Issues Raised by the Use of DA Office for Collection Purposes

Anonymous

Mon, 09/17/2012 - 07:29

Contractors and Vendors

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 href="http://www.nytimes.com/2012/09/16/business/in-prosecutors-debt-collecto…; target="”_blank”">A
front-page story in the New York Times yesterday</a> 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:<blockquote>

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</blockquote>

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 
 
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