About half of all U.S. states offer some type of Bad Check Restitution Program, and these check recovery services vary in many ways. Some accept NSF, stop payment and closed account checks while others may only offer NSF check collection. You will also find that some have time limits (checks submitted for collection may need to be less than 90 or 180 days old). Some will not accept checks that were written under certain circumstances, including a post-dated check, one that the check writer asked the recipient to hold, or one that was written as an extension of credit.
Generally, enrollment in the program is not an admission of guilt to a crime, and will not result in criminal charges being filed or a criminal record. The check writer is told that if s/he successfully completes all program requirements, the case against him/her dismissed without any possibility of arrest, criminal charges or a record thereafter.
Those failing to complete program requirements are threatened to have their case turned over to the district attorney to be prosecuted like any other criminal case. However, very few checks are ever forwarded to the district attorney, and the liklihood of actual prosecution is remote for most check writers.
Bad Check Restitution Programs have an important place in recovering bad checks. They directly compete with private debt collectors, and have the advantage of being able to send threatening letters on official stationary, telling a check writer that s/he has committed a crime and will likely be prosecuted if s/he does not pay substantial fees and attend a class. They help business literally recover hundreds of thousands of dollars each year throughout the United States. Most Prosecutor offices try to make these programs free to taxpayers (i.e. bad check collection is funded by fees paid by bad check writers). However, in many programs, the check diversion company takes its fees out of the initial payments made by the check writer, so where a check writer only pays the check, and no additional fees, the diversion company ends up charging the merchant a 50% commission.
Many consumer advocates oppose the actions of BCRPs, particularly those operated by private, for-profit companies, stating that bad check writing is not a crime unless the check writer actually intended to defraud the recipient. The writer of the bad check is told that the use of the program is optional, but is falsely threatened that the options are to participate, or risk going to jail. The writer is usually informed within the letter that entering the program is not necessary, and it is permissible to stand trial, even though no charges have been, or are likely to be filed.
Sometimes the program is handled internally by the law enforcement agency itself, which often generates a substantial portion of its overall budget from the check fees that it collects . In many cases, the law enforcement agency signs up with a private collection agency. The private company essentially pays the law enforcement agency a small portion of the fees it collect in exchange for permission to send demand letters on official law enforcement agency letterhead and to threaten to prosecute check writers who do not pay up to $200 in fees, plus the check itself. This is when, in most instances, there was no criminal case to dismiss, and no law enforcement official had reviewed the check writer's file to determine if there was evidence of a crime .
In several lawsuits in federal court in Michigan, California, Indiana, Florida, Iowa and other states, consumers have charged that the program is rife with illegal and unfair collection practices, and is an abuse of government power. In a lawsuit in Iowa, Liles v. American Correcive Counseling, Inc., the check diversion company agreed to refund money to class members. In a lawsuit in Michigan, Gradisher v. Check Enforcement Unit, Inc., 210 F. Supp. 2d 907 (W.D. Mich. 2002), the court ruled that the collection practices violated the federal Fair Debt Collection Practices Act. On May 2, 2008, in Scharm v. Craighead, Civ. No. 05-1304 (E.D.Cal), the United States District Court ruled that the bad check restitution program that was operated in two dozen California counties violated the Fair Debt Collection Practices Act in a variety of ways, including making false threats of prosecution, and charging illegal fees.