Unauthorized Check Fee FDCPA violation??

Posted by Bob3 (205.174.22.20) on January 26, 2004 at 21:37:30:

Lawsuit in Federal Court Tests Unauthorized Electronic Collections

January 26, 2004 — HATTIESBURG, MS - A class action lawsuit in federal court here challenges the alleged practice of tapping electronically into consumers' bank accounts to recover service charges for checks that have bounced without first notifying or getting permission from the account owner.

Because this is a case of first impression, meaning that neither state nor federal courts have ruled on the questions raised in the case, it has the potential to be of national significance, according to lawyers involved in the lawsuit.

Plaintiffs are consumers who claim that, without permission or any notification, collection agencies are taking money from their checking accounts for service charge penalties - typically in the amount of $25 or $30 - on checks that were returned for insufficient funds. The defendant, CheckAGAIN, LLC, is one of a group of companies that the plaintiffs say electronically re-present checks returned for insufficient funds and then, without permission from the check writer, collect the service charge penalties on behalf of merchants to whom the checks were written.

At issue are the authority and the notice necessary before a merchant or its collection agency can dip into private banking accounts to recover service charges on checks returned for insufficient funds and whether taking such a service charge requires the giving of notice to and receiving of permission from the account owner.

“The practice of using paperless electronic communication to dip into a person's bank account to recover funds without meaningful notice and permission from the account owner is wrong — even if the person whose account is being zapped did write a bad check,” says J. Cal Mayo, Jr., lead attorney for the plaintiffs. “As you would expect, state and federal laws do not authorize the taking of money from a person's checking account without prior permission, even if modern technology makes it possible.”

Mayo explains that both the federal Fair Debt Collection Practices Act and the rules of the National Automated Clearing House Association, as well as statutes in many states, provide clear-cut procedures to recover bad checks and related service charges. But some companies ignore these procedures, he says, in part because of the technology now available that makes electronic collection possible for anyone with a computer and access to bank routing and checking account numbers.

In the class action, the plaintiffs allege that the practices of the defendant and other companies that may utilize similar electronic collection procedures violate the federal Fair Debt Collection Practice Act (FDCPA) by essentially doing away with notice. The lawsuit also alleges violation of industry rules which require written authorization for electronic debits against a checking account.

The plaintiff’s pleadings specifically refer to FDCPA sections which prohibit a debt collector from engaging in “any conduct the natural consequence of which is to harass, oppress, or abuse;” which preclude the use of any “false, deceptive, or misleading representation or means in connection with the collection of any debt;” which prohibit “the use of unfair or unconscionable means by a debt collector to collect a debt;” and which require that collection agencies give check writers written notice of their rights, including the right to dispute the debt and to have the debt verified.

Defense briefs in the case make it clear that “electronic collection” companies view themselves as intermediaries and not collection agencies. Furthermore, they cite signage in and around areas where customers pay for purchases as proof of notice that merchants may access accounts to retrieve funds and penalties owed them. They also cite commentary to a federal rule dealing with electronic transfers of funds as authorizing withdrawal of funds on re-presentment when “the consumer has received notice that a fee imposed for returned checks will be debited electronically from the consumer’s account.” This requirement is met, according to the defendants, by the posting of signage at points of sale. They also say they fall within an exception to the rule, specifically that the debt is not recurring and therefore they may withdraw funds without notice.

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