Check Service Fees may Soon be a Thing of the Past, in California
In a pre-Christmas announcement, it is reported Federal Judge Lawrence K. Karlton, in a 60 page order, ruled that California merchants may not collect service charges from bad check writers just because their businesses prominently post warning signs.
Under Federal law, Karlton is reported to have said, there must be evidence in each instance that a bad-check writer saw such a sign. Typically, stores tack on to the unpaid bill a service fee of $25 to $30 throughout California. This decision would not only affects all retail businesses throughout California, but all collection companies, Check Guarantee companies and even the "District Attorney Restitution programs". DA Restitution programs would be most hard hit, as the collection companies running such programs make their money through a fee for educational services, paid over and above the face amount of the check for which they must make restitution. This of course would eliminate the funds paying for the programs, and filtering back to municipal government.
While widely reported in the California Press, that Federal Judge Lawrence K. Karlton had ruled (Past Tense) that California merchants may not collect service charges from bad check writers, the actual 60 page order, states that this is a matter that will need to be determined at trial. While certain issues were indeed ruled upon by Judge Karlton, as it related to the pending consumer lawsuit, including the fact that a collection agency may be responsible for the actions of their attorney, who is in breech of the FDCPA, he stopped short of ruling as a mater of law that service fees are improper.
In addition, Verification companies such as Check Rite, and Western Recovery Services, which handle low ticket collections for many California merchants, earning only the Check Service Fee, will be deprived of their sole source of income. Some companies have been preparing for the potentiality of this decision for some time. CrossCheck, Inc. and many other top Guarantee companies have reduced or eliminated the check service fees in California over the last two years in anticipation of an unfavorable result. Many questions, of course, remain unanswered. On everyone's mind is whether the decision will be appealed, and if the decision will have any impact on other states. Retailers are already screaming foul. Tony Saca, owner of the Sacramento-based Filco Discount Center, called the ruling unfair, saying bad check writers are a fact of life. "Business is not fun any more. Theft, fraud, bad Visas, bad checks, stolen IDs, we're bombarded with all that." Bob Clifford, owner of three Paper Tree Stationers stores, said customers may soon find themselves facing more paperwork. "We probably will have to come up with a rubber stamp, and stamp it on the back of the check and then have (the customer) sign it, if that's legal." Overall the decision will make a more level playing field, making merchants more interested in Check Guarantee. With this decision, Verification players that have been living on the service fee, will now have to compete with Guarantee companies by taking a piece of the checks they collect, in contrast to remitting 100% of collections to their customers.
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