CheckRite, the Utah based Verification and Collection business now owned by National Data Corporation (NDC) of Atlanta, recently agreed to fork over more than $4 million to settle a class action lawsuit. The settlement is the result of a five-year suit, which began with a simple $40 bounced check written by a California woman. That checkwriter, Debbie Newman, was charged service fees which, while legal now, were found to be unlawful at that time.
The judge's finding has since become a standard for defining the controversial Fair Debt Collections Practices Act. Since the case started before California passed its 1996 law permitting service charges, CheckRite was found to be acting outside of the law when they assessed the service charge. In fact, it was this suit that prompted that legislation.
But, while the legislation permitting charges was passed years ago, nothing had been resolved in the class action suit brought against CheckRite for "predatory tactics." On December 29, CheckRiteagreed to pay $4.3 million. $500,000 will go to the plaintiffís attorneys, and the bad checkwriters will each get differing amounts from a couple of dollars to hundreds of dollars.
Who gets the money?
185,000 Californians who paid CheckRite more than the value of a bounced check from September 29, 1989 through December 31, 1996 will receive compensation. Ironically, the woman who started it all did not suffer any damages and is waiving the $2,000 damages she is entitled to as part of the settlement.
How did it all start?
Way back in 1993, Newmanís now-former husband wrote a $40 check to a merchant. When the check was returned NSF, the merchant forwarded the check to CheckRite. Newman received a collection letter on June 24, 1993 which demanded $70, the face value of the check plus a $30 service charge. Two weeks later Newman received another letter from a CheckRite lawyer demanding $190.79, which included $120 in "damages." The last letter Newman received stated that she owed a "settlement amount" of $150 and her "potential liability" was $395. The letter also stated that if the bill was not paid in 10 days, the amount would increase. Newman sent a money order for the original $40. The money order was returned; CheckRite said she owed additional moneys.
Newman was offended by CheckRiteís tactics, which she felt were meant to intimidate her and she complained of harassment and repeated phone calls. So, approximately three months after the bad check was written, Newman hired an attorney experienced in debt collection. Three years later the suit became class action. The lawyers believe that if the checks were simply redeposited, many would clear. They also believe that checkwriters are bullied when it comes to matters of debt collections.
At the crux of this issue is the Fair Debt Collection Practices Act. Collection agencies such as CheckRite donít believe the Fair Debt Collection Practices Act applies to bad-check writers (see FDCPA issue 97:07:01, 97:11:01, 98:11:02) and therefore, it is legal to assess fees. The reason the service charges were in question is that they were ruled illegal in California UNLESS the checkwriter, when writing the check, understood that he or she was signing a contract and expressly authorizing the fee.
Also, at that time California law stated that a consumer has 30 days from the receipt of a certified letter to pay the face amount of a returned check. The letter to Newman was not certified, gave her only 10 days, and included additional fees. (The following year state law permitted debt collectors to assess service charges.)
This ruling may have an effect on not just collection companies but attorneys as well, In this case, not only did CheckRite suffer monetary losses, but the defendantsí former lawyer and others suffered monetary sanctions exceeding $63,000 for their defiant behavior.
Members of the suit should receive the news of the proposed settlement by the end of February. Claims must be filed by June 1. The settlement should receive final approval on June 7.
Paul H. Green
Editor-in-Chief
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