CFPB Takes Action against 'Bad Check' Debt Collector for Using Deceptive Threats
The Consumer Financial Protection Bureau (CFPB) has announced an enforcement action against a nationwide debt collection operation and its chief executive officer for using deceptive threats of criminal prosecution and jail time in order to intimidate consumers into paying debts for bounced checks.
The CFPB says that the company, National Corrective Group, also misled consumers into believing that they must enroll in a costly financial education program to avoid criminal charges.
The proposed order, if approved by a federal district court, would put an end to the illegal activities, impose a civil money penalty of $50,000, and require new consumer disclosures and stronger oversight of the bounced check program.
"National Corrective Group masqueraded as prosecutors and used deceptive tactics to intimidate consumers into paying hundreds of dollars in extra fees to avoid potential criminal prosecution," said CFPB Director Richard Cordray. "Today we are taking action to put a stop to these illegal debt collection practices."
The CFPB's proposed order names National Corrective Group, a privately-held, California-based corporation that operates nationwide and specializes in the collection of consumer debt for bounced checks. The order also includes several related entities that purchased all the contracts and assets of National Corrective Group and took over its operation during the course of the CFPB investigation. These companies are Victim Services Inc. and American Justice Solutions, Inc. Together, these companies operate one of the largest bad check diversion programs in the United States.
Mats Jonsson, National Corrective Group's Chief Executive Officer, is the senior company executive in charge of the daily operations of its bad check diversion programs and continues to operate Victim Services Inc. and American Justice Solutions, Inc.
State and district attorneys' offices often offer diversion programs to people accused of writing bad checks as a way for the individuals to avoid criminal prosecution. Many bad check diversion programs are run by companies that enter into contracts with state and local prosecutors' offices to collect bounced check debt. Under the law, a company operating a bad check diversion program cannot contact a consumer about the program until a prosecutor's office has reviewed the case and determined the consumer is eligible. The law also requires these companies to inform consumers of certain rights, including their right to dispute allegations of bad check violations.
The CFPB alleges that National Corrective Group deceived consumers by sending them notices on prosecutors' letterheads and creating the false impression that consumers may be prosecuted for writing bounced checks. The letters were also sent to consumers before any district attorney had determined prosecution was likely.
Consumers were told by the company that to qualify for the diversion program and avoid prosecution they must pay the bounced check debts as well as enroll in the company's financial education class for an additional fee. The cost of the financial education classes were typically around $200, which was often several times the amount of the alleged bad check debt.
The CFPB says that National Corrective Group violated the Fair Debt Collection Practices Act (FDCPA). Among other things, the FDCPA prohibits making misrepresentations to or deceiving consumers. The Bureau also says that the company violated the Dodd-Frank Wall Street Reform and Consumer Protection Act, which prohibits deceptive acts or practices in the consumer financial marketplace.
If approved by the court, the order against National Corrective Group and its related entities would: 1) end deceptive communications to consumers; 2) prohibit threats of imprisonment and other intimidation tactics; 3) prohibit use of district attorney letterhead; 4) require increased program oversight; 5) impose a $50,000 civil penalty.
The CFPB complaint is available here:https://files.consumerfinance.gov/f/201503_cfpb_complaint-national-corrective-group.pdf
The proposed order is available here:https://files.consumerfinance.gov/f/201503_cfpb_proposed-order-national-corrective-group.pdf