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War On Over Sneaky Debt-Collection Tactics

SAN FRANCISCO (CN) - A federal judge refused to dismiss claims that a California company unfairly collects debts by paying district attorneys for use of their seals and letterheads.

In the federal class action, lead plaintiff Kevin Breazeale alleged this practice by CorrectiveSolutions disguises private debt collection as law enforcement and scares consumers into believing that they are the subject of real criminal proceedings.

According to the lawsuit, the company usually receives referrals from retailers and private collection agencies, not from district attorneys. Their referral sources include national retailers like Target and Safeway and large debt-collection entities like Telecheck and Certegy, the complaint says.

U.S. District Judge Vince Chhabria denied CorrectiveSolutions's motion to dismiss the lawsuit.

Although the company argued it was excluded from the definition of a "debt collector" under to the Fair Debt Collection Practices Act, Chhabria said it does not qualify for the exclusion because in order to do so, "a private entity contracting with a district attorney's office to administer a bad check diversion program may only send an alleged offender a letter if the district attorney has found probable cause of a bad check violation."

"The complaint plausibly alleges that the defendants did not effectively implement the measures imposed by district attorneys, and that the defendants did not do so for the named plaintiffs in this case," he wrote.

Chhabria also said that the plaintiffs' fraudulent misrepresentation claim survives "because it's plausible, based on the allegations in the complaint, including allegations about the defendants' history of violating the statute, that the defendants knew they were violating the FDCPA and knew they were misleading people by sending them letters implying that they would be prosecuted if they didn't participate in the diversion program."

He also declined to strike the case under the anti-SLAPP statute - which prevents lawsuits intended to silence critics by burdening them with the cost of legal defense - because the claims to which that statute is applicable "satisfy all the conditions necessary to fall within the statute's exemption for 'action[s] brought solely in the public interest,'" the opinion stated.

Neither side could be reached for comment on Friday.

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