Bad Check Restitution Program - Lawsuits Against BCRPs

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.