CFPB sues operator of bad-check pretrial-diversion programs for engaging in unlawful debt collection practices

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In a new lawsuit filed in a Missouri federal district court, the CFPB alleges that BounceBack, Inc. violated the FDCPA and CFPA in connection with its operation of bad-check pretrial-diversion programs on behalf of more than 90 district attorneys’ offices throughout the United States.  Such programs require the writer of a dishonored check to pay the debt and also enroll in, pay for, and complete a financial education course.

According to the allegations in the Bureau’s complaint, dishonored checks are submitted to BounceBack by merchants primarily through its affiliate, Check Connection, Inc. (CCI).  After a merchant submits a dishonored check to CCI, CCI adds it to a list of dishonored checks by jurisdiction that is sent to the pertinent DA for review.  In nearly all cases, BounceBack attempts to enroll the check writers in a pre-trial diversion program without receiving further direction from a DA to do so.  BounceBack then sends letters to the check writers on DA letterhead in an effort to collect the outstanding debt and enroll them in a financial education course.  The Bureau alleges that the letters tell the check writers that they could face criminal prosecution and conviction, but can avoid prosecution by paying the amount of the dishonored check, along with certain fees, and completing a financial education course.  If the check writer pays these amounts, BounceBack sends the amount of the dishonored check to the merchant, pays a fee to the merchant and DA, and keeps the balance.

The FDCPA, at 15 U.S.C. 1692p, excludes an entity operating a bad-check diversion program through a contract with a DA from the definition of a “debt collector” if the operator satisfies certain requirements.  Such requirements include:

  • The operator may only contact the check writer for purposes of participating in the program if there has been a determination by the DA “that probable cause of a bad check violation under State penal law exists, and that contact with the alleged offender for purposes of participation in the program is appropriate.”
  • The initial written communication sent by the operator must include a clear and conspicuous statement that contains certain information, including that if the check writer notifies the operator or DA in writing, not later than 30 days after being contacted for the first time that there is a dispute, the DA or an authorized employee of the DA must make a determination that there is probable cause to believe that a crime has been committed before further restitution efforts are pursued.

In the complaint, the CFPB alleges that BounceBack is a debt collector subject to the FDCPA because as a result of not complying with the foregoing requirements, it is not eligible for the exclusion provided by Section 1692p.  The CFPB alleges the following FDCPA violations by BounceBack:

  • Violation of the FDCPA provisions prohibiting a debt collector from falsely representing that nonpayment of a debt will result in arrest or imprisonment or from threatening to take any action that cannot legally be taken or is not intended to be taken.  The CFPB alleges that BounceBack represented to check writers that nonpayment of a debt would result in arrest in or imprisonment when, in fact, neither BounceBack nor the DAs intended to take such action.
  • Violation of the FDCPA provisions prohibiting the use of any written communication that simulates or is falsely represented to be a government document or the use of any business name other than the name of the collector’s business.  The CFPB alleges BounceBack represented that written communications sent to check writers were issued by a state official or agency when, in fact, the communications were from BounceBack which used the names of the DAs in attempting to collect the debts.
  • Violation of the FDCPA provision prohibiting the use of any false representation or deceptive means to collect a debt.  The CFPB alleges BounceBack falsely represented that the failure to pay a dishonored check and other amounts and complete the financial education course would lead to criminal prosecution when in fact it would not for the vast majority of check writers. It also alleges that BounceBack designed its collection letters to appear to come from DAs when in fact they did not.
  • Violation of the FDCPA provision prohibiting a debt collector from failing to include certain disclosures in the initial written communication.  The CFPB alleges BounceBack did not include the required disclosures in its initial communications.
  • Violation of the FDPCA validation notice requirement.  The CFPB alleges BounceBack failed to make the disclosures required to be included in the validation notice.

The CFPB also alleges that BounceBack engaged in the following deceptive acts or practices in violation of the CFPA UDAAP prohibition: (1) making false threats that non-payment of the amounts sought to be collected would result in prosecution, (2) falsely representing that failure to complete the financial education course would result in prosecution, and (3) sending letters that gave the false impression that they were sent by a DA.  In addition, the CFPB alleges BounceBack’s FDCPA violations constituted violations of the CFPA.

The complaint seeks injunctive relief, as well as damages, consumer redress, disgorgement, and the imposition of a civil money penalty.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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