Issues Raised by the Use of DA Office for Collection Purposes

Many ethics codes expressly state that government officials and employees may not allow the use of city stationery for any purpose other than city business. The principal goal of this rule is to prevent officials from using city stationery for personal purposes, such as campaigns, business transactions, and charitable solicitations. The rule is part of the more general prohibition of the misuse of city resources and of the city's power and reputation as the manager of the community.

A front-page story in the New York Times yesterday looked at an unusual use of local government stationery that is not for personal purposes, but is still questionable. The business transactions in which the stationery is used also raise questions involving oversight, preferential treatment, procurement, and even fraud.

Hundreds of district attorneys across the country have entered into a business relationship with companies that seek to collect on bounced checks given to stores and other businesses. What DAs refer to as a "public-private partnership" allows the companies to send letters on DA stationery with DA office signatures to individuals whose checks have bounced (an example is attached; see below). A portion of the fees collected for the bounced checks, and for a financial accountability class that is said by the letters to be required, is given to the DA offices.

Use of Stationery
Should a local agency ever allow a private company to use its stationery? I can think of instances where this would be acceptable. A public relations consultant is brought in to write press releases for a local government tourism effort. The press releases would go out on the tourism agency's stationery. There are many situations where consultants and other contractors do government work in government offices, under the supervision of government officials or employees, and write letters and distribute reports on government stationery. In fact, until recently I administered the New Haven Democracy Fund as a contractor and sent letters and reports on Democracy Fund stationery. But all these situations involve government decisions to hire specialists to help with government work.

Oversight
It is essential that there be supervision by officials or employees of any use of government authority including, as here, stationery and the power of arrest. Anything that goes out on government stationery should be reviewed and approved. The agency under whose name the letter or report is going out must take full responsibility for the content, as well as for the audience for the letter or report. That is why the letters and reports I sent out were cc'd to the board who hired me and, when anything was important, were first approved by the board or, at least, by its chair.

From what I've seen, the collection companies have a basic spiel that does not change depending on the DA they are working with. In other words, the letters do not appear to be a collaboration, but a process that is contracted out without supervision.

What stands out from the letters is not the attempt to collect payment on a debt, which seems reasonable. Even the $50 "administrative fee" (which can be several times the amount owed) does not seem too out of line with bounced check fees. What stands out is "Step 2" of the "Bad Check Restitution Program," a $150 Financial Accountability class, which although "voluntary" is said to be required to "prevent the possibility of further action" by the DA office. This is a huge expenditure for the average person whose check has bounced. These are not dangerous drivers or others dangerous to society, and there is no requirement that the individual be a repeat offender for such a class to be required. One mistake is enough. This is something a company would want to require in order to get more business, not something a criminal enforcement agency would require of individuals who may have done nothing or are first offenders.

As someone who paid her debt and fee under this program, but refused to take the class, told the reporter, “If I meant to bounce this check like a criminal, why do I need a class on budgeting?” In other words, the class is not part of the criminal justice system. Therefore, the system should not be involved in what is essentially a heavy-handed marketing campaign for the class.

The reason for the apparent lack of oversight that allowed such a class to be required, besides what usually occurs when government work is farmed out, is that the whole purpose of the enterprise, from the DAs' point of view, appears to be getting something for nothing. A former DA who, according to the article, is considered the father of this relationship with collection companies, says that DA offices were being overwhelmed by the influx of bad-check reports. Having them handled by collection companies "was a way to deal with a fairly serious nonviolent crime going on in the business community, but not overburden the court system or the resources of the district attorneys."

Misuse of the Authority of the DA's Office
This makes sense. What doesn't make sense is allowing collection companies to, by using DA stationery and a DA official signature (that is, the authority of the criminal justice system), imply that the recipient of these letters (1) might be guilty of a crime and (2) will be prosecuted if they do not comply. None of the situations had been investigated, either by the DA office or the collection company.

According to the article, only .1% of bounced check cases are referred for potential prosecution. In other words, the threat of prosecution is not honest. The letters use the authority of the DA's office to make money for their clients, themselves, and the DAs.

Preferential Treatment
Also involved in this public-private partnership is preferential treatment. A lot of businesses seek collection of debts owed, and yet local governments do not offer them the same deal. Should DA offices loan the authority of their stationery and signature to every business that is seeking to collect a debt, directly or for a client? If so, then why show preference to these particular national collection companies? By doing so, there is an implication that, to be able to employ the authority of the DA's office, one must pay the DA a portion of the take. And when preferential treatment like this is given, there is an appearance of impropriety that places the transaction into question and raises the question whether other incentives may have been provided to the DA offices or individuals involved, such as gifts and secret kickbacks.

If a government agency decides that it is valuable to bring in a company to do its job better, then it should do this across the board. It should set the terms, write specifications, and hold a competitive bid. Instead of taking a portion of fees that are involved, it should get the best work at the least expensive price.

Procurement Processes Could Not Be Followed
However, this could not be done here, since the work was not government work. DA offices weren't involved in the collection of consumer debt or in financial accountability classes before the collection companies came along with their offer. Instead of the government contracting out a government service, the DA offices are effectively the contractors, contracting out, on a preferential basis, the government's authority in order to intimidate people not only into paying a debt owed, but into paying a large fee and taking an expensive class. Therefore, the usual procurement procedures could not be followed.

The question is, should there have been a contract at all? Is the appearance of the misuse of government authority, of favoritism, and of kickbacks, personal or governmental, sufficient to justify such a transaction?

Fraud
Making the transaction even more questionable is the issue of fraud. Collection companies come to DAs with a win-win proposition (see below for an attached DA office press release lauding the program). Their goal is to get their clients paid and make as much money as they can. A hefty collection fee should be enough for this purpose, but the idea of a financial accountability class, with each student paying $150 and each teacher getting $90 for the class (according to a job posting I found online), is a great one for business. But who would take such a class if it did not appear to be required to keep the DA from going after you.

Class action lawsuits have been filed against the collection agencies. One settlement agreement says that the following allegations were made:

Violation of the federal Fair Debt Collection Practices Act, 15 U.S.C. § 1692, et seq. (the “FDCPA”)

Violation of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1962, et seq. (“RICO”)

Violation of a state Fair Credit Extension Uniformity Act and an Unfair Trade Practices and Consumer Protection Law

Intentional and negligent misrepresentation

A DA office should not be involved in a transaction that could violate these laws or involve misrepresentations. Nor should it risk the appearance of impropriety in the use of government authority, act in ways that favor certain companies, or involve itself in any program where it is not willing to provide oversight generally and for each case, at least where criminal enforcement may be involved. And any contract that does not or cannot follow proper procurement processes should be assumed to be inappropriate unless there is an emergency or there are very strong reasons that have been presented honestly and openly debated in public.

Robert Wechsler
Director of Research-Retired, City Ethics

---