Imagine getting turned down for a mortgage or a credit card because once, ten years ago, you failed to make good on a video rental fee. Many consumers found themselves in just that situation after Hollywood Video went bankrupt in 2010, and a collection agency working on the company’s behalf tried to collect $244 million in unpaid debts from 3.3 million consumers.
Now a settlement announced last week by the attorneys general of 46 states bans the agency conducting Hollywood’s collections from using unpaid movie rental fines to hurt consumers’ credit scores. The agreement also forbids collection fees.
“This settlement will provide important safeguards to protect consumers against abusive debt collection practices and will ensure that consumers will not have their credit harmed as a result of any outstanding fees claimed to be owed to Hollywood Video,” Eric Schneiderman, New York’s attorney general, said in a press release.
Hollywood Video and its parent company, Movie Gallery, declared bankruptcy in May 2010. By then consumers owed the company $244 million late fees and fines for unreturned movies, according to the settlement filed last week in Eastern Virginia bankruptcy court.
The chain’s creditors hired debt collector National Credit Solutions, Inc. (NCS) to collect the debts. Soon consumers began complaining to state law enforcement agents that NCS tried to collect late fees that the consumers never owed, on movies they never rented.
[Resource: Get your free personalized Credit Report Card]
The company allegedly made “double charges,” charging customers for both the late fee and the cost of the movie, even when customers had returned the movie. NCS also reported the alleged debts and associated collection fees to the three national credit bureaus, damaging many consumers’ credit scores.
“Collection laws require that consumers have a chance to pay or dispute their debts,” Mary Lobdell, an assistant attorney general in Washington state, said in a press release. “But starting in October, we received a flurry of complaints from Washington residents who told us they didn’t owe the fees or were never informed of these debts before they were reported to the credit bureaus.”
A man in Latham, NY had not visited a Hollywood Video store in 10 years. He applied for a mortgage, only to discover an unpaid debt of $350.18 stemming from a Hollywood Video rental and associated collection fees, according to Schneiderman’s office.
In Washington State, a young woman applying for her first credit card was turned down because NCS had reported her video late fees to the credit bureaus. A man reported that his credit limit was cut from $8,700 to $600 because of NCS’s actions.
The attorneys general’s agreement forces NCS to remove any video-related charges from consumers’ credit reports. It also requires the company to inform consumers of any unpaid debts before trying to collect.
[Resource: What to do if a Debt Collector Calls]
Image: makelessnoise, via Flickr