CFPB turns tables on debt collector masquerading as prosecutor

By Katalina M. Bianco, J.D.


The Consumer Financial Protection Bureau has sued a debt collector for allegedly, and illegally, threatening consumers with lawsuits related to their debts. What goes around, comes around? According to the CFPB, the debt collection company threatened criminal prosecution and jail time by creating a false impression for consumers that its communications were from a state or district attorney’s office in order to intimidate them into paying debts for bounced checks. The nationwide debt collection operation and its chief executive officer also are charged with misleading consumers into believing that they must enroll in a costly financial education program to avoid criminal charges.


CFPB allegations. The CFPB alleges in its complaint that National Corrective Group, Inc., a privately-held, California-based corporation that operates nationwide and specializes in the collection of consumer debt for bounced checks, deceived consumers by sending them notices on prosecutors’ letterheads and creating the false impression that consumers may be prosecuted for writing bounced checks. However, the letters went to consumers before any district attorney had determined prosecution was likely. Consumers were told by the company that to qualify for the diversion program and avoid prosecution, they must pay the bounced check debts as well as enroll in the company’s financial education class for an additional fee. The cost of the financial education classes were typically around $200, which was often several times the amount of the alleged bad check debt.


The charges also include several related entities that purchased all of the contracts and assets of National Corrective Group and took over its operation during the course of the CFPB investigation. These companies are Victim Services Inc. and American Justice Solutions, Inc. Mats Jonsson, chief executive officer of National Corrective Group, is specifically named in the suit.

The CFPB alleges that the debt collectors violated the Fair Debt Collection Practices Act (15 U.S.C. §§ 1692e and 1692g) which prohibits making misrepresentations to or deceiving consumers. The CFPB also alleged that the defendants violated the Consumer Financial Protection Act (12 U.S.C. §§ 5531 and 5536) which prohibits deceptive acts or practices in the consumer financial marketplace.

Proposed order. The proposed order would require the companies and Jonsson to pay a $50,000 civil penalty. The poor financial condition of the companies and Jonsson make them unable to pay a greater sum. In addition, the proposed order would prohibit the companies from stating or implying that they are a state or district attorney, using district attorneys' letterheads, and duplicating DA signatures. The companies would also have to stop falsely representing to consumers that failure to pay a debt or enter the bad check diversion program will result in their arrest or imprisonment. The companies would be required to disclose to consumers that the prosecutor's office had not made a decision about whether to charge the consumer with a crime and that many cases are not prosecuted.

The proposed order also states that the companies agree to be subject to the CFPB's supervisory authority under the CFPA for three years from the effective date of the order.


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