States examine bounced-check enforcement practices

Lawmakers in Oregon and Washington question whether prosecutors' offices should rent out their names and letterhead to private firms collecting on bad checks.
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Mike Hewitt, James Hargrove, Adam Kline

Lawmakers in Oregon and Washington question whether prosecutors' offices should rent out their names and letterhead to private firms collecting on bad checks.

The Oregon Senate has passed a bill to prohibit county district attorneys from letting private check collection companies use their names and official seals to threaten alleged bad check writers with jail time. But in Washington, a key senator has dropped for now his legislative initiative to impose the same prohibition on county prosecuting attorneys in his state.

Still, a board formed by the Washington Supreme Court continues to investigate the legality of the practice, which goes on in at least nine counties in Washington. “My God, it sure is deceptive,” said Scott Smith, a Seattle private attorney who heads the Washington State Practice of Law Board.

Opposition from prosecuting attorneys in both states who support these collection programs guarantees continuing battles.

Critics of these privatized check enforcement programs, led by Oregon Senate Judiciary Committee chairman Floyd Prozanski, D-Eugene, and Washington Senate Judiciary Committee chairman Adam Kline, D-Seattle, say such letters are unethical and deceptive because they don’t actually come from the district attorney’s office. But the letters bear the DA’s name, letterhead and seal.

Under a bill passed last month by the Oregon Senate and pending in the Oregon House, private companies that contract with district attorneys to try to collect on bad checks could no longer send alleged offenders letters that appear to come from the district attorney’s offices.

Privatized check enforcement programs were launched around the country in the late 1980s, and the practice has spread to an estimated 300 prosecutors’ offices nationally. These programs started in Oregon and Washington around 2000.

Under the programs, retailers and other participating businesses agree to refer certain kinds of bad checks after they’ve tried at least once to contact the check writer. The checks go directly to the private contractor, which then sends them to the prosecutor’s office for determination of criminal intent and eligibility for the program before contacting the alleged bad check writers.

Prosecutors concede this review is pro forma, based mainly on making sure the alleged offender was contacted and did not respond.

Prosecutors say the programs are needed because businesses suffer from lots of bad checks and law enforcement agencies lack the resources to investigate and prosecute these cases. Nationally in 2009, Americans wrote $127 billion worth of bad checks, according to Federal Reserve data.

Oregon Senate Bill 525, which passed 22-5 on April 24, would require check enforcement companies to identify themselves as the senders of the letters, since they could not use the district attorney’s name, seal or letterhead. In addition, the district attorney’s offices no longer would be allowed to receive a fee from the private companies for the collection program.

“No one I talked to, except the DAs, thought it was appropriate for a public official to allow a government seal to be used by a private party to send out debt collection letters,” said Prozanski, a veteran prosecutor, whose bill was prompted by an inquiry and articles published by this writer in The Oregonian and Crosscut raising questions about these programs. “I don’t see how anyone can justify it.”

The Multnomah County District Attorney’s Office placed its privatized check enforcement program on hold following the Oregonian article. Caroline Wong, a deputy district attorney, said her office revised the letters sent to alleged bad check writers to make sure it was clear they were sent by a third-party vendor and that they weren’t threatening in nature. Another reason for the hiatus, she said, is that newly elected District Attorney Rod Underhill is in the midst of approving a new contract with its vendor, Missouri-based BounceBack Inc.

“It’s totally inappropriate to say in the letter [to alleged offenders], ‘You do these things or we’ll throw you in jail,’ ” Wong said. “We wanted to let people know what could happen but not in a threatening manner.”

But some Oregon district attorneys, led by Lane County District Attorney Alex Gardner, oppose the Senate bill in its current form. They argue that privatized check enforcement programs are a legitimate way to divert minor offenders from the criminal justice system and at the same time enable merchants to recover the value of the bad checks.

Gardner says he and other DAs want to strip out language in the bill referring to these programs as debt collection. He warns that language would force check enforcement companies to comply with state and federal debt collection laws protecting consumers, and effectively end bad check diversion programs in Oregon. “That would be a shame for the offenders and the victims who continue to benefit from such programs,” said Gardner, whose office contracts with BounceBack.

Gardner also expressed uncertainty about whether the warning letters would be as compelling to alleged bad check writers if they don’t bear the name and seal of the district attorney’s office.

Two companies, BounceBack and California-based Corrective Solutions, contract with district attorneys in the major counties of Multnomah and Lane and at least three other Oregon counties — Wasco, Deschutes, and Yamhill — to operate so-called bad check diversion programs. The companies send out letters warning alleged bad check writers they could face a year in jail and a $6,250 fine if they don’t pay up and participate. Except in Multnomah and Lane counties, the firms pay the prosecutor’s offices a fee or percentage for successful collections.

In Washington, Bounceback contracts with prosecuting attorneys in counties that include Pierce, Spokane, Thurston and Yakima. The letters sent to alleged bad check writers are very similar to those sent in Oregon, and Bounceback similarly pays the county prosecuting attorneys a fee or percentage. The King County prosecutor’s office has declined to set up a privatized check collection program, saying that it chooses not to mix public prosecution authority with private interests.  

While the letters to alleged bad check writers carry the markers of the prosecuting attorney’s office, the listed phone number and address actually belong to the collection company; there’s no contact information for the DA’s office. The letters inform recipients they must pay the full value of the bad check, plus fees, and take an education course — or else face possible prosecution. The fees can add up to nearly $300 even for a check as small as $30.

Critics say the letters’ threat of prosecution is misleading, unfair and possibly unlawful because the DA offices do not individually review whether the people receiving the letters showed criminal intent and could actually be charged with a crime. That threat, seeming to come from the prosecutor’s office, is often effective in scaring people into paying the value of the bad check and additional fees, says Paul Arons, an attorney in Friday Harbor, Wash. who has filed class action suits against check collection companies.

In reality, as district attorney’s offices acknowledge, very few Oregonians or Washingtonians are prosecuted for writing bad checks unless they wrote multiple bad checks or there is evidence of deliberate fraud. In Multnomah County, records show only 27 bad-check cases were prosecuted from 2010-2012. The former head of the program in the DA’s office said he could not remember any non-participants in the diversion program being prosecuted.

Oregon’s SB 525 would amend a 2001 law allowing district attorneys to set up check enforcement programs. While restricting how these programs could operate, the new bill for the first time would explicitly authorize DAs to contract out their entire bad check diversion programs to private companies, rather than only allowing the education course to be contracted out. The DA offices have been doing this all along even without specific statutory permission.

The bill is now being considered in the Oregon House, where it was assigned to the House Consumer Protection and Government Efficiency Committee and will go through a public hearing this month. Prozanski said House Democratic leaders he talked to were “very receptive” to the bill.

David Fidanque, executive director of the ACLU of Oregon, praised the bill. “The primary issue for us was debt collectors misrepresenting themselves as district attorneys, and district attorneys allowing debt collectors to misrepresent themselves and getting a piece of the action that went along with that misrepresentation,” he said. “I think this bill would fix that problem.”

Neither BounceBack nor CorrectiveSolutions responded to calls and emails seeking comment for this article.

Federal and state consumer protection laws in Oregon, Washington and other states prohibit debt collectors from using deception and assessing extra fees not allowed by law. But neither Oregon nor Washington has required check collection companies to comply with these requirements, such as registering as a debt collector, on the theory that they are simply administering the district attorneys’ bad check diversion programs.

Both check enforcement companies, however, have faced class action lawsuits claiming they violated the federal and state consumer protection laws. BounceBack settled a case in 2011, and Corrective Solutions is in the process of settling a case in California.

In Washington, a board created by the state Supreme Court is investigating whether the privatized check enforcement programs constitute the unlicensed practice of law.

“If by sending out these letters BounceBack is setting itself out as a lawyer or law firm and it’s not, that would be improper,” said Smith, the chairman of the Washington State Practice of Law Board. “And if prosecutors are lending their letterhead to nonlawyers who send out letters dunning debtors, that’s not proper either.”

Smith has invited Washington prosecuting attorneys who have contracts with private check collection companies to attend a public meeting on June 7 at noon at the Washington State Bar Association office in downtown Seattle to discuss the issue. “If they think what they’re doing is fine, they can defend it,” Smith said.

Washington Senate Judiciary Committee chairman Kline has expressed concern about what he sees as the deceptive nature of the check enforcement letters and that prosecutors do not look for evidence of criminal intent before alleged bad check writers are threatened with prosecution.

But Kline said he’s dropped his plan for now to file reform legislation because prosecuting attorneys have told him they individually vet each case. “I’m not convinced, but I don’t have sufficient evidence that would move the Legislature to outlaw the practice,” he said.

The Washington Association of Prosecuting Attorneys has declined to comment on the issue.

Lane County District Attorney Gardner said his office has far fewer prosecutors and staff than it used to and thus is unable to investigate and prosecute misdemeanor bad check cases. The bad check diversion program, he explained, is important for making victims whole and helping offenders avoid bad check writing in the future, while not tying up deputy prosecutors who are busy with more serious cases.

He said he would comply with the Oregon bill’s new transparency requirement by writing a cover letter accompanying the check enforcement company’s information packet, saying he authorized BounceBack to administer the program. “I don’t think there will be much net change in impact for the person who receives the packet,” he said. “But perhaps there would be.”

On the other hand, he rejects the bill’s language referring to debt collection, arguing that bad check diversion has a different and broader social purpose and shouldn’t come under the same rules as debt collection.

But Sen. Prozanski responded that if he has to remove the debt collection language from the bill, he’ll also take out the authorization for district attorneys to contract out their bad check diversion programs. That, he said, would put their continued operation in jeopardy because they are not authorized under current law and other state agencies — which he declined to name — currently are examining the programs' legality.

“There’s no way district attorneys can permit someone to use their letterhead or public seal in carrying out a private entity’s operation,” he said. “I find it imperative that individuals know who they’re dealing with.”


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