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Consumers Can Sue Debt Collector, Federal Court Rules

Feb. 7, 2008

Consumers Can Sue Debt Collector, Federal Court Rules

Public Citizen Wins California Consumer Case on Appeal

WASHINGTON, D.C. –  In a win for consumers, a federal appeals court ruled Wednesday that a private California debt collector can be sued for its overly aggressive tactics, even though the company is working on the behalf of local prosecutors.

The company, American Corrective Counseling Services Inc. (ACCS), is a so-called “check diversion” company, meaning that it uses its contract with local prosecutors to send out letters on official stationary threatening consumers who have written bad checks with criminal prosecution or jail unless they pay collection fees.

The company then gives the prosecutors a share of its revenues. In the suit, Del Campo v. ACCS, California consumers represented by Public Citizen claim that ACCS’s threats of prosecution violated their rights under state and federal consumer protection laws. A lower court had ruled in 2006 that the company did not have sovereign immunity – a protection given to branches of state government. ACCS appealed and the case was argued in front of the U.S. Court of Appeals for the Ninth Circuit in San Francisco in September.

In rejecting the company’s claim of sovereign immunity, the Ninth Circuit characterized sovereign immunity as “strong medicine” that should be carefully limited, especially in the case of private corporations that are not accountable to the public. The court called the argument that a private company could enjoy state sovereign immunity a “category error,” like “inquiring into the gender of a rock or into which day of the week is reptilian.”  

ACCS has insisted throughout the litigation that it is not a debt collector and is therefore not covered by federal law protecting consumers from abusive collection practices. But in its ruling, the court described ACCS’s practices as “debt collection rather than law enforcement.” 

“In an era of increasing privatization of public functions – from private prisons to Blackwater in Iraq – this decision is an important reminder that private contractors will be held accountable by the courts,” said Deepak Gupta, the Public Citizen attorney who argued the case on appeal. “They can’t simply hide behind the cloak of government authority.”

Public Citizen’s lawyers are joined in the case by attorney Paul Arons of Friday Harbor, Wash. The case will now go back to the district level so the court can decide the merits of the suit.

READ documents related to the case.