CorrectiveSolutions' Checkmate

Prosecutors nationwide team up with the San Clemente debt collector to terrorize consumers in ways both highly profitable and usually sketchy

CorrectiveSolutions' Checkmate

Julie Orr has plenty of reasons to bounce a check.

In just a few years, she has gone from running a successful advertising business to being a single mom on disability. Hers is a dilemma of American life: A leg injury keeps her from working, but she can't afford the surgery without health insurance.

Yet Orr says her woes weren't what led her to write a bum check at the grocery store. "Sure, we've fallen on tough times," says the 54-year-old from Riverside. "But I've never bounced a check before in my life. I've always been on top of my finances."

Julie Orr
Rodrigo Peña
Julie Orr
Adam Levin
Adam Levin
Carole Hirth
Will Rice
Carole Hirth

Accidentally overdrawing on a bank account isn't a crime. It is, however, a hyper-lucrative business, allowing banks to collect $30 billion per year in overdraft fees while their customers frantically swim back to the surface. Such is the bounty of faulty math.

Orr was shocked when she received a letter from the Riverside County district attorney's office accusing her of fraud. In May, she had written a check for $91 at an Albertsons. A few days later, while reviewing her bank account, she noticed the check had bounced. Orr headed back to Albertsons to make good on her payment. But she was told the store had already placed her in collections. It was out of the grocer's hands.

A month later, Orr received a letter from the county DA's office. It inexplicably accused her of intent to commit fraud, noting she was now eligible for "up to one year in the county jail." The only way to avoid criminal charges: participate in a "voluntary" bad-check-restitution program.

"The letter really made me think I'd go to jail if I didn't," she says.

But the DA wanted more than the store's $91 back. Though California law restricts the penalty on bad checks to $25, the letter demanded $333.51, which included $175 for a "voluntary" financial-accountability class she'd have to take.

Orr didn't even consider arguing her innocence. She just wanted the problem solved. So she called the 1-800 number on the letter to make arrangements to pay in cash at the sheriff's department. When she was told she could only send a check to a P.O. box, Orr grew suspicious.

"That's when I asked if I was actually talking to someone in the DA's office," she says. "And they said no, that they were a company being paid to represent the DA."

In fact, Orr had contacted CorrectiveSolutions, a private, San Clemente-based company. According to its website, it handles bad-check cases for 140 district attorney's offices nationwide, jurisdictions that oversee 65 million people, from Colorado to Florida, Michigan to Washington.

Consider it the privatizing of justice. Instead of investigating bad-check complaints, prosecutors simply pass them along to CorrectiveSolutions. The company then uses official DA letterhead to threaten jail time if consumers don't pay up. CorrectiveSolutions also runs the "voluntary" financial-accountability classes, and prosecutors get a cut of the profits while barely lifting a finger. The entire system runs on a one-size-fits-all presumption of guilt. No one's bothering to investigate whether the check writer was working a scam or merely suffering from a momentary lapse of mathematics.

Orr emailed CorrectiveSolutions, saying she'd be happy to repay the $91, plus a $50 fee. But she wanted to skip the "voluntary" class. She simply couldn't afford it.

CorrectiveSolutions didn't respond—and the threatening letters kept coming.

"When no one wrote me back, I'd had it," Orr says. "I'd tried everything, even calling the district attorney's office directly. No one could help me. I just don't see how this is right or even legal."

*     *     *

Debtors' prisons were outlawed in 1833, when America decided it was counterproductive—as well as a waste of time and money—to imprison people for being broke. Despite myth to the contrary, most people avoid bills simply because they can't pay them, not because they're on the make.

"There was a [federal] study done in 1974 about why people didn't pay their debts," says Bob Hobbs, deputy director of the National Consumer Law Center. "And the number of people who could but didn't pay their debts was 0.4 percent. . . . The most typical reasons were they lost their jobs, got divorced. Some overspent, but were encouraged to. Others got cheated, and so on and so forth. Some people had even died. It's not right, but it's life. And it's the cost of doing business."

So Congress passed the Fair Debt Collection Practices Act in 1978, barring collections agencies from threatening jail time and deceiving consumers.

"We have members that collect on behalf of the government, from federal student loans to meter fines," says Mark Schiffman of the Association of Credit and Collection Professionals, the industry's largest trade association. "We can't put the logo of a government agency on our letterhead. We can't say we're from the Department of Education. We have to say we're 'ABC,' a company working on behalf of the Department of Education."

Yet Congress created a loophole in 2006, granting what amounts to immunity from deception charges for collection agencies working on behalf of law enforcement.

CorrectiveSolutions paid handsomely for the bill. Between 2003 and 2006, the company spent more than $660,000 on lobbying. It also slathered donations on key senators such as Christopher Dodd (D-Connecticut), who would later leave office after accepting a sweetheart deal from a mortgage company. The exemption essentially allowed such companies as CorrectiveSolutions, BounceBack and Check Diversion Program to operate above the law. They can send out notices on DA letterhead, threaten people with jail time and rake in upward of $200 in fines per person. And it's all perfectly legal.

"While the rest of us are playing by the rules, they aren't," Schiffman says.

Consumer advocates and legal experts were naturally horrified. "You don't hand out guns and badges to just anyone," says Adam Levin, former consumer-affairs commissioner of New Jersey. "And this is effectively creating a gun-and-badge situation for people who frankly not only don't deserve it, but also have a long history of abusing it."

Paul Arons, a Washington state consumer-rights lawyer, agrees. What's startling, he says, isn't the shady tactics of companies such as CorrectiveSolutions; it's the fact that district attorneys, charged with protecting the public good, are abetting the deception. "Check collectors have a long history of running scams such as pretending they'll have people arrested or that they are with government agencies," he says. "I was shocked to find out that prosecutors were actually authorizing check collectors to do this in district attorneys' names."

Congress did include a small caveat in the 2006 bill that was supposed to protect citizens. "The prosecutor must determine that probable cause exists to charge a person with a crime before the program sends the letter," Levin says. Unfortunately, they're universally blowing this off.

Take the Riverside County DA's office. Chief Deputy Vicki Hightower says her program is meant to target bad-check writers who intend to defraud victims, not well-meaning people who accidentally bounce a check. "We understand the concerns people have," Hightower says. "That's why we review the checks before they go to CorrectiveSolutions. And while the correspondence that goes out has our logo, it does say that the program is administered by a third-party vendor."

Yet her words don't appear to match the facts on the ground. In order to open a bad-check case in Riverside County, merchants only need to provide the check writer's information, along with the assurance they tried contacting them at least once. But its own records show it is routinely threatening jail time for people who've done nothing criminal. During the first 10 months of 2012, CorrectiveSolutions sent out 8,973 letters on the county's behalf. Just 23 of those cases were deemed worthy of prosecution.

Florida's Miami-Dade County is even more lax. There, merchants' complaints go directly to CorrectiveSolutions, which then decides which ones merit prosecution. "Our office has set the intake criteria for checks to be accepted into the program," says Assistant State Attorney Marie Jo Toussaint. "This criteria insures that only checks that have violated our Florida statutes are eligible for this pre-arrest diversion program."

Again, the records say otherwise. Of the 1,863 cases opened by CorrectiveSolutions, only 106 were actually filed in criminal court.

"There is no question that defrauding someone is a crime," says Kara Dansky, an ACLU lawyer. "But in these circumstances, there is no evidence that's what happened. People could have written a check on accident, with no intent to defraud. But the DA isn't investigating that. . . . Instead, debt-collection companies are using the auspices of the DA's office to threaten someone with jail when there is no investigation."

*     *     *

CorrectiveSolutions had good reason to buy immunity from Congress. At the time, the industry was losing one class-action lawsuit after another.

In 2004, Kristy Schwarm was a stay-at-home mother of five, with another child on the way. Over the course of one week, the Ukiah mom wrote a check to Walmart for $69.26 and one to FoodMaxx for $83.41, as well as made an ATM withdrawal, according to court records. Unfortunately, the ATM withdrawal overdrew her account, racking up seven rejected checks and 21 overdraft fees totaling $560.

"It had a snowball effect, leaving the account continually overdrawn, even though I made several deposits," Schwarm says in court documents. Her bank erased most of the fees.

But a few months later, Schwarm received a letter from the Mendocino County district attorney. She had been accused of fraud and was ordered to repay the checks, along with penalties and a "diversion fee."

"I was in a panic," Schwarm said in court documents. "I had never been in trouble with the law before. . . . I assumed that I must be in a lot of trouble if I was getting a letter from the district attorney that I could be arrested."

Schwarm called the number on the letter, assuming she was speaking with someone from the DA's office. She promised to pay as soon as she could. But with her husband out of work and eight mouths to feed, she just kept falling further behind. A year later, she still hadn't paid her debts. The letters and phone calls kept coming.

Then she was pulled over in a traffic stop with her six kids in the car. Schwarm was sure it had to do with the letters. "I was terrified. I thought . . . my children were going to see me get handcuffed and taken away," she said. "I was giving my children instructions on calling their father to come pick them up when I found out I was just being warned for not coming to a complete stop at an intersection."

By that point, she was so deep in debt that she filed for bankruptcy. Only after she consulted an attorney did she discover it wasn't the DA sending her all those letters. It was an Arkansas company called District Attorney Technical Services. "The real district attorney had not investigated me or considered filing charges against me," she said.

Meanwhile, the letters kept coming, threatening her with arrest. She eventually became part of a class-action lawsuit filed by Arons, the civil-rights lawyer, against the company's owner, Henry Craighead. The suit claimed that District Attorney Technical Services illegally disguised itself as a government entity in order to extort penalties and fees. In 2011, a federal court awarded 36,000 victims nearly $750,000 in damages.

But it was too late. That same year, Craighead declared bankruptcy himself and only paid $160,000. He's now retired and living comfortably in Oregon, says Arons.

"That's what they do," Arons says. "Whenever we win one of these cases, they declare bankruptcy in order to avoid paying out damages. It's absolutely maddening."

The exact same thing had happened a year earlier, when Arons won a similar suit against American Corrective Counseling Services. A federal court ruled that, despite the company's claims of immunity, it had misrepresented itself, made false threats of prosecution and charged exorbitant penalties.

Once again, Arons' clients were unable to collect on their victory. American Corrective also declared bankruptcy, saying it couldn't repay investors—despite having amassed $47 million in fees over the previous four years.

A few months later, it was back in business, re-formed as CorrectiveSolutions and "free and clear" of all liability, according to court records. And today, it's the biggest bad-check collector of them all.

*     *     *

Mike Wilhelms is president and CEO of CorrectiveSolutions. His LinkedIn profile boasts a photo of a fresh-faced surfer in charge of more than 200 employees. His biggest customers are the DAs of Los Angeles, San Bernardino, Riverside and Orange counties, the latter of which signed a two-year contract in 2011. All are within driving distance of his palm-tree-lined headquarters in San Clemente, where it's clear business is booming.

Consumer-rights lawyers estimate the company sends out around 2 million letters annually. (The company did not respond to repeated interview requests.) The CorrectiveSolutions website does its best to imply it's an arm of law enforcement. A slideshow gently fades in and out with statements about "holding offenders accountable for their actions." An interactive map shows its 140 contracts with DAs nationwide.

Nowhere does it say that most of these "offenders" have never been investigated or formally charged with a crime.

The site boasts dozens of quotes from pleased prosecutors, who sing praises of reduced caseloads and crime rates. Yet Contra Costa District Attorney Robert Kochly offers the most telling endorsement, noting he's grateful for "more revenue to my office."

District attorneys don't pay a cent for CorrectiveSolutions' services. Instead, the company pays them to run bad-check programs. All a prosecutor must do is hand over official letterhead, along with a list of bad-check writers and a bit of "case criteria."

Between 2005 and 2008, Los Angeles County raked in more than $1 million. Miami-Dade made more than $375,000.

When asked whether Miami-Dade's program was little more than a moneymaking scheme, Toussaint balks. "Diverting such cases out of the criminal-justice system gives an individual with no prior record an opportunity to avoid having a criminal record," she says. "It makes the victim receiver of the worthless check whole, and it is done with no cost to the taxpaying citizens of our community. Pretrial diversion programs also allow the courts to focus on other types of criminal activity."

But while prosecutors claim they use collection agencies to decrease caseloads, some companies actually promise to expand them—for the sole purpose of generating more money.

Take BounceBack, the industry's second-largest player. It owns Check Connection and makes no bones that generating fees is mission one.

"Is your program suffering from diminishing checks?" asks the company's website. "Visit Check Connection to learn how you can substantially increase the number of checks in your bad-check program."

The site offers examples from places such as Palm Beach County, Florida, which switched to BounceBack in 2006 after "merchants and other victims were complaining that they felt intimidated by the people administering the program. Check writers complained of strong-arm collection tactics."

Since then, Palm Beach has "passed the $1.5 million mark."

BounceBack won't discuss its business practices, believing it has been unfairly vilified by the media. "The press usually doesn't take anything we say seriously, so we've begun to decline to make comments," says company vice president Gale Krieg.

Still, prosecutors eagerly rise to the industry's defense.

"They're not just some debt-collection company," Louis Alvarez, head of the Los Angeles County DA's check program, says of CorrectiveSolutions. "What they are doing is trying to help us recoup money for victims."

The real victims, at least in Alvarez's mind, aren't math-challenged consumers, but merchants who lose more than $120 billion annually to bad checks, according to the Federal Reserve. He argues that CorrectiveSolutions is simply helping his overburdened and underfunded office get restitution—while "rehabilitating" check writers who are likely guilty of fraud.

"We do get people who made a mistake, he says, "but a good majority of the students who take our class say they just procrastinated and didn't intend to pay until they saw the mail from the DA's office."

Yet once again, internal records dispel any notion of rampant criminality. In 2011, CorrectiveSolutions sent out 33,202 letters on behalf of LA County. Fewer than 1 percent of those cases were actually recommended for prosecution. "They've prosecuted more glue sniffers than bad-check writers in a lot of these counties," Arons says. "This is not an overwhelming problem. The feds keep stats on this, and only one in every 200 checks doesn't clear. And of those, about half clear on redeposit, so we're talking about 0.5 percent of all checks written."

It's hard to fault prosecutors for ridding themselves of a nuisance. Fraud charges require investigations, and most prosecutors have nowhere near the manpower to handle them, admits Scott Burns, executive director of the National District Attorneys Association. "The real issue is that prosecutors' offices are, almost across the board, underfunded, while suffering hiring freezes and, in some offices, up to 30 percent cuts in personnel," he says. "The only logical thing is to prioritize those cases and those issues that are the most important."

But by ridding themselves of a headache, they're creating a new one for consumers, who are presumed guilty without investigation or chance of appeal.

That's the basic sentiment of Ed Griffith, spokesman for the Miami-Dade Office of the State Attorney. He believes that if a check writer ignores contact by a merchant, that's proof enough of a crime. "Your failure to make good on that check is an issue of intent," he says. "The opportunity to make good and not take advantage of that opportunity speaks to your attitude."

Griffith argues that even innocent mistakes merit sentencing to financial-accountability class. "Even if someone says that their child overdrew their account, we believe putting them in a diversion program is the right move," he says.

Yet some believe the classes are just a ruse to generate fees. "Their financial-responsibility class is nothing more than learning how to balance a checkbook," says Adam Levin, New Jersey's former consumer-affairs commissioner. "It's garbage. If people aren't passing a bad check with intent, they shouldn't be going to a class. And if they are, they shouldn't be going to a class; they should be going to jail. Don't tax overburdened consumers with a course that is effectively worthless."

Dansky agrees. "There are far better ways of dealing with the problem," he says. "If the cases are truly baseless, then the prosecutors shouldn't be involved, period. Merchants can use debt collectors directly without getting prosecutors involved."

*     *     *

Joseph Ridout has a hard time believing that so many scam artists have chosen careers in bad checks.

"We believe that very few of the recipients of these letters intended to defraud the merchant," says Ridout, who works for Consumer Action, a San Francisco nonprofit. "It's just people who overdrew their checking accounts with a check. The curious thing is that it's a moment in time when banks have destigmatized overdrawing your account with a debit card. What's the difference?"

In fact, it was banker scheming that landed Carole Hirth in trouble last year. More than a dozen major banks have paid multimillion-dollar fines for reordering purchases and delaying deposits solely to generate overdraft fees. In Hirth's case, PNC was holding her direct deposits until it withdrew her outgoing charges—effectively overdrafting her account so it could charge extra fees.

She knew none of this at the time she wrote a $393.86 check to Dominick's, a Chicago grocery story. The 59-year-old was in the hospital being treated for Crohn's disease when the check bounced. For some reason, the store never tried to redeposit it, which most merchants do. If it had, says Hirth, the check would have cleared. Instead, the Safeway-owned chain sent her a letter.

"I had been back from the hospital for just four days when I checked the mail and thought, 'Oh, my God,'" she says.

Hirth went straight to Dominick's, wrote a new check and paid a $35 bounce fee. She considered the problem fixed. But four months later, she received a letter from the Cook County state's attorney. It said that she'd been accused of deceptive practices and that she faced up to a year in jail and a $2,500 fine. The only way to avoid this fate was to pay $649.86, which included penalties and a diversion course.

"I already paid them," Hirth says. "I contacted [the grocery store's] ethics department and said this was just wrong. I spend enough money there. I told them they should work with me. I told them to look up my Safeway card. I've been shopping with them for the past 30 years!"

Safeway said there was nothing it could do. She'd have to contact the state attorney's office. Hirth called the 1-800 number on the letter but got nowhere. "They accused me of committing a fraudulent act," she recalls. "They said that if I don't pay everything and take their class, I could be arrested and end up in jail. He was very, very mean. I told him that I didn't understand how that could happen. I said I'd already handled it, it should be cleared up, but he just went on and on and on."

Hirth wrote another letter to Safeway, begging the grocer to contact the prosecutor's office on her behalf. The letters and phone calls kept coming. It wasn't until she got in touch with Arons that she discovered she wasn't being threatened by Cook County. It was CorrectiveSolutions, which has contracts with 21 counties in Illinois.

In 2010, yet another class-action suit was filed against the company, this time on behalf of 600,000 victims in California and Pennsylvania. In November, it agreed to pay a $3 million settlement. But because the class was so big, each victim would receive less than $3. A federal court refused the settlement, ordering both parties back to negotiations.

"The litigation has been hard," says Bob Hobbs, deputy director of the National Consumer Law Center. "Either these companies declare bankruptcy, or they just drag these things on forever, and no one gets paid."

*     *     *

As the case languishes in court, advocates hope Congress will finally close the 2006 loophole.

They received a glimmer of hope in October, when President Barack Obama's new Consumer Financial Protection Bureau announced it would be overseeing debt collectors, starting this year. For the first time in history, the feds will require those making more than $10 million per year to supply regular reports to ensure they're not deceiving and threatening consumers.

Still, Moira Vahey, an agency spokeswoman, declined to comment on how it would deal with the bad-check programs.

For now, the only oversight comes from those making money on the deals: the district attorneys themselves. And they show little interest in policing the industry.

Take the Minnesota company once known as Financial Crimes Services. In 2009, it was sued for violating the Fair Debt Collection Practices Act. The company agreed to pay $75,000 in penalties and court costs.

Last year, it changed its name to Check Diversion Program, and it's still operating throughout Minnesota and Wisconsin. "We're not a debt-collection company, but a diversion program," says CEO Scott Adkisson. "We send out approved letters. And it's the DA's decision who gets them, not ours. We just manage the program."

The evidence suggests otherwise. In Minnesota's Goodhue County, the program is run by the Red Wing Police Department, which referred inquiries back to Adkisson. Minnesota Attorney General Lori Swanson would not respond to interview requests, either.

Levin believes this lack of oversight may be the key to dismantling the programs: If prosecutors aren't reviewing the cases, collection agencies aren't legally eligible for immunity.

In the meantime, victims such as Orr, Schwarm and Hirth have little recourse but to hire lawyers, paying thousands to defend themselves for bouncing $50 checks at the grocery store.

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Now this gives more insight as to how thousands of responsible people are becoming homeless. Citizens who've bounced a check are given a choice...jail time or homelessness. Very sad.


I need to clarify that the missed child support payment was not because I was absent-minded, it was because I had been laid off by a real-estate agency, backed by banks which filed bankrupcties that were financed by the U.S. Gov't. So, ultimately, I immediately owed $3,500 for a levy and threatened with jail time that was financed by the U.S. Executive Office.


Please believe her. Stores will not contact you first. And, it's not just happening with stores. It happened to me when I had missed one child support payment. The County levied every penny out of my checking ($700) and savings ($60) accounts, which produced over 21 checks bouncing. I had never bounced a check in my life. Almost immediately, with fees and fines, I owed more than $3,500 for "bounced" checks caused by a levy by the D.A. Then, I was threatened with jail time. The justice system is in the business of framing citizens.


Congress created a loophole in 2006, granting what amounts to immunity from deception charges for collection agencies working on behalf of law enforcement.


Consider it the privatizing of justice. Instead of investigating bad-check complaints, prosecutors simply pass them along to CorrectiveSolutions. The company then uses official DA letterhead to threaten jail time if consumers don't pay up. CorrectiveSolutions also runs the "voluntary" financial-accountability classes, and prosecutors get a cut of the profits while barely lifting a finger. The entire system runs on a one-size-fits-all presumption of guilt. No one's bothering to investigate whether the check writer was working a scam or merely suffering from a momentary lapse of mathematics.


More assaults against poor people -- In 2011, my attorney wrote a bad check for $1500 to me after the Judge ordered him to repay me. I filed a formal complaint to The State Bar of California.  They refused to do anything about it because he eventually made good on the check. He was not required to attend any diversion program.

I say fight it and sue.


From the story "A few days later, while reviewing her bank account, she noticed the check had bounced. Orr headed back to Albertsons to make good on her payment. But she was told the store had already placed her in collections."

While Albertson's certainly has the right to do this, it isn't my idea of good business practice. Why not at least make one attempt to contact the check writer? Have you contacted Albertson's and asked them why they are so quick to refer bad checks for collection?


I noticed that two.  The article also states that in order to open a case in Riverside County, Albertson's had to make at least one attempt to contact the check writer.  Either this lady isn't telling the whole truth or Albertson's didn't follow protocol. 


@gottaknow247"That's when I asked if I was actually talking to someone in the DA's office," she says. "And they said no, that they were a company being paid to represent the DA."

DA sold his letterhead to the highest bidder.


@gottaknow247 The issue is that creditors are turning to prosecutors to collect their debts in order to avoid having to go through the Fair Debt Collection Practices Act. Clearly the woman was at fault for writing a bad check. If Alberston's believed she committed a crime, they should have charged her with a crime. Instead, they used the long-arm-of-the-law to intimidate her into making good on her debt. That's skirting the intent of the Fair Debt Collection Practices Act. (I am not a lawyer so don't quote me on it.)


The issue I raise isn't the debt collection practices, but whether or not we are hearing the whole truth in the way Denise Grollmus tells us.  Did Albertson's try to contact Ms. Orr prior to Ms. Orr reviewing her bank statements or not?  Seems a little extreme on Albertson's part to send a $91 bad check writer to collections.  If Albertson's did try to contact Ms. Orr and those messages were ignored, then I don't see any problem with Albertson's actions.  I didn't read in the story if Ms. Grollmus tried to contact Albertson's for their side of the story.  I think it would be unfair to slander Albertson's based to the testimony of Ms. Orr alone.

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