Bad check restitution program

A bad check restitution program (BCRP) is a program that works to retrieve funds from bad check writers in order to repay moneys owed to the recipients of the checks. In other words, these are debt collection operations. Many of these programs are operated by private companies that add fees that may exceed $200, regardless of the amount of the check. They call thees operations "bad check enforcement," or "bad check restitution," or "bad check diversion." Sometime, these programs are actually run in house by realprosecutors. The private companies send check writers letters which state basicallly, that to avoid being prosecuted, the check writer may enroll in an expensive diversion program. In most instances, the prosecution threats are false and made only to coerce payment of high fees.

Very few states have laws that specifically permit district attorneys to allow private collection agencies to collect checks in the district attorney's name. About half of all U.S. states offer some type of Bad Check Restitution Program, and these services vary in many ways. Some accept NSF, and closed account checks while others may accept stopped payment checks and markers. It will also be noted that most have time limits (checks may need to be less than 90 or 180 days old and most need to be at least 30 days old and have had to have notice to check maker that the check has been returned unpaid with a demand for payment in a specified time). Some will not accept checks that were written under certain circumstances, including a post-dated check, one that the check writer asked the recipient to hold, or one that was written as an extension of credit.

Methods

A Bad Check Diversion Program generally pursues the bad check writer by stating (typically from the local District Attorney's office) that the check writer has committed a criminal act, and is subject to prosecution. The check writer is told that s/he may avoid prosecution by meeting the guidelines of the program, which generally include the payment of all monies owed to the victim, a program fee, and in some jurisdictions, participation in a course designed to improve the check writer's habits.

Typically, the letters are sent to the check writer without a prosecutor ever having reviewed any evidence or considered whether the check writer committed a crime. These are highly automated operations in which large retailers and collection agencies transmit masses of computer data directly to the private company that is trying to collect the check, using the prosecutor's name and authority. Generally, enrollment in the program is not an admission of guilt to a crime, and will not result in criminal charges being filed or a criminal record. The check writer is told that if s/he successfully completes all program requirements, the case against him/her dismissed without any possibility of arrest, criminal charges or a record thereafter.

Bad Check Restitution Programs compete directly with private collection agencies. They claim that they can recover more successfully than private collection agencies, because they have "the power of the DA brand." They help businesses recover hundreds of thousands of dollars each year throughout the United States. Most Prosecutor offices try to make these programs free to taxpayers (i.e. bad check collection is funded by fees paid by bad check writers).

Criticism of BCRPs

According to law enforcement agencies and district attorneys, BCRPs are diversion programs operated by the county, state, or other jurisdiction that are responsible for collecting funds owed to victims . They claim the purpose is to recover the losses of the victims.

Many consumer advocates oppose the actions of BCRPs, particularly those operated by private, for-profit companies, stating that bad check writing is not a crime unless the check writer actually intended to defraud the recipient. The writer of the bad check is told that the use of the program is optional, but is falsely threatened that the options are to participate, or risk going to jail. The writer is usually informed within the letter that entering the program is not necessary, and it is permissible to stand trial, even though no charges have been, or are likely to be filed.

Sometimes the program is handled internally by the law enforcement agency itself, which often generates a substantial portion of its overall budget from the check fees that it collects . In many cases, the law enforcement agency signs up with a private collection agency. The private company essentially pays the law enforcement agency a small portion of the fees it collects in exchange for permission to send demand letters on official law enforcement agency letterhead and to threaten to prosecute check writers who do not pay up to $200 in fees, plus the check itself. This is when, in most instances, there was no criminal case to dismiss, and no law enforcement official had reviewed the check writer's file to determine if there was evidence of a crime .

Lawsuits against BCRPs

A number of lawsuits have been filed challenging the legality of these programs.

On December 13, 2010, a California jury returned a verdict in favor of the plaintiffs, but awarded only $12,000 in damages. The defendants, who were sued in a 670,000-person class action brought in the United States District Court for the Northern District of California.

The case was brought by class members who had been falsely told that to avoid prosecution, they had to participate in a "District Attorney Bad Check Restitution Program." The plaintiffs claimed they were entitled to return of fees they paid into the program to avoid prosecution, asserting that the notice letters mailed by the defendants violated Federal fair debt collection standards because they contained a false threat of prosecution and demanded payment of illegal fees.

In closing arguments, counsel for the plaintiff class contended that trial made legal history and that it was the "largest FDCPA class action ever tried."

In a lead up to the trial, on June 3, 2010, a California federal court ruled that defendants violated federal and state law by operating a bad check restitution program in which they sent letters on district attorney letterhead, threatened proseuction and charged fees for a "diversion class." (del Campo v Mealing, 5:01-cv-21151, (USDC ND Cal.). After both the plaintiffs and defendants complained about the verdict, the judge in the case ordered a new trial.

In most states, it is not a crime to write a check that does not clear, unless at the time the check is written, the check writer knows that it will not clear, and is intending to defraud the merchant. Criminal intent may be determined by circumstantial evidence, such as an established pattern of writing bad checks and not paying them, or writing a series of checks on a closed account. The check writer's explanation for why the check did not clear must be considered in deciding whether there was criminal intent. .

In several lawsuits in federal court in Michigan, California, Indiana, Florida, Iowa and other states, consumers have charged that the program is rife with illegal and unfair collection practices, and is an abuse of government power. In a lawsuit in Iowa, Liles v. American Correcive Counseling, Inc., the check diversion company agreed to refund money to class members. In a lawsuit in Michigan, Gradisher v. Check Enforcement Unit, Inc., 210 F. Supp. 2d 907 (W.D. Mich. 2002), the court ruled that the collection practices violated the federal Fair Debt Collection Practices Act. On May 2, 2008, in Schwarm v. Craighead, Civ. No. 05-1304 (E.D.Cal), the United States District Court ruled that the bad check restitution program that was operated in two dozen California counties violated the Fair Debt Collection Practices Act in a variety of ways, including making false threats of prosecution, and charging illegal fees. In Smith v. Levine Leichthman Capital Partners, et al. Civ. No. 10-0010 (N.D. Cal.) and Shouse v. National Corrective Group, Inc., Civ. No. 10-0175), the defendants agreed to a $3,000,000 settlement, but the court rejected the settlement because it was inadequate. A lawsuit brought in Indiana was dismissed after the corporate defendant went bankrupt and the court ruled that the individual defendants were not personally liable.

See also

• Shared Check Authorization Network
• ChexSystems
• Cheque fraud

External links

• National Check Fraud Center - explains the laws pertaining to bad checks in all 50 states.