Orange County D.A.’s office is doing debt collectors’ dirty work

Karen Solberg wrote a check for $75 last year to buy car insurance for herself and her daughter. She subsequently reconsidered and stopped payment on the check.

Solberg, 65, never imagined this could be a crime.

In October 2013, she received a letter from Orange County Dist. Atty. Tony Rackauckas saying that she had been accused of bouncing a check and that she faced the possibility of a year in prison.

On the other hand, the letter said, Solberg could avoid prosecution by signing up for the county’s Bad Check Restitution Program and pay the outstanding $75 plus $210 in fees.

In fact, Rackauckas never saw that letter, nor did any prosecutor in his office. It was sent on the district attorney’s letterhead by a San Clemente company called CorrectiveSolutions.

Solberg is one of several California plaintiffs in a lawsuit against the company filed Monday in U.S. District Court in San Francisco. It alleges that CorrectiveSolutions “uses false and misleading threats of criminal prosecution” to scare people into paying high fees to settle debt problems.

Use of official letterhead is one issue with so-called restitution programs, which are offered by prosecutors nationwide.

Another, at least in the case of Orange County, is that the program is a money loser for taxpayers. This raises questions about why the county is involved in collecting private companies’ debts.

“I’m angriest with the D.A.’s office,” Solberg told me. “I don’t think they should be prostituting themselves in this way.”

These programs aren’t new. I first wrote about the potentially misleading letters in 2008 and pointed out that the fees involved, which are shared by the debt collector and the prosecutor’s office, could be seen as a publicly sponsored shakedown racket.

Last month, the ethics committee of the American Bar Assn. reached a similar conclusion. It said that any prosecutor who provides letterhead to a debt-collection company without first having a lawyer review the case violates the organization’s rules of professional conduct.

Solberg purchased her insurance from the Sacramento office of a Huntington Beach company called Freeway Insurance.

Not long after she stopped payment on her check, Solberg received a notice from a debt collector called FEDChex Recovery seeking the original $75 plus a $25 fee. She ignored it.

Several months later, Solberg received what looked like an official letter from Rackauckas’ office, followed every few weeks by a second, third and final warning, each reiterating that she may have violated the California Penal Code.

Solberg said she called the number on the letter to explain the situation but got nowhere. She was instructed to pay the $285 demanded to make the problem go away. She refused.

Rackauckas says on his website that the Bad Check Restitution Program is intended “to assist local merchants with bad check losses.” If merchants are unsuccessful in recovering disputed cash, they’re instructed to fill out a “crime report form” and send it to a San Clemente address.

Although the address is presented online as belonging to the Orange County District Attorney Bad Check Restitution Program, it’s a private mailbox belonging to CorrectiveSolutions at a shipping-services company called Coastal Postal.

No one at CorrectiveSolutions returned my calls for comment.

Susan Kang Schroeder, Rackauckas’ chief of staff, said bad check restitution programs are intended to streamline the justice system.

“The idea is to keep these cases out of a very crowded court system,” she told me.

That’s all well and good. The problem is that consumers are being misled into believing that they face prosecution when the reality is that they haven’t been charged with a crime.

Joe D’Agostino, the senior assistant district attorney who oversees Orange County’s restitution program, acknowledged that no prosecutor vets the alleged bad checks submitted by merchants. But he said a paralegal takes a look at the documentation.

D’Agostino declined to say what percentage of fees collected by CorrectiveSolutions go to the district attorney’s office. But he said the roughly 7,200 people who enrolled in Orange County’s restitution program last year produced about $38,000 in revenue for the office.

Here’s the thing: That doesn’t come close to covering the public’s cost of the program. The average salary for a California paralegal was $59,030 as of 2011, according to the Bureau of Labor Statistics.

D’Agostino and Schroeder, however, insisted that taxpayers come out ahead because the cost of prosecuting bad-check cases would be even greater.

“We’re not like a for-profit business,” Schroeder said. “We have to take care of these cases. We’re just trying to do it in the most cost-effective way possible.”

That assumes every person who signs up for the restitution program would have faced a criminal prosecution. It’s likely some enrollees are participating out of the mistaken belief that they would be charged with breaking the law if they didn’t.

Many others, such as Solberg, almost certainly wouldn’t face charges once a prosecutor reviewed their situations.

Schroeder hadn’t seen the Nov. 12 American Bar Assn. opinion until I shared it with her. She said her office is now seeking guidance from state bar officials.

In the meantime, Schroeder said, Orange County will have a lawyer be more involved with the restitution program “out of an abundance of caution.”

These programs are hinky from the get-go. Prosecutors are allowing private debt collectors to misrepresent themselves as official entities, and consumers are unfairly being threatened with bogus charges.

If these programs focused solely on making the legal system more efficient, fine. But they seem to exist primarily to do the dirty work for merchants who believe they’re owed some cash.

These companies should do their own debt collecting. Prosecutors should concentrate on enforcing the law.

And if prosecutors can’t tell the difference, they should, as the American Bar Assn. suggested, sign up for some remedial ethics training.

David Lazarus’ column runs Tuesdays and Fridays. he also can be seen daily on KTLA-TV Channel 5 and followed on Twitter @Davidlaz. Send your tips or feedback to david.lazarus@latimes.com.