Should Debt Collectors Be Able to Use Government Letterhead?

Debt collectors are legally prohibited from misrepresenting themselves as police or lawyers when communicating with consumers. Of course, that hasn’t stopped some collectors from breaking the rules, and there are plenty of debtors who can tell stories of precisely that.

The question of what exactly qualifies as misrepresentation is at the center of a lawsuit filed Dec. 1 in U.S. District Court in San Francisco. The suit alleges that debt collection company CorrectiveSolutions violated the Fair Debt Collection Practices Act (FDCPA) after using letterhead of various prosecutors’ offices when contacting debtors. The complaint calls into question the process surrounding CorrectiveSolutions’ alleged practice of representing themselves as law enforcement to consumers and threatening legal action for failing to pay the debt. The tricky part of this case, however, lies in the fact that CorrectiveSolutions is under contract with several California’s district attorney offices for the expressed purposes of interceding on the government agency’s behalf. The legal dispute focuses on the way they intervened.

It’s all tied to California’s Bad Check Restitution Program. The program allows people who bounce checks and the businesses who received the checks to settle the case out of court through what’s known as a diversion program. In this diversion program, an offender can avoid prosecution by paying the amount the bad check was written for, plus fees, in addition to taking an 8-hour bad-check-offender class at the offender’s own expense. Through this program, people and businesses who receive bad checks can submit a complaint, along with evidence, to the mailing address listed on the DA’s website.

Under California Penal Code 1001.60, the DA is permitted to contract private companies, like CorrectiveSolutions, to help execute this program. However, district attorneys may refer cases to the program only if the check writer is believed to have violated state laws, like intentionally defrauding the recipient. A lawyer with the DA’s office is required to review the cases to ensure they meet various criteria. For example, if a business wants a bad-check writer pursued for violating the law, they must first make attempts to contact the debtor three times before the case qualifies for the program, according to Teresa Drenick, assistant district attorney in Alameda County.

The lawsuit contends that prosecutors have allowed debt collectors to use DA letterhead without first vetting the claim that the debtor violated the law. The American Bar Association recently condemned the general practice of allowing debt collectors to use prosecutors’ letterhead, as it makes the prosecutor “party to deception” and violates Bar Association rules, the association’s Committee on Ethics and Professional Responsibility wrote in an opinion issued Nov. 12. The opinion does not specifically reference California or the district attorneys’ offices mentioned in the lawsuit.

Credit.com reached out to the district attorneys’ offices in the five counties mentioned in the lawsuit (Alameda, Calaveras, El Dorado, Glenn and Orange counties), but only two responded. Joe D’Agostino, assistant district attorney in Orange County, said they’re studying the Bar Association’s opinion.

“The program is run in a method that matches what the statute is,” D’Agostino said, referencing California Penal Code Section 1001.60, which describes the district attorney’s ability to contract the bad check diversion program to a private party. “The Bar Association’s opinion came down fairly recently, so we’re studying it. We always want to follow the rules and follow the procedure.”

Drenick, the assistant DA in Alameda County, wrote in a email statement to Credit.com that CorrectiveSolutions sends the DA’s office a list of cases each month, which is reviewed by the office to ensure the debt is legitimate and would meet legal requirements for pursuing a criminal case. Then, CorrectiveSolutions is given approval to contact the debtor using the DA’s letterhead. She did not specify whether or not an attorney reviews the bad check diversion cases, as the statute requires, and she did not respond to a request for clarification.

“If we agree to allow the case to go by way of diversion, we authorize CorrectiveSolutions to send the check writer a letter on behalf of our DA Bad Check program advising that their check was returned for insufficient funds and offering them the option of participating in the diversion program to avoid criminal prosecution,” Drenick wrote. “It is a well thought-out diversion program. Last year (2013) our program returned $69,132.01 to local businesses as payment on dishonored checks through the Bad Check program. … There is no ‘rental’ of our letterhead; rather, a statutorily-authorized diversion program that helps local businesses collect on bad checks while giving the check writers an opportunity to avoid a criminal conviction/record.”

The future of this practice seems to depend on prosecutors’ reactions to the Bar Association’s opinion and the outcome of this litigation in California. Meanwhile, consumers may remain subject to the debt-collection tactic that the lawsuit is calling into question. CorrectiveSolutions did not respond to multiple requests for comment from Credit.com.

If your state doesn’t have a diversion program like California’s, writing a bad check can still come back to haunt you. If you bounce a check, the recipient may sue you over the unpaid sum, which may result in a judgment on your credit report — a credit score killer. (You’re entitled to free credit reports once a year under federal law and you can get a free credit report summary at Credit.com.) Debt collection can be confusing and intimidating for consumers, even when collectors follow the guidelines in the FDCPA. If you’re dealing with a debt collector, make sure you know your consumer debt collection rights, and form an action plan for paying off your debt.