatened with prosecution. “These companies are sending out a letter with the prosecutor’s name and signature that purports to be that of the actual prosecutor, and the prosecutors are letting them do it,” he fumes. “Both state and federal law say collection agencies can’t pretend to be someone else.”

In Oregon, Senate Judiciary Committee chairman Floyd Prozanski, D-Eugene, a prosecutor who first learned about these check enforcement programs when contacted by this reporter, has asked his staff to draft reform legislation while he gathers more information from prosecutors. “I have a concern about a private entity that’s collecting debts being allowed to use a government seal to represent itself as something it isn’t,” he says.

But other prosecutors say these check enforcement programs are needed because merchants — ranging from giants like Costco and Target to mom-and-pop businesses — receive lots of bad checks and law enforcement agencies lack the resources to investigate and prosecute these cases and ensure the merchants get paid. Nationally in 2009, Americans wrote $127 billion worth of checks that were returned, according to Federal Reserve data.

“In a time of dwindling resources, when police and prosecutors have had a lot of budget cuts, this program affords the opportunity for people to get restitution and justice they wouldn’t be able to pursue otherwise,” says Jack Driscoll, Spokane County’s chief criminal deputy prosecuting attorney. His office started a privatized check enforcement program ten years ago.

Prosecutors in Washington and Oregon say businesses appreciate these programs. “Costco loved the program so much they tried to buy us a whole bunch of pizzas, but we had to say no, thank you,” says Joseph Wheeler, a senior deputy prosecuting attorney in Thurston County, Wa.

The King County prosecutor’s office also says it lacks the resources to pursue bad check cases, which are misdemeanors in Washington if the check amount is under $750. But both Prosecuting Attorney Dan Satterberg and his predecessor Norm Maleng declined to set up a privatized check collection program despite being solicited by collection companies. “We don’t mix public prosecution authority with private interests,” says Ian Goodhew, Satterberg’s deputy chief of staff.

In Washington, participating prosecutors contract with Missouri-based BounceBack Inc. In Oregon, they contract with either BounceBack or California-based CorrectiveSolutions, which is in the process of settling a class-action lawsuit in California alleging violations of federal and state consumer protection laws. Neither company responded to repeated phone calls and e-mails for comment for this article.

Washington Attorney General Rob McKenna’s office did not respond to requests for comment, and Attorney General-Elect Bob Ferguson declined to comment. Neither Gov. Chris Gregoire’s office nor Gov.-Elect Jay Inslee responded to requests for comment.

Violations of federal and state law?

Critics say these check enforcement programs violate federal and state consumer protection laws. The federal Fair Debt Collection Practices Act bars debt collectors from using deception in collecting debts and assessing extra fees that are not allowed by law. Washington and Oregon have similar state consumer protection laws.

Both states require collection agencies to register. But neither BounceBack nor CorrectiveSolutions are registered in Washington or Oregon. BounceBack has claimed it’s not required to register because it’s simply administering a check enforcement program on behalf of prosecutors. Sen. Kline says that’s nonsense.

In a federal class action suit filed in Spokane in 2010, the plaintiff alleged that BounceBack violated federal and state law by leading alleged bad check writers to believe the county prosecutor was going to charge them with a crime. The judge dismissed the case last year, though he found that BounceBack was subject to both federal and Washington state laws governing collection agencies.

A 2006 amendment to the federal law established an exemption from rules governing collection agencies for privatized check enforcement programs. But it requires the prosecutor to determine that probable cause exists under state law to charge the person with a crime before the private contractor sends the threatening letter. Paul Arons, an attorney in Friday Harbor, Wa. who has filed class action suits against CorrectiveSolutions and other check collection companies, says prosecutors do not determine criminal intent before approving cases for the program.

The question of what’s required to find criminal intent is a bit murky. The bad check law in Washington requires check writers to know they had insufficient funds in their account – which some do not -- to be guilty of a crime. Oregon law similarly requires check writers to know the check will bounce, but it adds that criminal intent is shown by the person’s failure to make good on the check within 10 days after receiving notice of the bad check.

Prosecutors say they meet the federal probable cause requirement by confirming that the merchant notified the alleged bad check writers before referring the offenders to the check enforcement program. But Richard Wall, the Spokane attorney who filed the class action suit against BounceBack that was dismissed last year, says alleged offenders’ failure to respond doesn’t necessarily show they intended to write the bad check in the first place.

Unlike Washington, Oregon has a separate law that explicitly allows prosecutors to set up a bad check diversion program. But Sen. Prozanski says that law does not allow district attorneys to contract out their entire bad check diversion program, only the education course.

How check enforcement works

Privatized check enforcement programs — also known as bad check diversion programs — were launched around the country in the late 1980s, and the practice has spread to an estimated 300 prosecutors’ offices, according to a New York Times article in September. These programs started in Washington and Oregon around 2000.

Retailers and other businesses participating in the program agree to refer only certain kinds of bad checks — not two-party or post-dated checks — after they’ve tried at least once to contact the check writer and ask them to pay up. The checks go directly to the private contractor. The company sends batches of referred checks to the prosecutor’s office, which is supposed to review the checks to make sure the cases meet the statutory requirements for prosecution and thus are eligible for the diversion program. Prosecutors concede that this review is pro forma and is often handled by non-attorney staff.

“If the person hasn’t responded to the merchant in their attempt to collect on the check, that’s prima facie evidence of intent to defraud, and the case is referred to BounceBack,” says Kevin Benton, a Pierce County prosecutor who oversaw the program in his office for many years.

Once cases are approved, the contractor sends a series of letters to the alleged bad check writers, demanding they pay the check and fees and attend a financial education course — or else face potential criminal prosecution. At the top of the letters is the name of the county and county prosecutor. There is no mention of the private contractor.

The Washington letters sent by BounceBack warn that the complaint filed against the recipient may result in a criminal charge being filed under the state criminal code. The Oregon letters sent by CorrectiveSolutions and BounceBack warn that a conviction is punishable by up to one year in jail and a $6,250 fine.

The letters give recipients a phone number to call and an address to write to — identifying these as belonging to the county prosecutor’s office — if they believe for any reason they should not have been cited. But those calls and letters disputing the bad check complaint actually go directly to the private contractor, which is supposed to send them to the prosecutor’s office for consideration. Still, prosecutors say letter recipients sometimes contact their offices directly by looking up their direct phone number or address. That information is not provided in the letter.

“If you call the listed number, the person [at BounceBack or CorrectiveSolutions] will say, ‘If you don’t want the sheriff showing up at your door, you have to make arrangements to pay this,’ ” says attorney Arons, who has filed class action suits against CorrectiveSolutions and other check collection companies. “They are in the business of collecting money, and they’ll say what they have to say to collect.”

But Benton says BounceBack referred a handful of appeals to him each month, and he personally reviewed them. “We’ve had people say their purse was stolen and we’ve closed the case immediately,” he says.

Alleged offenders who decide to participate in the diversion program first must pay the full value of the bad check, plus a $35-$40 “processing fee” and a $145-$190 fee for the financial education course. In some counties, alleged offenders also must pay $10 to cover bank costs incurred by the victim, a $6-$15 “convenience fee” if they pay by credit or debit card, and a $25 fee if they want to set up a payment plan. There also are fees for rescheduling a class, missing a payment and even receiving a refund for an overpayment. So a $30 bad check could result in nearly $300 in fees.

Most of these fees — excluding the amount of the bad check — go to the private contractor. The prosecutors’ offices generally receive a small cut of the processing fee, either a flat $5 per case or a percentage of total fees collected. That money generally goes into the county general fund, though the Wasco County (Oregon) district attorney’s office uses the money for its crime victim restitution fund. Multnomah is the only Oregon or Washington county surveyed that takes no fee for its check enforcement program cases.

The financial education course, typically one hour in length, is designed “to eliminate or modify many of the behavioral rationalizations surrounding the writing of bad checks, as well as focus on deficiencies in the areas of personal finance, communication and stress management,” according to Wasco County’s contract with CorrectiveSolutions. Both Corrective Solutions and BounceBack offer a home workbook course as an alternative.

But critics scoff at the courses, saying they’re just an excuse for the contractor to collect a large fee. Attorney Wall in Spokane contends the course content contradicts the idea that the participants did something criminal. “If you look at the materials, it’s all about how to balance a checkbook,” he says. “But if these people did this on purpose and you think they are criminals, what makes you think they need to know how to balance a checkbook? You’re talking to the wrong people.”

If alleged offenders don’t pay up and participate in the check enforcement program, their cases are referred back to the prosecutor’s office to be considered for prosecution. Prosecutors acknowledge, however, that very few of these cases are actually prosecuted. Benton says his office prosecuted only 15 bad check cases last year. Fred Lenszer, a senior deputy district attorney in Multnomah County who oversees the check enforcement program there, says he doesn’t remember any non-participants being prosecuted.

Successful restitution

Prosecutors boast that their privatized check enforcement programs have succeeded in helping businesses recover the value of bad checks. The private check collection companies generally took in at least as much as the businesses recovered.

In Spokane County from 2004-2011, there were more than 11,000 qualifying bad checks submitted to the check enforcement program, totaling about $1.6 million, averaging $145 per check. Of that total, the BounceBack program recovered $374,000 for victims, according to prosecutor Driscoll. The county received about $13,000 in fees, while BounceBack pocketed $313,000.

In Pierce County, 2,154 qualifying checks were referred to the BounceBack program last year, and businesses received $135,000 in restitution. In Thurston County, 458 qualifying checks worth a total of $69,000 were submitted to the program last year. Businesses recovered $31,000, while BounceBack took in $34,000 and the county got $1,400.

In Multnomah County, 827 qualifying checks were referred to the BounceBack program last year, worth a total of $71,000. Of that amount, merchants recovered $21,000, while BounceBack got $32,000.

Consumer attorney Arons says it’s undoubtedly effective for check collectors to send letters using the prosecutor’s name and threatening criminal prosecution. “When people see the district attorney’s letterhead, they are typically terrified and aren’t being too analytical,” he says. “I’ve talked to people who cried when they got this letter. When they see cop cars, they’re afraid of being picked up.”

But he and other critics say it’s wrong for public prosecutors to allow their offices to be used to help private debt collectors collect money owed to businesses. “I want prosecutors to go ahead and do rigorous bad check investigations and get convictions,” Sen. Kline says. “I’m not out to prevent them from doing their job. But I am out to prevent them from doing someone else’s job.”


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