Rep. Barney Frank (D-Mass) was persuaded by lobbyists for ACCS and district attorneys to approve an amendment that legitimized ACCS's practices. (WDCPIX file photo)It looks like district attorneys will be able to stay in the debt collection business.

Last month, our investigation showed how prosecutors’ offices in 150 counties were cashing in from a private firm that kicks back a portion of fees it charges for collecting bounced checks.

The tactics used by American Corrective Counseling Services, such as sending threatening letters on DA stationery, caused plaintiffs’ attorneys and consumer advocates to file a series of class-action lawsuits. They were poised for a key ruling when ACCS suddenly filed for bankruptcy in late February, effectively stifling the litigation.

Now it looks as though ACCS will be reborn, free of legal baggage.

A Delaware bankruptcy judge’s decision (PDF) last week allows ACCS to sell its assets to Levine Leichtman Capital Partners, one of the company’s financial backers, "free and clear of all liens, claims, interests, and encumbrances." The ruling came despite a written objection (PDF) from the Office of the United States Trustee, a division of the Department of Justice that enforces bankruptcy laws. "[I]t appears that the sale process will do nothing more than allow the Debtors to cleanse or launder its assets and its business free of the claims of the various class action plaintiffs," the trustee’s office said.

Now, the company is changing its name to American Corrective Group but otherwise will emerge from the bankruptcy virtually unchanged. "All indications are that the same management team will remain in place," said Charles Jenkins, a lawyer for ACCS.

Jenkins said the bankruptcy filing was a reasonable legal strategy to ward off the consumer suits. "A great deal of money was being spent defending these same claims being brought over and over again," he said.

This is not the first time ACCS has gone the extra mile to sidestep the class-action litigation. In 2003, with legal fees mounting on several fronts, ACCS hired a lobbying firm to push Congress for a federal barrier against such lawsuits. The company spent more than $660,000 lobbying over the next three years, according to lobbying disclosure reports.

The lobbyists and local prosecutors persuaded Rep. Barney Frank (D-MA) to offer critical support for an amendment exempting the program from regulation under the Fair Debt Collection Practices Act. The exemption didn’t immediately halt the class-action cases, which are ongoing in four states.

Frank, now the chairman of the House Financial Services Committee, said in a February interview that ACCS's practices deserve to be looked at, but his office has not responded to repeated attempts to find out whether or when the congressman will follow through.

ACCS contracts with DA offices to offer counseling services for people who write bad checks. The company reimburses merchants when it collects, but it also charges fees of up to $200 dollars beyond the amount of the check. The company typically splits administrative fees with prosecutors’ offices; over the past four years, Los Angeles County has received $1 million.

Jenkins said ACCS only sends letters to people who have repeatedly refused to make good on bounced checks. The DAs say the practice frees up resources to handle serious crimes.

The Delaware bankruptcy judge approved the sale of ACCS to Levine Leichtman but issued a temporary stay, which leaves time for the plaintiffs’ attorneys to file an appeal. Deepak Gupta, director of the Consumer Justice Project at Public Citizen, which is a party to the class-action litigation, says lawyers are hoping the Office of the U.S. Trustee will sign on. The office declined to comment.

Gupta also says new litigation against the reorganized company is an option. "The minute they run these programs, they are going to be subject to new lawsuits," Gupta says. "We’re looking into doing that ourselves."