A federal judge has preliminarily approved a $3.2 million class-action settlement against a collection agency accused of posing as district attorneys to steal more than $20 million in fees from debtors. A hearing for final approval is set for Jan. 31, 2014.
Corrective Solutions had faced federal lawsuits filed in 2010 by consumers in California and Pennsylvania. The class-action case involves more than 500,000 consumers who say they were threatened and intimidated by the collection agency in violation of anti-racketeering laws. Corrective Solutions, formerly National Corrective Group Inc., allegedly ran a "fraudulent and extortionate check-recovery enterprise" between 2004 and 2009, according to the lawsuit.
The company has been at the center of various lawsuits for several years. It filed for Chapter 11 bankruptcy in 2009, allegedly to avoid four class-action lawsuits involving more than a million consumers. The firm reemerged as Corrective Solutions after a series of investor transactions.
Corrective Solutions contracted with more than two dozen district attorneys to collect bounced checks, "often for small amounts for groceries and household items," according to the California lawsuit.?
Consumers reported receiving letters on fake district attorney letterheads threatening them with prosecution and jail time if they didn't pay fees of more than $200 per check. The collection agency further stated that it harnessed "the power of the district attorney's brand" to collect more money than traditional collection agencies, consumers said. Debtors were allegedly tricked into believing the letters were part of an official, outsourced "bad check diversion program."
A four-month investigation by the Boston Globe earlier this year revealed that six district attorneys were involved in the same scheme in Massachusetts. The Globe discovered that the district attorney offices had agreed to outsource bad-check cases to Corrective Solutions and BounceBack, a smaller, Idaho-based company, to save taxpayer money and to free attorneys up for more pressing cases. The district attorneys who used Corrective Solutions terminated their relationships with the company following the Globe's investigation.
The practice also came under fire in Oregon in May.
?Corrective Solutions and its operators "vigorously deny" all allegations of wrongdoing and liability in the settlement documents. They claim that National Corrective Group is not a debt collector, that the collection letters were neither false nor misleading, and that all fees were collected legally.
The class action in California alleges almost $40 million in damages covering about 500,000 individuals. A settlement was first proposed in 2012, but two class members raised objections, forcing the court to reject it. Out of the $3.2 million preliminary settlement, an estimated $700,000 will be used to pay attorneys' fees and other costs associated with the litigation.