Check Diversion Programs to be Made Exempt from Debt Collection Laws

In May 4, 2006

If you’re in a type of business that’s subject to government regulation (designed to protect consumers from some of the more abusive practices of your business model), and you don’t like one or two of the laws, just spend a bunch of money lobbying Congress and presto — no more pesky consumer protection laws to worry about. That appears to be what’s going on in the latest Congressional chicanery designed to stick it to the consumer.

The purpose of the legislation in question (already passed in the House and presently under consideration in the Senate) is to make check diversion companies exempt from the Fair Debt Collection Practices Act. A check diversion company is basically a collection company that partners with local District Attorney offices to go after people who’ve written bad checks. Essentially, these private debt collectors are allowed to pretend they work for the public DA when calling or dunning consumers for restitution on bounced checks. Until now, these outfits were regulated under the FDCPA like any debt collector. If this legislative amendment passes, such companies will be exempt from debt collection law. The industry was already rife with deceptive practices and abusive fees. Now, of course, it will get worse — much worse.

Yes, of course you should never write a bad check, and anyone who does it on purpose is an idiot that deserves to get hounded by debt collectors. But this debate is not about the need for personal responsibility. Rather, it’s a debate about the too-comfortable relationship between public officials and private enterprise. Ask yourself whether it makes any sense at all to:

1. Allow private debt collection companies to pretend they work for the DA’s office, using DA letterheads and threatening criminal prosecution when no evidence of fraud has been presented or documented.

2. Allow DA offices to receive compensation from said private companies.

3. Allow check diversion companies to harass consumers with no regulatory restraint on tactics or techniques.

4. Punish (through excessive fees and bogus threats of criminal prosecution) financially challenged consumers who may make the occasional mistake in balancing their checkbooks, or who run their budget so close to the bone that slip-ups are bound to occur once in a while.

The National District Attorneys Association, according to its president, Paul Logli, supports the exclusion of check diversion programs from the FDCPA in order to “protect prosecutors and check-diversion companies from lawsuits.”

Excuse me? Why do we need to be protecting collection firms from lawsuits? Aren’t they big boys? Can’t they stand the heat? What a silly argument. Sure, okay, DAs are overworked by definition. But out-sourcing and allowing private companies to impersonate DA staff? Come on. What’s wrong with this picture? Did I mention that the DA offices also make a profit on the check diversion deals? This whole deal smells pretty rotten.

You know, I often tell my stressed-out clients that we don’t have debtor’s prisons here in the U.S. anymore. I’m starting to wonder how long it will be before I can no longer say that.



  1. Charles says:

    Michelle Singletary, Personal Finance Columnist for
    the Washington Post, in an article published May 6th,
    stated the following:

    “It’s preposterous to amend the Fair Debt Collection
    Practices Act to grant private, for-profit companies
    the same immunity given to state and local prosecutors.
    What won’t be fair is if Congress allows check-diversion
    companies to go unchecked for abusive and unfair practices.”

    Exactly right, although on a technical note the FDCPA is not
    being amended. Rather, legislation is about to be passed that
    makes the check diversion companies exempt from that law. But
    the result will be the same: arrogant, abusive, and deceptive
    collection practices run amok.

  2. […] 3. Congress passed, and President Bush is expected to sign, the Financial Services Regulatory Relief bill, which includes clarifications to the Fair Debt Collection Practices Act. Most of the updates deal with technicalities, such as the language of the “mini-Miranda” warning (”this is an attempt to collect a debt,” etc.), the rules regarding collection activity within the initial 30-day dispute period (collection activity is ok in the absence of a known dispute by the consumer), and whether or not certain forms of communication (privacy notices, 1099-C forms, etc.) constitute debt collection attempts. One of the most important provisions of the bill is the exemption of certain bad check collection firms will not be regulated as debt collectors under the FDCPA. (This is an incredibly bad idea. See my blog post of May 4, 2006 for further info on this point.) Naturally, there was nothing in the bill that benefited consumers in any way. • • • […]

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