How Debt Collectors Get Away With Terrorizing Consumers -- With the Blessing of Public Officials

The exemption essentially allowed companies like Corrective Solutions, BounceBack and Check Diversion Program to operate above the law. They can send out notices on DA letterhead, threaten people with jail time and rake in upward of $200 in fines per person. And it's all perfectly legal.

"While the rest of us are playing by the rules, they aren't," Schiffman says.

Adam Levin, former consumer affairs commissioner of New Jersey

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• Julie Orr
• Carole Hirth
• Paul Arons
• Crime and Law
• Criminal Sentencing and Punishment

Consumer advocates and legal experts, naturally, were horrified. "You don't hand out guns and badges to just anyone," says Adam Levin, New Jersey's former consumer affairs commissioner. "And this is effectively creating a gun-and-badge situation for people who frankly not only don't deserve it but have a long history of abusing it."

Paul Arons, a Washington state consumer-rights lawyer, agrees. What's startling, he says, isn't the shady tactics of companies like Corrective Solutions; it's the fact that district attorneys, charged with protecting the public good, are abetting the deception.

"Check collectors have a long history of running scams like pretending they'll have people arrested, or that they are with government agencies," Arons says. "I was shocked to find out that prosecutors were actually authorizing check collectors to do this in district attorneys' names."

Congress did include a small caveat in the 2006 bill that was supposed to protect citizens. "The prosecutor must determine that probable cause exists to charge a person with a crime before the program sends the letter," Levin says. Unfortunately, it's a provision that is being universally ignored.

Take the Riverside district attorney's office. Chief Deputy DA Vicki Hightower says her program is meant to target bad-check writers who intend to defraud victims, not well-meaning people who accidentally bounce a check.

"We understand the concerns people have," Hightower says. "That's why we review the checks before they go to Corrective Solutions. And while the correspondence that goes out has our logo, it does say that the program is administered by a third-party vendor."

Yet her words don't appear to match the facts on the ground. In order to open a bad-check case in Riverside County, merchants need only provide the check writer's information, along with the promise that they tried contacting them at least once. But Riverside's own records show that the county is routinely threatening jail time for people who have done nothing criminal.

During the first 10 months of 2012, Corrective Solutions sent out 8,973 letters on Riverside's behalf. Just 23 of those cases were deemed worthy of prosecution by the DA.

Florida's Miami-Dade County is even more lax. There, merchants' complaints go directly to Corrective Solutions, and the company then decides which ones merit prosecution.

"Our office has set the intake criteria for checks to be accepted into the program," says Assistant State Attorney Marie Jo Toussaint. "This criteria ensures that only checks which have violated our Florida statutes are eligible for this pre-arrest diversion program."

Again, the records say otherwise. Of the 1,863 cases opened by Corrective Solutions, only 106 were actually filed in criminal court.

"There is no question that defrauding someone is a crime," says Kara Dansky, an ACLU lawyer. "But in these circumstances, there is no evidence that's what happened. People could have written a check on accident, with no intent to defraud. But the DA isn't investigating that. ... Instead, debt-collection companies are using the auspices of the DA's office to threaten someone with jail when there is no investigation."

Corrective Solutions had good reason to buy immunity from Congress. At the time, the industry was losing one class-action lawsuit after another.

In 2004, Kristy Schwarm was a stay-at-home mother of five in Ukiah, with another child on the way. Over the course of one week, Schwarm wrote a check to Walmart for $69.26 and one to FoodMaxx for $83.41 and made an ATM withdrawal, according to court records.

Unfortunately, the ATM withdrawal overdrew her account, leaving her with seven rejected checks and 21 overdraft fees totaling $560. "It had a snowball effect, leaving the account continually overdrawn, even though I made several deposits," Schwarm says in court documents. Her bank erased most of the fees.

But a few months later, Schwarm received a letter from the Mendocino County district attorney. She'd been accused of fraud and was ordered to repay the checks, along with penalties and a "diversion fee."

"I was in a panic," Schwarm said in court documents. "I had never been in trouble with the law before. ... I assumed that I must be in a lot of trouble if I was getting a letter from the district attorney that I could be arrested."

Schwarm called the number on the letter, assuming she was speaking with someone from the DA's office. She promised to pay as soon as she could. But with her husband out of work and eight mouths to feed, she just kept falling further behind. A year later, she still hadn't paid her debts. The letters and phone calls kept coming.

Then she was pulled over in a traffic stop with her six kids in the car. Schwarm was sure it had to do with the letters. "I was terrified. I thought ... my children were going to see me get handcuffed and taken away. I was giving my children instructions on calling their father to come pick them up when I found out that I was just being warned for not coming to a complete stop at an intersection."